CRISIL has assigned its bank loan ratings of ‘BB-/Stable/P4’ to the various bank facilities of South India Sponge Iron Pvt Ltd (SISIPL). The rating reflects SISIPL’s project implementation risks, aggressive financial risk profile, small scale of operations, and exposure to volatility in raw material prices. These rating weaknesses are, however, partly offset by SISIPL’s good raw material sourcing capability and customer relationships.

Outlook: Stable
CRISIL believes that SISIPL’s business risk profile will improve over the medium term backed by operational efficiencies and buoyant market conditions in the steel industry. However, its credit risk profile will remain constrained by project implementation risks and large debt-funded capital expenditure (capex). The outlook may be revised to ‘Positive’ if the capacity additions are completed in time and the margins improve. Conversely, the outlook may be revised to ’Negative’ if SISIPL takes on more debt than expected to fund its capex, which could weaken its capital structure, or if its margins decline due to downturns in the industry.

About SISIPL
SISIPL is in the business of manufacturing sponge iron, and has a production capacity of 30,000 metric tonnes per annum (mtpa). It was promoted in 2006 by Mr. Rahul Khetan, who is currently the Managing Director. The company started commercial operations in March 2006, near Hosur in Karnataka.

For 2006-07 (refers to financial year, April 1 to March 31), SISIPL reported a negative profit after tax (PAT) of Rs.25 million on net sales of Rs.190 million, as against a negative PAT of Rs.1 million on net sales of Rs.2 million for FY 2005-06.