Rating Rationale
August 09, 2024 | Mumbai
The Sandur Manganese And Iron Ores Limited
Rating continues on 'Watch Positive'
 
Rating Action
Total Bank Loan Facilities RatedRs.1630 Crore
Long Term RatingCRISIL A/Watch Positive (Continues on 'Rating Watch with Positive Implications')
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 continued its rating on the long-term bank facilities of The Sandur Manganese And Iron Ores Ltd (SMIORE) on 'Rating Watch with Positive Implications’.

 

The rating was placed on positive watch on May 8, 2024, on account of corporate announcement that SMIORE has signed a binding share purchase agreement to acquire 80% stake in Arjas Steel Pvt Ltd (ASPL) from the private equity firm ADV Partners for enterprise value of Rs 3,000 crore. The remaining stake of 19.12% in ASPL will be acquired by the promoters of SMIORE through a holding company. ASPL is an established specialty steel manufacturer with facilities in Andhra Pradesh and Punjab. The acquisition, a vertical integration, is expected to unravel strong synergies for the combined entity and strengthen the business risk profile by enhancing scale of operations, operating profits, and product & geographic diversity. While the transaction is to be funded with a mix of debt and equity; overall leverage levels and debt protection metrics are expected to remain comfortable post the transaction. The acquisition is subject to necessary statutory approvals.

 

CRISIL Ratings will resolve the watch and take appropriate rating action, if warranted, once the transaction is concluded and detailed information regarding the business and financial risk profiles of the post consolidated entity is available.

 

The rating continues to reflect strong market position of the company in the mining industry with a track record of seven decades, its large mining reserve and a strong financial risk profile. These strengths are partially offset by susceptibility to regulatory changes and inherent cyclicality in the steel sector.

Key Rating Drivers & Detailed Description

Strengths:

  • Long track record and extensive mining reserves: SMIORE was set up in 1954 when Y R Ghorpade, the former Maharaja of Sandur, transferred the mining lease awarded to him in favour of the company. The company has two mining leases valid up to December 31, 2033, with estimated reserve of 110 MT of iron ore and around 17 MT of manganese ore and production capacity of 3.81 MTPA for iron ore and 0.46 MTPA for the latter. The production capacity was recently enhanced for iron ore and manganese from 1.6 MTPA and 0.286 MTPA, respectively. The company is among the few entities classified in category A mining leases with production capacity of more than 1 MTPA of iron ore. Increase in mining capacity, which is available for production for full year from fiscal 2025, will drive revenue over the medium term. The extensive reserves, long validity of the mining license and presence of seven decades in the mining industry will continue to benefit the company. However, revenue, quality of ores and realisation from the mining segment will be key monitorables over the medium term.

 

  • Strong financial risk profile: The financial risk profile is strong supported by healthy capital structure and robust debt protection metrics. Networth was strong at Rs 2269 crore and gearing low at 0.08 time as on March 31, 2024 and will remain strong over the medium term. Debt protection metrics continue to be robust, as reflected in interest coverage and net cash accrual to adjusted debt ratios of 34 times and 2.15 times, respectively, in fiscal 2024, and are likely to remain strong over the medium term with healthy profitability and moderate debt.

 

Weaknesses:

  • Exposure to regulatory risks associated with the mining industry: The mining industry in India is highly regulated by various state and central government agencies. Production, sale, expansion, environmental clearances and extension/renewal of licenses are governed by various regulations and policies. Unfavorable changes in the regulations may have an adverse impact on the business risk profile. However, the company is classified as a Category A mining company and has a track record of seven decades of regulatory compliance and absence of operational disruptions owing to environmental, societal or company-specific regulatory issues. Its mines are rated five-star by the Indian Bureau of Mines, Government of India, under its Sustainable Development Framework (SDF). While exposure to regulatory risk will remain a key monitorable, the scientific and systematic mining processes followed by the company, in adherence to existing rules and regulations, mitigates this risk.

 

  • Susceptibility to cyclicality in the steel sector: SMIORE has significant exposure to the steel sector as majority of its products find application in the steel industry, which is inherently cyclical. This makes the company vulnerable to decline in demand or realisation during a downturn in the steel industry and may impact the volumes and operating cash flow. However, cost of production and favourable demand-supply scenario in Karnataka mitigate this risk.

Liquidity: Strong

Bank limit utilisation was low at 37% on average for the 11 months through May 2024. Cash accrual, expected over Rs 600 crore, will sufficiently cover yearly term debt obligation over the medium term. Current ratio was healthy at 2.45 times as on March 31, 2024. The company has liquid investments of around Rs 960 crore supporting liquidity. Low gearing and strong networth support financial flexibility and will cushion in case of adverse conditions or downturns in the business

Rating Sensitivity factors

Upward factors:

  • Increase in revenue and profitability leading to operating profit over Rs 600 crore
  • Sustenance of strong financial risk profile with healthy capital structure and financial flexibility
  • Timely completion of acquisition of ASPL

 

Downward factors:

  • Lower-than-expected revenue from enhanced capacities or significant fall in profitability, leading to operating profit below Rs 300 crore
  • Weakening in the financial risk profile, with high leverage and moderation in financial flexibility

About the Company

About the Company SMIORE mines low-phosphorous manganese and iron ore in the Hosapete-Ballari region of Karnataka. It is the fifth-largest iron ore miner in Karnataka and the third-largest miner of manganese ore in India. It is the flagship business of the Ghorpades, the royal family of Sandur. SMIORE has a 95,000-TPA ferroalloy plant, a 32-MW captive power plant and a 0.5-MTPA coke oven plant with two waste recovery boilers

Key Financial Indicators

As on / for the period ended March 31

 

2024*

2023

Reported revenue

Rs crore

1388

2184.65

Reported profit after tax (PAT)

Rs crore

335

270.91

PAT margin

%

24.1

12.40

Adjusted debt / adjusted networth

Times

0.08

0.11

Interest coverage

Times

35.38

14.27

*Based on unaudited results

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 Instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs Cr) Complexity Levels Rating Assigned with Outlook
NA Working Capital Facility NA NA NA 295 NA CRISIL A/Watch positive
NA Term Loan NA NA Mar-2028 135 NA CRISIL A/Watch positive
NA Proposed term Loan NA NA NA 1200 NA CRISIL A/Watch positive
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 1630.0 CRISIL A/Watch Positive 27-05-24 CRISIL A/Watch Positive   -- 04-11-22 CRISIL A/Stable 23-08-21 CRISIL A/Stable CRISIL A-/Stable
      -- 08-05-24 CRISIL A/Watch Positive   --   -- 02-03-21 CRISIL A-/Stable --
      -- 02-02-24 CRISIL A/Positive   --   --   -- --
Non-Fund Based Facilities LT/ST   --   --   -- 04-11-22 CRISIL A1 23-08-21 CRISIL A1 CRISIL A2+
      --   --   --   -- 02-03-21 CRISIL A2+ --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Proposed Term Loan 1200 Not Applicable CRISIL A/Watch Positive
Term Loan 92 Axis Bank Limited CRISIL A/Watch Positive
Term Loan 43 ICICI Bank Limited CRISIL A/Watch Positive
Working Capital Facility 100 HDFC Bank Limited CRISIL A/Watch Positive
Working Capital Facility 35 ICICI Bank Limited CRISIL A/Watch Positive
Working Capital Facility 60 Axis Bank Limited CRISIL A/Watch Positive
Working Capital Facility 50 IndusInd Bank Limited CRISIL A/Watch Positive
Working Capital Facility 50 RBL Bank Limited CRISIL A/Watch Positive
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
Rating Criteria for Steel Industry
Rating Criteria for Mining Industry
CRISILs Criteria for rating short term debt

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