CRISIL has assigned its ‘BB-/Stable’ rating to the bank facilities of Shivam Dhatu Udyog Pvt Ltd (SDUPL), which is part of the Shivam group. The rating reflects the Shivam group’s small scale of operations in the steel industry, and sizeable debt-funded capital expenditure (capex) plans. Also, SDUPL operations are still in the nascent stage. These rating weaknesses are partially offset by the expected improvement in the group’s sales volumes and profitability, on the back of gradual stabilisation of operations and backward integration.
For arriving at its ratings, CRISIL has combined the business and financial risk profiles of SDUPL and Shivam India Ltd (SIL). This is because the two companies, together referred to as the Shivam group, are under a common management, are in similar lines of business, and have operational and financial linkages with each other.
Outlook: Stable
CRISIL believes that the Shivam group’s operating profitability will improve gradually, over the medium term, on the back of backward integration. However, the group will remain a minor entity in the steel industry. The outlook may be revised to ‘Positive’ if the Shivam group significantly improves its profitability, and secures linkages for raw material procurement. Conversely, the outlook may be revised to ‘Negative’ if the group undertakes larger-than-expected debt-funded capex programme, or if its profitability comes under pressure.
About the Group
SDUPL, set up in 2004, manufactures sponge iron; the company’s sponge iron manufacturing unit has a capacity of 60,000 tonnes per annum (tpa), with two kilns, each with a capacity of 100 tonnes per day; the units is in the Jamuria Industrial Area, Jamuria, Burdwan, West Bengal.
SIL was incorporated in 1999 as Shivam India Pvt Ltd, which manufactured coke. The company was reconstituted as a public company in 2004-05 (refers to financial year, April 1 to March 31); it discontinued its coke business, and started producing steel products, in 2005-06. SIL has installed manufacturing capacity of 108,000 tpa for billets, and 100,000 tpa for thermo-mechanically treated steel bars, rods, wires, and coils.
The Shivam group reported a profit after tax (PAT) of Rs.32 million on operating income of Rs.2940 million for 2008-09, against a PAT of Rs.34 million on operating income of Rs.2339 million for 2007-08.
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