| Sunflag Iron and Steel Co.Limited | ||||||
| Ratings Reaffirmed and Withdrawn | ||||||
| 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
The ratings reflect SISCL's strong market position in the auto-grade micro-alloy steel business and healthy financial risk profile. These strengths are partially offset by large working capital requirement, susceptibility to changes in raw material prices and government regulations, and exposure to cyclicality in the steel industry and the auto segment (key end user). |
Analytical Approach For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of SISCL, its subsidiaries, Sunflag Power Ltd (99.88% shareholding) and Khappa Coal Co Pvt. Ltd (63.27% shareholding). These entities are collectively referred to herein as SISCL. Previously, for arriving at the ratings, CRISIL Ratings had combined the business and financial risk profiles of SISCL, its subsidiaries, Sunflag Power Ltd (99.88%) and Khappa Coal Co Pvt Ltd (63.27%) and its joint ventures - Madanpur (North) Coal Company Private Limited (11.73%), Daido DMS India Private Limited (17.56%), Ramesh Sunwire Private Limited (49%) and C T Mining Private Limited (31.80%). However, now, CRISIL Ratings has not combined the business and financial risk profiles of the joint ventures as Madanpur (North) Coal Company Private Limited and C T Mining Private Limited are non-operational. And while Daido DMS India Private Limited and Ramesh Sunwire Private Limited are operational, however, there is no corporate guarantee extended by SISCL.
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: Strong market position: SISCL's robust market position in the automobile grade alloy steel and special steel manufacturing industry is driven by substantial capacity, wide product mix, and established clientele. Group caters to reputed customers in both auto and non-auto sectors and top 10 customers contribute to only 20-25% of the total revenue. Group had already registered revenue of ~Rs. 2651 crores for the first 9M of FY23.
Healthy financial risk profile: The financial risk profile is supported by strong networth of Rs 1390 crore, gearing of 0.38 time and total outside liabilities to adjusted networth (TOLANW) ratio of 0.96 time, as on March 31, 2022. Financial risk profile metrics have remained healthy. Networth was at Rs 2765.2 crore as on September 30, 2022 with company booking exceptional gain of ~Rs. 1195 crores in Q1 FY23. Overall financial risk profile is expected to remain at healthy levels over medium term.
Weaknesses: Large working capital requirement: Gross current assets have been in the range of 160-180 days during the three fiscals ended 2022, driven by sizeable inventory of 100-130 days. Inventory remains large due to high lead time required in the manufacturing process; nonetheless, a majority of it is order-backed. Credit of 45-60 days is offered to customers. Operations are expected to remain working capital intensive over the medium term.
Susceptibility to changes in raw material prices, government regulations and exposure to cyclicality in the steel industry and the auto segment: The operating margin has ranged between 9.5-14.5% during the five fiscals ended 2022 due to fluctuations in raw material prices. The company can however pass on increase in input prices to customers, but only with a lag of around a month. The margin is also vulnerable to regulatory changes, such as in duties and tariffs, which affect the final cost. Any unfavorable impact of change in import regulations will also increase competition from foreign manufacturers, restricting pricing power. The steel industry is vulnerable to downturns in demand, leading to decline in realisations and profitability. Moreover, bulk of the revenue (about 80%) comes from the domestic auto industry (primarily the passenger and commercial vehicle segments), which is cyclical in nature. |
Liquidity: Strong Group is expected to generate net cash accruals of over Rs 300 crore per fiscal, which will be more than adequate to cover repayments of Rs 61-62 crore per fiscal, over the medium term. The surplus accruals will help support the incremental working capital requirements. The fund-based limit of was utilized at an average of 65% over the 12 months ended Dec-22. Cash and bank balance was Rs 78 crore as on March 31, 2022, of which unencumbered cash & bank balance was Rs 18.63 crore. Current ratio was 1.53 times as on March 31, 2022. Unsecured loans (from promoters) stood at Rs 13.75 crore as on March 31, 2022. No major capex plans is expected over medium term. |
Outlook: Stable CRISIL Ratings believes SISCL will continue to benefit from its established market position and healthy financial risk profile. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company SISCL, incorporated in 1984 by Mr Ravi Bushan Bharadwaj, manufactures alloy steel and special steel products for the auto sector, power sector & other general engineering areas. SISCL has its manufacturing facility located at Warthi, Bhandara Road (Maharashtra) with installed capacity of 6.68 Lakh MTPA (Rolling mill), 5.25 Lakh MTPA (SMS), 2.40 Lakh MTPA (Mini Blast Furnace) and a captive power plant (CPP) of 32MW. |
Key Financial Indicators (Consolidated)
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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 – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | |||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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