Rating Rationale
May 09, 2024 | Mumbai
Nitin Castings Limited
Ratings upgraded to 'CRISIL BBB/Stable/CRISIL A3+'
 
Rating Action
Total Bank Loan Facilities RatedRs.32.34 Crore
Long Term RatingCRISIL BBB/Stable (Upgraded from 'CRISIL BBB-/Stable')
Short Term RatingCRISIL A3+ (Upgraded from 'CRISIL A3')
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 upgraded its ratings on the bank loan facilities of Nitin Castings Ltd (NCL) to ‘CRISIL BBB/Stable/CRISIL A3+’ from ‘CRISIL BBB-/Stable/CRISIL A3’.

 

The upgrade reflects the sustained improved business risk profile of NCL, driven by sustained growth in revenue, strengthening its financial and liquidity profile. Revenue is estimated to have increased to Rs. 145-150 crores in fiscal 2024, from Rs 97 crore in fiscal 2022. For the first nine months of fiscal 2024, the company has generated revenue of Rs 109 crore till December 2023, along with an operating margin of around 9.38%. The improvement should sustain over the medium term, aided by ramp-up in capacity. This led to higher accruals estimated at above Rs. 12 crores in fiscal 2024, improving liquidity profile. Financial risk profile continues to be strong marked by conservative capital structure and robust debt protection metrics.

 

The ratings reflect established market position and the extensive experience of its promoters in the alloy steel manufacturing industry, moderate working capital cycle, and comfortable financial position. These rating strengths are partially offset by the moderate scale of operations and susceptibility of operating margin to volatility in raw material prices.

Key Rating Drivers & Detailed Description

Strengths:

  • Established position in the alloy steel manufacturing industry: NCL caters to a large customer base across various end-user industries such as cement, petrochemicals, and steel, among others.It is also having presence in export market, which contributes to 5-10% of revenues. The top 5 customers contributed less than 20% of revenues in fiscal 2024. It has a large product basket comprising of valves, casings, sleeves, rings, rollers and chain links etc, which helps diversify operations.

 

  • Extensive experience of the promoters: The five-decade-long experience of the promoters in the alloy steel manufacturing industry, their established relationships with customers will continue to support the business risk profile. The company has already reported revenue of Rs 110 crore for the first nine months of fiscal 2024 and is estimated to achieve revenue of Rs 148–150 crore for full year.

 

  • Moderate Working capital cycle: Gross current assets (GCAs) were at 121-147 days in the last three fiscals through 2023, driven by moderate inventory and receivables of 79-86 days and 34-57 days, respectively.  The company stocks inventory to meet urgent customer requirement, and its major manufacturing is backed by orders. The working capital cycle is likely to remain moderate over the medium term, with moderate inventory management and realization from debtors.

 

  • Comfortable financial risk profile: Financial risk profile has improved over the years, led by steady accretion to reserves and plough-back of profit into the business. Networth should remain comfortable at Rs 70 crore as on March 31, 2024 (Rs 60 crore as on March 31, 2023). Capital structure is marked by comfortable gearing and total outside liabilities to adjusted networth ratios of 0.09 time and 0.44 time, respectively, estimated as on March 31, 2024 (vis-à-vis 0.16 time and 0.53 time, respectively, a year before). Debt protection metrics are strong, with interest coverage and net cash accrual to adjusted debt ratios of above 41 times and 1.93 times in fiscal 2024 (as against 60.82 times and 0.65 time, respectively, in fiscal 2023). Financial risk profile is expected to remain strong over the medium term in absence of any major debt-funded capex.

 

Weaknesses:

  • Moderate scale of operations: Despite being in business for over five decades, the company operates on a moderate scale, although it is on an improving trend. The alloy steel manufacturing industry is highly fragmented, with several unorganised players catering to regional demand. Intense competition restricts growth opportunities to expand into new geographies and scalability. Furthermore, revenue performance depends on demand from large steel players, which is inherently cyclical.

 

  • Susceptibility to volatility in raw material prices: Operating margin remains susceptible to volatility in prices of key raw material, such as stainless-steel scrap, mild steel scrap, nickel, ferro alloys. The company can pass on the rise in input cost to customers, though with a time lag, leading to volatile margins. Operating margin was in the range of 7.6-10.9% for the four fiscals ended March 31, 2024.

Liquidity: Adequate

Bank limit utilisation was negligible during the 12 months ended February 2024. Expected cash accrual of Rs 12.5-14.4 crore should suffice to cover the term debt obligation of Rs 0.88 crore annually over the medium term. Current ratio was healthy at 2.28 times as on March 31, 2023. The company has cash and cash balances, including liquid investment of around Rs 27.88 crore in shares, debentures and mutual funds as on September 30, 2023. Low gearing and moderate networth provide financial cushion in case of any adverse conditions or downturn in the business.

Outlook: Stable

CRISIL Ratings believes NCL will maintain its credit profile over the near-to-medium term, supported by diverse customer base, and strong financial profile.

Rating Sensitivity Factors

Upwards factors:

  • Sustained growth in revenue and steady operating margin, leading to net cash accrual above Rs 18 crore
  • Stable capital structure and working capital cycle, supporting the financial risk profile

 

Downward factors:

  • Significant decline in revenue and operating margin (below 7%), leading to lower net cash accrual
  • Stretch in the working capital cycle, or any large debt-funded capex or acquisition, weakening the capital structure and liquidity

About the Company

NCL incorporated in 1982, by the Kedia family, manufactures all grades of heat, wear & corrosion resistant ferrous and alloy metals by Centrifugal, Sand Casting, Shell Molding & Investment Casting methods. It has its manufacturing unit in Silvassa and head office in Thane, Maharashtra. NCL at present has a total capacity of 2400 MTA. The company is listed in BSE.Operations are currently managed by Mr Nitin Kedia and Mr Nirmal Kedia.

Key Financial Indicators

As on/for the period ended March 31

Unit

2023

2022

Operating income

Rs.Crore

133.44

96.74

Reported profit after tax

Rs.Crore

4.89

5.16

PAT margin

%

3.67

5.33

Adjusted debt/Adjusted networth

Times

0.16

0.07

Interest coverage

Times

60.82

31.84

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 the instrument Date of
Allotment
Coupon
Rate (%)
Maturity
Date
Issue size
(Rs.Crore)
Complexity
Level
Rating assigned
with outlook
NA Cash credit NA NA NA 13.4 NA CRISIL BBB/Stable
NA Letter of credit & bank guarantee NA NA NA 10.6 NA CRISIL A3+
NA Term loan NA NA Sep-2027 1.3 NA CRISIL BBB/Stable
NA Proposed working capital facility NA NA NA 7.04 NA CRISIL BBB/Stable
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 21.74 CRISIL BBB/Stable   -- 01-03-23 CRISIL BBB-/Stable 31-10-22 CRISIL BBB- /Stable(Issuer Not Cooperating)* 29-01-21 CRISIL BBB-/Stable CRISIL BBB-/Stable
      --   -- 24-01-23 CRISIL BB+ /Stable(Issuer Not Cooperating)* 07-02-22 CRISIL BBB-/Stable   -- --
Non-Fund Based Facilities ST 10.6 CRISIL A3+   -- 01-03-23 CRISIL A3 31-10-22 CRISIL A3 (Issuer Not Cooperating)* 29-01-21 CRISIL A3 CRISIL A3
      --   -- 24-01-23 CRISIL A4+ (Issuer Not Cooperating)* 07-02-22 CRISIL A3   -- --
All amounts are in Rs.Cr.
* - Issuer did not cooperate; based on best-available information
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Rating
Cash Credit 9.4 CRISIL BBB/Stable
Cash Credit 4 CRISIL BBB/Stable
Letter of credit & Bank Guarantee 5.6 CRISIL A3+
Letter of credit & Bank Guarantee 5 CRISIL A3+
Proposed Working Capital Facility 7.04 CRISIL BBB/Stable
Term Loan 1.3 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
The Rating Process
Rating Criteria for Steel Industry
CRISILs Criteria for rating short term debt
Understanding CRISILs Ratings and Rating Scales

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