Rating Rationale
August 16, 2024 | Mumbai
Mukand Limited
Ratings reaffirmed at 'CRISIL BBB+/Stable/CRISIL A2'
 
Rating Action
Total Bank Loan Facilities RatedRs.1585 Crore
Long Term RatingCRISIL BBB+/Stable (Reaffirmed)
Short Term RatingCRISIL A2 (Reaffirmed)
 
Rs.75 Crore Fixed DepositsCRISIL BBB+/Stable (Reaffirmed)
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL BBB+/Stable/CRISIL A2’ ratings on the bank facilities and fixed deposit of Mukand Ltd (ML; a part of the Mukand group).

 

The ratings continue to reflect the Mukand group’s established market position in the steel industry, supported by strong brand name and diversified end-user industries. The ratings also consider comfortable financial risk profile and adequate liquidity backed by need-based funds extended by the promoter group. These strengths are partially offset by susceptibility of the operating margin to volatility in raw material prices and large working capital requirement.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of ML with its fully owned subsidiaries -- Mukand Sumi Metal Processing Ltd and 99.90% owned in Mukand Heavy Engineering Ltd -- which are strategically important to, and have a significant degree of operational integration with, the parent. These entities are collectively referred to herein as the Mukand group.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

  • Established brand and extensive experience of management: ML has established a strong market presence in the steel industry, driven by a strong brand name -- Bajaj Mukand. Further, the key promoter -- Mr Niraj Bajaj -- has more than 3.5 decades of experience in the steel industry; expertise of the promoters, their strong understanding of market dynamics and healthy relationships with customers and suppliers should continue to support the business. Revenue has been in the range of Rs. 5150-5600 crore for the two fiscals through 2024 despite price moderation and has further achieved around Rs 1,257 crore in the first quarter of fiscal 2025. Scale is likely to remain healthy, led by steady demand and consistent repeat orders from established customers.

 

  • Diversified end-user industry: The Mukand group manufactures alloy and stainless steel and has a large product basket -- offering around 650 grades of steel. The group has a wide reach in the domestic as well as export markets, with around  6-7% of the revenue derived from the export market. Further, the group caters to a diversified end-user industry base, including automobile, electrical, industrial, power generation and aerospace; this protects the business from slowdown in demand in any industry.

 

  • Fund support from the promoters: ML will continue to benefit from the need-based funding support offered by the promoter group companies. The promoters have historically been extending unsecured loans to support the business.  Historically the promoters had infused funds worth Rs 1.884.51 crore as on March 31, 2020, and Rs 1,676.37 crore as on March 31, 2019. However, during fiscal 2024, the company has not availed any unsecured Loans. Further, the loans of ML are backed by the corporate guarantee provided by Jamnalal Sons Pvt Ltd (JSPL). Continued support from promoters to meet the upcoming debt obligations and any other cash flow requirements in case of exigencies support the liquidity profile of the group.

 

  • Comfortable financial risk profile: Financial risk profile has been improving for the past few fiscals, marked by networth increasing to Rs 891 crore as on March 31, 2024, from Rs 822 crore a year ago. Gearing and total outside liabilities to adjusted networth (TOL/ANW) ratio also improved to 1.7 times and 2.3 times from 1.8 and 2.7 times, respectively, during the same period. Despite the debt-funded capital expenditure planned for the medium term, the capital structure will remain healthy due to steady accretion of reserve, moderate reliance on external debt and creditors extended by the suppliers to support the working capital. Debt protection metrics may continue to be comfortable, led by moderate leverage and healthy operating margin. Interest coverage ratio stood at 2.3 times and net cash accrual to adjusted debt ratio at 0.08 time in fiscal 2024.

 

Weaknesses:

  • Exposure to volatility in steel and raw material prices: Revenues as well as operating margins are susceptible to volatility in the prices of steel and raw materials. Raw materials (iron ore, met coke, steel scrap and ferro alloys) accounts for around 75-85% of the manufacturing cost. The operating margins are hence susceptible to sharp fluctuation in the prices of raw materials. This can be reflected in the operating margin fluctuating between negative 17% and 6% during the four fiscals through 2024. While the margin improved to 5.7% in fiscal 2024 from earnings before interest, taxes, depreciation, and amortisation losses in fiscal 2023 it remained healthy at around 5.5-6.0% during the first quarter of fiscal 2025. Sustenance of the margin would remain monitorable over the medium term.

 

  • Large working capital requirement: The working capital cycle is likely to remain stretched and will be closely monitored. Gross current assets were 162 days as on March 31, 2024, driven by moderate debtors of 41 days and huge inventory of 123 days. The group provides a moderate credit period of 30-45 days to customers and hence debtors have been 30-45 days. The group has to maintain inventory levels of around 45-60 days as it has a high lead time due to imports and long conversion cycle.

Liquidity: Adequate

Cash accrual is expected at Rs 95-105 crore per annum for fiscals 2025 and 2026. While there is no large repayment obligation in fiscal 2025, except for fixed deposit repayment of around Rs 26 crore, the company has a bullet repayment of Rs 1,400 crore in fiscal 2026. The bank borrowing is backed by the corporate guarantee of JSPL. The promoters will continue to extend need-based funds to aid debt obligation as well as other liquidity requirements, as seen historically. Current ratio stood at 3.51 times and unencumbered cash and bank balance at Rs 51 crore as on March 31, 2024.

Outlook: Stable

ML will continue to benefit from its established market position, strong brand name and extensive experience of the promoters in the steel industry.

Rating Sensitivity factors

Upward factors

  • Steady revenue growth per fiscal and operating margin maintained at 6-8%, leading to higher-than-expected cash accrual
  • Improvement in the working capital cycle

 

Downward factors

  • Decline in operating margin or revenue, resulting in lower-than-expected cash accrual
  • Increased reliance on debt or creditors to support working capital requirement, leading to deterioration in the financial profile, with TOL/ANW ratio more than 3 times

About the Group

Incorporated in 1937, Mukand Iron & Steel Works Ltd (MISWL) was acquired by Mr Jamnalal Bajaj and Mr Jeevan Lal Shah in 1939. MISWL's name was changed to ML in 1989. During fiscal 2022, the Bajaj group acquired the stake of the Shah family in ML. As on March 31, 2024, the shareholding of the promoter and his family members in ML was 9.27%; and that of the promoter group companies was  65.43%. The  Mukand group manufactures alloy, stainless steel and industrial machinery with manufacturing facilities located in Hospet (Karnataka) and Thane (Maharashtra) respectively. The Mukand group is managed by Mr Niraj Bajaj and his son -- Mr Nirav Bajaj.

Key Financial Indicators

As on/for the period ended March 31

Unit 

Q1 FY25

2024

2023

Operating income

Rs.Crore

1258

5182

5570

Reported profit after tax (PAT)

Rs.Crore

24

103

172

PAT margin

%

1.9

2.0

3.1

Adjusted debt/adjusted networth

Times

1.62

1.67

1.83

Interest coverage

Times

2.76

2.33

2.16

Any other information: Not Applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name of Instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs.Cr) Complexity Levels Rating Assigned with Outlook
NA Bank guarantee NA NA NA 184.9 NA CRISIL A2
NA Cash credit NA NA NA 0.1 NA CRISIL BBB+/Stable
NA Term loan NA NA Jul-2025 200 NA CRISIL BBB+/Stable
NA Working capital term loan NA NA Jul-2025 1200 NA CRISIL BBB+/Stable
NA Fixed deposits NA NA Mar-2027 75 Simple CRISIL BBB+/Stable

Annexure - List of Entities Consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Mukand Ltd

Full

Parent company

Mukand Sumi Metal Processing Ltd

Full

Subsidiary

Mukand Heavy Engineering Ltd

Full

Subsidiary
Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 1400.1 CRISIL BBB+/Stable   -- 21-08-23 CRISIL BBB+/Stable   --   -- --
Non-Fund Based Facilities ST 184.9 CRISIL A2   -- 21-08-23 CRISIL A2   --   -- --
Fixed Deposits LT 75.0 CRISIL BBB+/Stable   -- 21-08-23 CRISIL BBB+/Stable   --   -- --
Structured Obligation LT   --   --   --   --   -- Withdrawn*
All amounts are in Rs.Cr.
*The ratings were withdrawn in March 2011
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 184.9 Citi Bank CRISIL A2
Cash Credit 0.1 Citi Bank CRISIL BBB+/Stable
Term Loan 200 Citi Bank CRISIL BBB+/Stable
Working Capital Term Loan 1200 Citi Bank CRISIL BBB+/Stable
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Steel Industry
CRISILs criteria for rating fixed deposit programmes
Understanding CRISILs Ratings and Rating Scales
CRISILs Criteria for Consolidation

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