CRISIL has assigned its ‘BB-/Stable/P4+’ ratings to Cauvery Iron & Steel (India) Ltd’s (CISL) bank facilities. The rating reflects CISL’s weak capital structure, limited financial flexibility because of low profitability in trading business, and exposure to risks related to its upcoming integrated steel manufacturing plant. These rating weaknesses are partially offset by CISL’s promoters’ extensive experience and its established customer base in the steel market.

Outlook: Stable
CRISIL believes that CISL will benefit from the expected timely completion of, and improved profitability and increased cash accruals after commencement of operations at, the upcoming steel manufacturing plant. The outlook may be revised to ‘Positive’ if CISL reports more-than-expected cash accruals, and reduces its gearing. Conversely, the outlook may be revised to ‘Negative’ in case of significant delays in project implementation, or higher-than-expected gearing.

About the Company
Incorporated by Mr. Ashok Gupta in 1991, CISL trades in both long and flat steel products. The company has an established sales network, comprising more than 40 dealers and retail outlets, across 16 districts in Andhra Pradesh. CISL is setting up an integrated steel plant with a capacity of 300 tonnes per day (tpd) of thermo-mechanically treated bars, consisting of a sponge iron unit, steel melting shop plant, rolling mill, and a 15-megawatt captive power plant in Khajapur (V) in Medak (Andhra Pradesh).

CISL reported a profit after tax (PAT) of Rs.32 million on net sales of Rs.3.9 billion for 2009-10 (refer to financial year, April 1 to March 31), against a PAT of Rs.17 million on net sales of Rs.3.6 billion for 2008-09.