| Sarthak Metals Limited | ||||
| Rating outlook revised to 'Positive'; Rating Reaffirmed | ||||
| Rating Action | ||||
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| 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 revised its outlook on the long-term bank facilities of Sarthak Metals Limited (SML) to ‘Positive’ from ‘Stable’ and reaffirmed the rating at ‘CRISIL BBB’.
The revision in the outlook factors in SML improving market position on back of healthy revenue and profitability, supported by higher capacity utilization. In H1 fiscal 2023, revenue is estimated to be at Rs 237.46 crore with profit after tax and net cash accruals at Rs 17.62 crore and Rs 18.24 crore respectively. Operating margin during H1 fiscal 2023 improved to 10.35% against 9.01% in fiscal 2022. Higher capacity utilization has improved operating efficiency and liquidity coupled with strengthening of financial risk profile in fiscal 2022. Furthermore, production capacity is expected to increase over the medium term. Improvement in revenue and capacity utilization while sustenance of profitability remains key rating sensitivity factor.
The ratings continue to reflect extensive experience of promoters in the steel industry, comfortable scale of operations and healthy return on capital employed. These strengths are partially offset by large working capital requirement and exposure to risks related to competition from domestic and established players. |
Key Rating Drivers & Detailed Description Strengths: Extensive experience of promoters: The Bansal family has been engaged in the industry for more than five decades which has enabled them to understand market dynamics and established relationships with suppliers and customers, including Tata Steel Ltd, Jindal Steel and Power Ltd, Jindal Stainless Limited which ensures repeat orders, and supply of raw material. Strong relationship with key customers and their sound credit worthiness mitigates risk of bad debt. SML is expected to continuously benefit from its promoters’ experience.
Comfortable scale of operations and operating efficiency: Revenue improved to Rs 455.29 crore in fiscal 2022 against Rs 216.40 crore in fiscal 2021. The improvement is driven by robust demand from the steel industry leading to volumetric growth of about 35%. Operating margins improved to 9.01% as on March 31, 2022 indicative of sufficient cost passthrough amid volatile prices of key raw material, aluminium and ferro alloy. Increased capacity utilization has led to healthy return on capital employed of over 25.5% and operating income to gross block ratio of over 21 times as on March 31, 2022. Sustenance of demand and improvement in market position on back of efficient capacity utilization remain key rating sensitivity factor.
Weaknesses: Susceptibility of operating margin to volatility in raw material prices, and vulnerability to cyclicality in the infrastructure and real estate sectors: Cost of production and profit margin are heavily dependent on raw material prices (aluminium and ferro alloy). On account of variation in raw material prices, operating margins have also been volatile. Furthermore, profitability is linked to the fortunes of the inherently cyclical steel industry, which has strong correlation with overall growth in gross domestic product. Operating performance will remain susceptible to volatility in raw material prices, and offtake by key user sectors.
Moderate working capital cycle: Operations are moderately working capital intensive as reflected in gross current assets (GCAs) of 80 days as on March 31, 2022, driven by debtors of 46 days and inventory of 25 days, supported by creditors of 10 days. Over the last 3 fiscal through March 31, 2021, GCAs were in range of 98-129 days. Working capital cycle is expected to remain in range of 95-115 days over medium term. |
Liquidity: Adequate Cash accrual is expected to be sufficient in range of Rs 31-35 crore per fiscal against repayment obligation of Rs 1.68 crore in fiscal 2023 and Rs 2.58 crore in fiscal 2024. 12-month average bank limit utilization net of current account balances is estimated to be low around 17% through September 2022. Sufficient cushion in net cash accrual to repayment obligation ratio and healthy current account balances averaging Rs 15 crore during 12-months through September 2022 aid working capital requirement.
Low gearing provides financial flexibility in case of any adverse conditions or downturn in the industry. Current ratio was healthy at 2.97 times on March 31, 2022. |
Outlook: Positive CRISIL Ratings believes that SML will continue to benefit from the experience of its promoters along with established client base. Sustenance of profitability while improvement in revenue and capacity utilization over the medium term remain key monitorable. |
Rating Sensitivity Factors Upward factors
Downward factors
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About the Company SML was set up in 1995, in Durg, Chhattisgarh and is promoted by Mr. Manoj Bansal, Mr. Anoop Bansal and Mr. Kishor Bansal. The company manufactures metallurgical cored wires and aluminum flipping coil. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
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 Bank Lenders & Facilities | ||||||||
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This Annexure has been updated on 17-Nov-22 in line with the lender-wise facility details as on 14-Dec-21 received from the rated entity.
Criteria Details
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