Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL A/Stable/CRISIL A1’ ratings on the bank loan facilities of Agarwal Coal Corporation Pvt Ltd (ACCPL; a part of the Agarwal group).

 

The ratings continue to reflect the stable operating performance of the imported coal trading business, driven by steady volumes and healthy demand for imported coal on the back of strong economic growth in fiscal 2024. Operating margin dropped for fiscal 2024 due to the downward movement in international coal prices. This was partially offset by the decrease in the company’s working capital requirements and subsequent debt reduction. Going forward, CRISIL Ratings believes that the group will maintain its traded volumes, healthy liquidity and adequately hedge its foreign exchange (forex) exposure in line with the existing policy. Operating margin is expected to improve marginally on account of stability in international coal prices, but will remain a key rating monitorable.

 

The company continues to benefit from its long-term relationships with suppliers despite global macro headwinds. The group reported earnings before interest, tax, depreciation and amortisation (Ebitda) per tonne of Rs 213 for fiscal 2024 against Rs 618 the previous fiscal. Imported coal prices fell during fiscal 2024, which led to this moderation. Ebitda per tonne is expected to improve marginally from the current levels. Volumes will likely remain stable this fiscal supported by an increase in Indian coal trading due to reduction in imported coal volumes in India.

 

Moreover, the financial risk profile remains healthy supported by adequate debt protection metrics with an adjusted interest coverage of 2.6 times in fiscal 2024 and a total outside liabilities to tangible networth (TOL/TNW) ratio of less than 0.8 time. Liquidity remains strong driven by unencumbered cash and equivalent of around Rs 750 crore as on December 31, 2024.

 

Furthermore, the ratings reflect the Agarwal group's established market position in the imported thermal coal trading business and healthy financial risk profile. These strengths are partially offset by the susceptibility of debt protection metrics to adverse movements in forex rates and exposure to risks related to stretched working capital cycle and bad debt.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of ACCPL and its associate companies – Agarwal Fuel Corporation Pvt Ltd (AFCPL), Agarwal Coal Corporation (Singapore) Pte Ltd (ACCSPL) and Agarmin Coal Washery Pvt Ltd (ACWPL) as the companies have common promoters and strong operational and financial linkages. These companies are collectively referred to as the Agarwal group.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Established market position: The Agarwal group is a leading player in the imported non-coking coal trading business in India and has been maintaining its market share of 6-8% since fiscal 2018. The customer base (mainly in Gujarat, Karnataka, West Bengal, Maharashtra, Chhattisgarh, Odisha and Tamil Nadu) comprises of small and medium companies in diverse segments, such as textiles, steel, captive power generation and ceramics. The group also provides stevedoring and inland transportation services to large customers.

 

The stable market position and diversified clientele will mitigate the impact of a decline in demand, if any, from any one sector. While the coal trading volume will be supported by continued demand from the power sector and government guidelines to blend imported coal by power plants, sustenance of the coal trading volume will remain a key monitorable.

 

• Healthy financial risk profile: The financial risk profile is supported by healthy debt protection metrics and capital structure. Being in the trading business, the Agarwal group avails mostly working capital limits, including letter of credit facilities (LC). As of March 2024, it had outstanding working capital limits including LCs of around 15% of the operating income.. Out of this, around 55% was secured against margin money fixed deposits. The capital structure also remained healthy with net gearing (adjusted net debt[1] to adjusted networth) of -0.17 time as on March 31, 2024 (0.19 time as on March 31, 2023). Furthermore, the group hedges 70-80% of its forex exposure as per the hedging policy, which contributes to higher interest and finance costs. However, interest coverage ratio is likely to remain range-bound at 2-3 times and net gearing is expected to be below 0.1 time over the medium term. Lastly, the group has reduced its total debt to around Rs 1,600 crore in fiscal 2024 from Rs 2,592 crore2 in fiscal 2023. This reduction was on account of lower working capital requirements due to lower coal price. The group liquidated some of its fixed deposits encumbered against its working capital limits to reduce debt.

 

The group has invested a total of around Rs 375 crore, as of March 2024, in the real estate business, Agarwal Real Infra LLP (a promoter-owned entity), and plans to invest an additional ~Rs 410 crore over the next 3 years (already invested around Rs 83 crore in the first half fiscal 2025). Additionally, the group will be taking up two solar projects of 20 megawatt (MW) each in Rajasthan through two special purpose vehicles (SPVs)– Agarwal Energen 1&2 Pvt Ltd. The total cost of these projects is estimated at Rs 140 crore, of which Rs 40 crore is to be an equity investment from ACCPL and the remaining will be debt-funded. A corporate guarantee shall be provided by ACCPL to the SPVs till the commissioning of the projects. CRISIL Ratings understands that, going forward, an unencumbered cash balance of at least Rs 500 crore will always be maintained by the group for its coal trading business. Any material deviation in cash accrual or interest coverage ratio, more-than-anticipated investment in group entities or diversification into unrelated businesses will be key rating sensitivity factors.

 

Weaknesses:

• Susceptibility to fluctuations in forex rates: The entire thermal coal requirement is imported against LCs at sight and through buyer’s credit (generally of 180 days) to finance the LCs, and therefore, the group’s liability is denominated in US dollars. As on March 31, 2024, the group had foreign currency-denominated liabilities of ~Rs 1,142 crore (~Rs 1,648 crore as on March 31, 2023). While the group’s policy is to hedge 70-80% of its forex exposure through options and forward contracts, the extent of hedging differs each year (81% for fiscal 2024 and 72% for fiscal 2023) and profitability remains susceptible to the unhedged forex portion as well. The group incurred a forex loss (including hedging cost) of Rs 47 crore during fiscal 2024 (Rs 176 crore in fiscal 2023) and will remain susceptible to forex fluctuations, which may lead to higher expenses over the medium term. More-than-expected variation in forex-related costs (including hedging costs) will remain a key rating sensitivity factor.

 

• Exposure to risks of stretched working capital cycle and bad debt: The group sells to diversified, mid-sized companies on high-sea basis, and to small players through the stock-and-sale model. There have been delays in the past in payments from some customers in the cement and steel industries, which had resulted in receivables of over 120 days. However, the group has since implemented a strict debtor collection policy and capped its exposure to individual customers, thus improving its working capital position. Thus, receivables position has improved during the current fiscal. That said, the group remains exposed to risks related to moderation in the credit profiles of counterparties it deals with.

 

The group relies on working capital debt, which helps maintain healthy debt protection metrics. Receivables are expected to remain around the same level over the medium term. Higher traded volumes and delays in payment may stretch the working capital cycle, which will remain a key monitorable.

1 Net debt = adjusted debt – cash and cash equivalents

2 The company restated financials for fiscal 2023 of ACCPL where around Rs 690 crore of borrowings were reclassified as trade payable

Liquidity: Adequate

Liquidity is backed by unencumbered cash and equivalent of around Rs 750 crore as of December 2024, average bank limit utilisation of around 36% for the 12 months through September 2024 (sanctioned limit of Rs 190 crore for ACCPL and AFCPL combined) and expected cash accrual of around Rs 250 crore this fiscal. The group largely relies on short-term debt, which is mostly backed by 100% cash margin. However, it is expected to maintain an unencumbered cash balance of at least Rs 500 crore going forward. Nevertheless, liquidity remains susceptible to fluctuations in forex rates, which will remain a key rating sensitivity factor.

Outlook: Stable

CRISIL Ratings believes the Agarwal group will continue to benefit, over the medium term, from its established market position and healthy operating performance.

Rating sensitivity factors

Upward factors:

• Improvement in the operating performance with net cash accrual of more than Rs 400 crore and interest coverage ratio of 5.5 times over the medium term
• Significant increase in traded volumes, along with improvement in profitability and efficient working capital management leading to improvement in the liquidity position

 

Downward factors:

• Adverse forex rate movements or lower profitability, leading to net cash accrual of less than Rs 150 crore on a sustained basis
• More-than-expected investments in group entities/unrelated businesses, adversely impacting the financial risk profile and liquidity
• Delays in realisation of receivables or adverse risk management policies

About the Group

Set up as a proprietorship concern in 1966, ACCPL was reconstituted as a private limited company in 2000. The group is currently led by Mr Vinod Kumar Agarwal and is one of the leading coal importers in India. ACCPL, together with AFCPL, trades in imported and domestic coal. AFCPL also provides stevedoring and inland transportation services exclusively to customers of group companies. ACCSPL was formed to cater to customers dealing with foreign suppliers.

 

During the first half of fiscal 2025, the Indian entities of the group reported operating income of around Rs 5,800 crore and profit after tax (PAT) of Rs 155 crore.

Key Financial Indicators (consolidated)*

As on / for the period ended March 31	Unit	2024	2023
Operating income	Rs crore	9,962	13,153
PAT	Rs crore	336	506
PAT margin	%	3.4	3.9
Adjusted debt (gross) /adjusted networth	Times	0.54	1.30
Adjusted interest coverage	Times	2.58	3.23

*As per analytical adjustment by CRISIL Ratings

Any other information: Not Applicable