| Narsingh Ispat Limited | ||||
| Suspension revoked, 'CRISIL BB/Stable' assigned to bank debt | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL has revoked the suspension of its rating on the bank facilities of Narsingh Ispat Limited (NIL) and has assigned its 'CRISIL BB/Stable' rating to the bank facilities. CRISIL had suspended the rating on July 22, 2014, as NIL had not provided the information required to maintain a valid rating. NIL has now shared the requisite information, enabling CRISIL to assign its rating to the bank facilities. |
| Key Rating Drivers & Detailed Description |
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Strengths: * Extensive experience of the promoters in the steel industry: The promoters' experience of 2 decades has helped them develop an understanding of the market dynamics and establish strong relationships with suppliers and customers. * Increasing scale of operations: The scale of operations increased over the 3 fiscals through 2019. Revenue rose to Rs 235.29 crore in fiscal 2019 from Rs 173.83 crore in fiscal 2018, and to Rs 312.54 crore in the first 11 months of fiscal 2020. The revenue may decline in fiscal 2021 because of fall in realisation on account of a slump in the steel industry. However, the company's scale of operations will remain healthy over the medium term. * Moderate working capital requirement: Gross current assets were at 76-157 days during the 3 fiscals ended March 31, 2019, driven by receivables of 16 days, inventory of 58 days, and payables of 23 days 2019. Inventory could increase if there is reduction in offtake in fiscal 2021. The working capital requirement is likely to remain moderate over the medium term. Weaknesses: * Limited presence in the fragmented steel industry and susceptibility to volatility in raw material prices and to cyclicality: As a marginal player in the Indian secondary steel industry, NIL faces intense competition. The company supplies to steel manufacturers, and has limited pricing power because of the fragmented and commoditised nature of products. Furthermore, profitability is susceptible to the inherent cyclicality in the steel industry, which has strong correlation with gross domestic product growth. Moreover, raw material price, which accounts for more than 82% of cost of sales, is volatile. Operating performance will remain susceptible to volatility in raw material prices and offtake by key user sectors. * Leveraged capital structure: NIL's leveraged capital structure is reflected in gearing of more than 2 times in the 3 fiscals through 2019. Gearing was 2.24 times and total outside liabilities to adjusted networth ratio was 3.39 times as on March 31, 2019, because of sizeable working capital debt and long-term debt contracted for capacity enhancement and setting up a power plant. The capital structure will improve with gradual repayment of debt and with accretion to reserve in the absence of any large, debt-funded capital expenditure. |
| Liquidity Adequate |
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The liquidity is adequate, as indicated by cash accrual of Rs 9.7 crore in fiscal 2019. Accrual is expected at Rs 12-14 crore per fiscal against debt obligation of Rs 5.7-7 crore in each fiscal. The bank limit of Rs 12 crore was fully utilised in last 12 months through February, 2020. Liquidity will be supported by unsecured loan of Rs 5.39 crore and expected cash flow of around Rs 2.5 crore from the sale of land. |
| Outlook: Stable |
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CRISIL believes NIL will continue to benefit from the extensive experience of its promoters and established relationships with clients. |
| Rating Sensitivity factors |
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Upward Factors * Enhancement of bank lines and improvement in receivables cycle, leading to better liquidity * Stable revenue above Rs 300 crore and steady operating margin around 7% * Improvement in gearing to below 1.5 times Downward Factors * Decrease in revenue and decline in operating margin below 5% * Stretch in receivables to more than 180 days or in inventory, weakening the liquidity |
| About the Company |
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NIL was incorporated as a closely held company in September 2004 by Mr Hemant Goyal, his father Mr Anil Goyal, and uncle Mr Dinesh Goyal. NIL manufactures pig iron, and has a manufacturing facility in Saraikela-Kharsawan, Jharkhand. |
| Key Financial Indicators | ||||||||||||||||||||||||
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
| Annexure - Details of Instrument(s) | |||||||||||||||||||||||||||||||||||
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||
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| For further information contact: | ||||||
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