Rating Rationale
April 06, 2022 | Mumbai
Shiv Aum Steels Limited
Ratings upgraded to 'CRISIL BBB / Stable / CRISIL A3+ '
 
Rating Action
Total Bank Loan Facilities RatedRs.80 Crore
Long Term RatingCRISIL BBB/Stable (Upgraded from 'CRISIL BBB-/Stable')
Short Term RatingCRISIL A3+ (Upgraded from 'CRISIL A3')
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has upgraded its rating on the bank loan facilities of Shiv Aum Steels Limited (SASL; erstwhile Shiv Aum Steels Private Limited) to ‘CRISIL BBB/Stable/CRISIL A3+’ from ‘CRISIL BBB-/Stable/CRISIL A3’.

 

The rating action reflects an improved business risk profile support by growth in revenue and profitability. Scale of operations is estimated to have improved to over Rs 400 crore in fiscal 2022 backed by increase in realisation and volume growth of around 10-12%. While realisations are expected to moderate over medium term, scale of operations is expected to be sustained backed by volume growth driven by improved economic activity post pandemic related disruptions. Operating margins are expected to improve to around 5% in fiscal 2022 and sustained at around 4-4.5% over the medium term. The upgrade also factors in a above average financial risk profile backed by low leverage levels and comfortable debt protection metrics.

 

The rating continues to reflect the extensive experience of its promoters in the steel trading industry, diversified product profile and a comfortable financial risk profile. These strengths are partially offset by exposure to intense competition in steel trading industry and moderately working capital intense operations

Analytical Approach

Unsecured loan from promoters of Rs 8.8 crore as on March 31, 2020, have been treated as debt

Key Rating Drivers & Detailed Description

Strengths:

  • Extensive experience of promoters along with diversified product and customer profile: Promoters has been in the steel trading industry for around three decades, leading to established relationship with customers and suppliers. Company is a distributor for key suppliers like Jindal Steel and Power Ltd, Steel Authority of India, JSW Ispat Special Products Ltd, Rashtriya Ispat Nigam etc. Further, diversified product profile, across flat and long products, and a diversified customer base supports the business risk profile of the company.  Top ten customers contributed to only around 20.3% of revenue in fiscal 2021. Benefits from these strengths are expected support business growth over the medium term.
 
  • Above average financial risk profile: Networth is estimated to have improved to around Rs.80 crore as 31st March 2022 (Rs 68.9 crore as on March 31st, 2021) backed by improved accruals and likely to further improve to around Rs 90-100 crore over the medium term. Leverage levels are low as reflected in total outside liability to adjusted networth (TOLANW) and gearing of 0.7 and 0.8 times respectively as on March 31st, 2021. In the absence of any debt funded capex plans and moderate reliance on working capital line to fund incremental working capital requirements; leverage levels are expected to be sustained over the medium term.

 

Debt protection metrics were impacted in fiscal 2021 on account pandemic related disruption and provisioning for bad debts, impacting profitability. However, the metrics has recovered in current fiscal; interest coverage and net cash accrual to adjusted debt ratios are expected to be sustained over 4 and 0.2 times over the medium term

 

Weaknesses:

  • Susceptibility to cyclicality in the end-user industries and intense competition: Demand for steel products is linked to the capital expenditure of end-user industries like infrastructure development and real estate which is strongly correlated to economic cycles. Any economic slowdown coupled with volatile steel prices and high competition may impact revenue and profitability of the company. However, this is partially mitigated by the diversified product and end user portfolio.

 

  • Moderately working capital-intensive operations: SASL’s operations are moderately working capital intensive as reflected in gross current assets (GCA) of 156 days as on March 31, 2021, driven by debtor and inventory of 58 & 78 days respectively (124 days in March 2020; Debtors and creditors at 61 & 48 days); this is largely on account of significantly higher revenue generated in 2nd half of the fiscal compared to first half, which was impacted by pandemic related disruptions. While working capital cycle is expected improve over the medium term, given, management’s focus on the same, it is likely to remain moderate over the medium term.

Liquidity: Adequate

SASL has adequate liquidity driven by expected cash accruals of over Rs.10-11 crore per fiscal over the medium term, against this, the company has no long-term repayment obligations. Company also has access to fund-based limits of Rs.60 crore, utilized to the tune of 61% on an average over the 12 months ended January 2022. Further, company has no capex plans in the next two fiscal years. CRISIL expects internal accruals and unutilized bank lines to be sufficient to meet its incremental working capital requirements and other financial and operational obligations.

Outlook: Stable

CRISIL Ratings believes SAS will continue to benefit over the medium term from the extensive experience of its promoters and its established relationship with its customers and Suppliers.

Rating Sensitivity factors:

Upwards factors:

  • Healthy revenue growth over 25% per annum over the medium term, driven by growth in volumes, coupled with sustained margins, resulting in higher than expected net cash accruals
  • Improved working capital cycle and debt protection metrics coupled with sustained capital structure and enhanced financial flexibility

 

Downward factors:

  • Decline in revenue or moderation in operating margins to below 3% leading significant decline in net cash accruals
  • Stretch in working capital cycle or significant debt funded capex or large dividend leading to weakening of financial risk profile

About the Company

Incorporated in 1982 and managed by Mr Sanjay Bansal, Mr. Jatin Mehta and Mr. Krishna Mehta, SASL is engaged in trading of mild steel structural (angles, plates, channels, plates and thermo-mechanically treated bars) products. It is an authorized distributor for Jindal Steel and Power Limited and MOU dealer for Steel Authority of India Ltd and JSW Special Products. The company is listed on National Stock Exchange.

Key Financial Indicators

As on / for the period ended March 31

 

2021

2020

Operating income

Rs Cr

267.3

339.8

Profit after tax

Rs Cr

2.2

5.1

PAT margins

%

0.8

1.5

Adjusted Debt/Adjusted Net worth

Times

0.7

0.8

Interest coverage

Times

1.8

2.2

Status of non-cooperation with previous CRA

SASL has not cooperated with India Ratings And Research Private Limited which has classified it as issuer not cooperative vide release dated November 02, 2017. The reason provided by India Ratings And Research Private Limited is non-furnishing of information for monitoring of ratings.

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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)

ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs crore) Complexity level Rating assigned with outlook
NA Cash Credit NA NA NA NA 40 CRISIL BBB/Stable
NA Cash Credit NA NA NA NA 20 CRISIL BBB/Stable
NA Letter of Credit NA NA NA NA 15 CRISIL A3+
NA Proposed Long Term Bank Loan Facility NA NA NA NA 5 CRISIL BBB/Stable
Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 65.0 CRISIL BBB/Stable   -- 24-03-21 CRISIL BBB-/Stable   -- 04-12-19 CRISIL BBB-/Stable CRISIL BBB-/Stable
      --   --   --   -- 27-06-19 CRISIL BBB-/Stable --
Non-Fund Based Facilities ST 15.0 CRISIL A3+   -- 24-03-21 CRISIL A3   -- 04-12-19 CRISIL A3 CRISIL A3
      --   --   --   -- 27-06-19 CRISIL A3 --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 40 State Bank of India CRISIL BBB/Stable
Cash Credit 20 Standard Chartered Bank Limited CRISIL BBB/Stable
Letter of Credit 15 Standard Chartered Bank Limited CRISIL A3+
Proposed Long Term Bank Loan Facility 5 Not Applicable CRISIL BBB/Stable

This Annexure has been updated on 06-Apr-2022 in line with the lender-wise facility details as on 02-Aug-2021 received from the rated entity.

Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Criteria for rating trading companies
Understanding CRISILs Ratings and Rating Scales

Media Relations
Analytical Contacts
Customer Service Helpdesk

Pankaj Rawat
Media Relations
CRISIL Limited
B: +91 22 3342 3000
pankaj.rawat@crisil.com

Hiral Jani Vasani
Media Relations
CRISIL Limited
B: +91 22 3342 3000
hiral.vasani@crisil.com

Rutuja Gaikwad 
Media Relations
CRISIL Limited
B: +91 22 3342 3000
Rutuja.Gaikwad@ext-crisil.com


Rahul Subrato Kumar Guha
Director
CRISIL Ratings Limited
D:+91 22 4097 8320
rahul.guha@crisil.com

Jumana Badshah
Associate Director
CRISIL Ratings Limited
D:+91 22 3342 8324
Jumana.Badshah@crisil.com

Athul Unnikrishnan Sreelatha
Manager
CRISIL Ratings Limited
D:+91 33 4011 8222
Athul.Sreelatha@crisil.com		Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
CRISILratingdesk@crisil.com
 
For Analytical queries:
ratingsinvestordesk@crisil.com

 

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper/magazine/agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL Ratings. However, CRISIL Ratings alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites and portals.


About CRISIL Ratings Limited (A subsidiary of CRISIL Limited)

CRISIL Ratings pioneered the concept of credit rating in India in 1987. With a tradition of independence, analytical rigour and innovation, we set the standards in the credit rating business. We rate the entire range of debt instruments, such as bank loans, certificates of deposit, commercial paper, non-convertible/convertible/partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 33,000 large and mid-scale corporates and financial institutions. We have also instituted several innovations in India in the rating business, including ratings for municipal bonds, partially guaranteed instruments and infrastructure investment trusts (InvITs).
 
CRISIL Ratings Limited ('CRISIL Ratings') is a wholly-owned subsidiary of CRISIL Limited ('CRISIL'). CRISIL Ratings Limited is registered in India as a credit rating agency with the Securities and Exchange Board of India ("SEBI").
 
For more information, visit www.crisilratings.com 
 



About CRISIL Limited

CRISIL is a global analytical company providing ratings, research, and risk and policy advisory services. We are India's leading ratings agency. We are also the foremost provider of high-end research to the world's largest banks and leading corporations.

CRISIL is majority owned by S&P Global Inc, a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.

For more information, visit www.crisil.com

Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK

CRISIL PRIVACY NOTICE
 
CRISIL respects your privacy. We may use your contact information, such as your name, address and email id to fulfil your request and service your account and to provide you with additional information from CRISIL. For further information on CRISIL’s privacy policy please visit www.crisil.com.



DISCLAIMER

This disclaimer is part of and applies to each credit rating report and/or credit rating rationale (‘report’) that is provided by CRISIL Ratings Limited (‘CRISIL Ratings’). To avoid doubt, the term ‘report’ includes the information, ratings and other content forming part of the report. The report is intended for the jurisdiction of India only. This report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the report is to be construed as CRISIL Ratings providing or intending to provide any services in jurisdictions where CRISIL Ratings does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this report does not create a client relationship between CRISIL Ratings and the user.

We are not aware that any user intends to rely on the report or of the manner in which a user intends to use the report. In preparing our report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the report is not intended to and does not constitute an investment advice. The report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind to enter into any deal or transaction with the entity to which the report pertains. The report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Ratings are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold or sell any securities/instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL Ratings assumes no obligation to update its opinions following publication in any form or format although CRISIL Ratings may disseminate its opinions and analysis. The rating contained in the report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the report should rely on their own judgment and take their own professional advice before acting on the report in any way. CRISIL Ratings or its associates may have other commercial transactions with the entity to which the report pertains.

Neither CRISIL Ratings nor its affiliates, third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively, ‘CRISIL Ratings Parties’) guarantee the accuracy, completeness or adequacy of the report, and no CRISIL Ratings Party shall have any liability for any errors, omissions or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the report. EACH CRISIL RATINGS PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Ratings Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. Public ratings and analysis by CRISIL Ratings, as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any), are made available on its website, www.crisilratings.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee – more details about ratings by CRISIL Ratings are available here: www.crisilratings.com.

CRISIL Ratings and its affiliates do not act as a fiduciary. While CRISIL Ratings has obtained information from sources it believes to be reliable, CRISIL Ratings does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and/or relies on in its reports. CRISIL Ratings has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL Ratings has in place a ratings code of conduct and policies for managing conflict of interest. For details please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html.

Rating criteria by CRISIL Ratings are generally available without charge to the public on the CRISIL Ratings public website, www.crisilratings.com. For latest rating information on any instrument of any company rated by CRISIL Ratings, you may contact the CRISIL Ratings desk at crisilratingdesk@crisil.com, or at (0091) 1800 267 1301.

This report should not be reproduced or redistributed to any other person or in any form without prior written consent from CRISIL Ratings.

All rights reserved @ CRISIL Ratings Limited. CRISIL Ratings is a wholly owned subsidiary of CRISIL Limited.
 

 

CRISIL Ratings uses the prefix ‘PP-MLD’ for the ratings of principal-protected market-linked debentures (PPMLD) with effect from November 1, 2011, to comply with the SEBI circular, "Guidelines for Issue and Listing of Structured Products/Market Linked Debentures". The revision in rating symbols for PPMLDs should not be construed as a change in the rating of the subject instrument. For details on CRISIL Ratings' use of 'PP-MLD' please refer to the notes to Rating scale for Debt Instruments and Structured Finance Instruments at the following link: https://www.crisil.com/en/home/our-businesses/ratings/credit-ratings-scale.html