Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL BBB/Stable/CRISIL A3+’ ratings on the bank facilities of Aamor Inox Limited (AIL)

 

The rating reflects extensive experience of promoters in stainless steel industry and strong business risk profile supported by healthy operating performance, high proportion of exports, reputed client base and sustained operating margins. It also takes into consideration the improving financial risk profile. These strengths are partially offset by large working capital requirement and susceptibility to fluctuations in raw material prices and forex.

 

AIL is expected to earn over Rs 650 crore in fiscal 2023 and has registered revenues of Rs.539 crores in first nine months of fiscal 2023 supported by higher realisations and increased orders from new and existing clients. Operating margins have sustained at healthy levels despite raw material fluctuations on account of high margin export business and pass-through model of the company. Healthy orderbook of Rs 157 crore and established relationship with key clientele will help to sustain healthy growth of 10-15% in the medium term while maintaining. operating profitability, at 8-9% range with back-to-back arrangement with customers for raw material pass through. Though, end user market, Europe is likely to face moderation in economic growth, company is diversifying to North America and has gained new orders from the region. As a result, volumes are likely to grow at 5-7% in the medium term.

 

AIL has adequate liquidity in the form of expected net cash accruals of Rs 30-33 crores in fiscal 2023 and 2024 as against repayment obligations of Rs 7-8 crores per annum. Bank limit of Rs 130 crore remain utilised at an average of 77% over the 12 months ended November 2022, with company always maintaining a buffer of 15-20% in its limits. Company plans to do minimal capex of ~Rs 4 crore per annum in the medium term. Limited capex along with sufficient cash accruals, should result in sustenance of adequate liquidity and healthy debt metrics.

Analytical Approach

Loans from promoters have been considered as 75% equity and 25% debt on account of zero withdrawals in last 3 years, zero interest and subordination to all other debts

Key Rating Drivers & Detailed Description

Strengths:

Presence in value added steel segment and reputed client base:

AIL’s product offering includes value added stainless steel long products of varying grades, sizes and shapes which are customized according to the client requirement. The company focuses more on niche product lines rather than volume-based products. Furthermore, AIL has a reputed client base spread over diverse industries such as oil and gas, aerospace, power generation and also various steel traders. Presence in customised stainless steel product manufacturing segment, long standing relationships with customers and healthy orderbook of Rs 157 crores as of December 2022 will facilitate growth in the medium term. Revenue has improved by 3-year CAGR of 35% till fiscal 2022 and is expected to increase by 35% in current fiscal 2023. AIL derives majority of its revenue from exports to Europe, however, the company has started exporting to new markets such as North America this fiscal.

 

Experienced promoters and management team:

AIL is promoted by Mr. Anand Gupta having experience of more than 20 years in the steel industry. The promoter, Mr Anand Gupta is actively involved in daily operations and has developed strong global market for AIL with ~550 customers across 60 countries. The promoters have consistently infused funds to support growth and sustainability in tough times. They have extended unsecured debt Rs 8.1 crore till fiscal 2022. The expertise of the promoters, their strong understanding of market dynamics, healthy relations with customers and suppliers and timely, need-based funding support should continue to boost business growth.

 

Improving financial risk profile

The company has sustained operating efficiency over the past three years, with operating margin stable at 8-9%. The operating profitability should sustain at such levels, given the sustenance of demand and benefit of operating leverage.

 

Net worth and gearing are expected to be around Rs 90-95 crore and gearing of 1.35-1.40 times in the medium term. They were Rs 82.00 crore and 1.50 times, respectively, as on March 31, 2022. Interest coverage and NCAAD ratios are expected to be around ~5 times and 0.26 times, respectively, in fiscal 2023, from 6 times and 0.19 times in the fiscal 2022. AIL’s debt metrics remain moderate as company has no capex plans in the medium term.  Debt levels are expected to increase further with increase in scale of operations, with, overall debt levels are expected to remain at ~ Rs 120-130 crore.Net Cash accrual -- projected at Rs 33-35 crore each for fiscals 2023 and 2024 -- should comfortably cover yearly debt obligation of Rs 7-8 crore.

 

Gearing and TOL/TNW to be better at 1.09 times and 2.14 in fiscal 2024 compared to expected 1.38 times and 2.63 times respectively in fiscal 2023, on account of moderate (80%-85%) utilization of Working Capital limits and controlled Term Loan levels driven by gradual repayment of term loans. With sustenance of improved operating performance, reduction in debt and minimum capex, the debt metrics are expected to improve in the medium term.  Any major debt funded capex would be a key monitorable.

 

Weakness:

Large working capital requirement

Operations are working capital intensive with Gross Current Assets around 157 days in fiscal 2022. AIL has receivables of around 64 days as on March 31, 2022, which has increased from 45 days as on March 31, 2020. The receivables days is expected to remain in the range of 60-65 days in medium term owing to large proportion of exports, leading to high reliance on short-term debt. Any sustained increase in debtors and hence working capital requirement with the increasing scale will be a key monitorable.

 

Susceptibility to fluctuations in raw material and forex prices

AIL, being a Tier II supplier to end-user component industry, provides limited value addition to its final product. Further, the company is susceptible to the risk of volatility in the price of raw materials such as scraps, billets and base metals; the cost of input material varies depending on the demand-supply scenario. Any price hike, if not passed through, amid intense competitive pressure will continue to constrain scalability, pricing power and profitability. 

 

Exports to European market account for majority of the total revenue. Any negative deviation in foreign currency may impact the overall profitability. Currently, the company has partial hedging policy to mitigate the same, besides natural hedging to an extent.

Liquidity: Adequate

AIL has adequate liquidity driven by expected cash accruals of more than Rs.33-35 crore per annum in FY23 and FY24 and cash and cash equivalents of Rs. 36 crores as on March 31, 2022. AIL also has access to fund-based limits of Rs.130 crore, utilized to the tune of 77% on an average over the 12 months ended November 2022. Company always maintains a buffer of 15-20% in its limits. The company has long term repayment obligations around Rs.7-8 crore each in FY23 and FY23 and modest capex plan of 4 crores per annum.

Outlook: Stable

CRISIL Ratings believes AIL will maintain its established market position and continue to benefit from its integrated operations over the medium term given the favorable outlook on stainless steel industry and expansion in exports segment. Its financial risk profile is also expected to remain adequate, supported by prudent capex spend, and working capital management.

Rating Sensitivity Factors

Upward Factor

• Steady and sustained operating performance, resulting in increase in cash accrual  on sustained basis.
• Improvement in financial risk profile with gearing below 1.3 times and TOL/TNW below 2.5 time on a sustained basis

 

Downward factor

• Weak operating performance resulting in steep decline in annual accruals
• Weakened cash generation, along with elongation in working capital cycle and increased capex impacting credit metrics; for instance, gearing and TOL/TNW increasing over 2 times and 3.5 times respectively

About the Company

Aamor Inox Limited (AIL), formerly known as Ambica Stainless Steel Ltd was incorporated in 1970 and is promoted by Mr. Anand Gupta who has experience of over 20 years in the industry. AIL is primarily engaged in manufacturing and exporting of specialty steel long products and caters to diverse industries such as Aerospace, Oil and Gas, Petroleum, Automotive, Pharmaceutical etc. The company is headquartered in New Delhi and has manufacturing facility at Sahibabad in Uttar Pradesh. Few of the products manufactured by AIL include bright bars, HRAP Flats and Angles, Hexagon bars, Square bars etc. in various grades and sizes.

 

For six months ended September 2022, AIL has OPBDIT of Rs 34.01 crore on revenues of Rs 387.06 crore. Company has achieved sales of Rs 539 crore till December 2022.

Status of noncooperation with previous CRA

AIL has not cooperated with Brickworks Ratings India Private Limited (Brickworks), which has classified it as issuer not cooperative vide its release dated June 16, 2022. The reason provided by Brickworks is non-furnishing of information for monitoring of ratings

Any other information: Not applicable