| Arora Iron and Steel Rolling Mills Private Limited | ||||||
| Ratings reaffirmed at 'CRISIL A-/Stable/CRISIL A2+'; rated amount enhanced for Bank Debt | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed ratings on the bank facilities of Arora Iron and Steel Rolling Mills Private Limited to (AISPL) to CRISIL A-/Stable/CRISIL A2+.
The ratings continue to reflect the established market position and strong financial risk profile of the group. These strengths are partially offset by susceptibility to fluctuations in raw material prices and foreign exchange (forex) rates and working capital-intensive operations. |
Analytical Approach For arriving at its ratings, CRISIL Ratings has combined the business and financial risk profiles of AISPL and Jyoti Industries (Unit-II) (JI). This is because the two entities, together referred to as the Arora group, have strong operational, managerial and business linkages.
Unsecured loan of Rs 64.90 crore extended to the group by its promoters and their associates are treated as neither debt nor equity as the interest rate is higher than bank rates and the loans are expected to remain in the business over the medium term.
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:
Presence of more than two decades in the steel products industry has enabled the promoters to establish healthy relationships with customers and suppliers. Clientele is diversified, with no customer accounting for more than 12% of the overall revenue. The group is also planning to manufacture bright bar shops that will lead to forward integration, with support in the form of increased efficiency from SMS modification and scrap processing yard.
Despite debt-funded capital expenditure, capital structure is expected to remain healthy over the medium term, supported by healthy accretion to reserves and no sizeable dividend outgo. Networth is expected to be around Rs 200 crore and gearing under 1 time, as on March 31, 2022. Debt protection metrics should remain adequate, with interest coverage and net cash accrual to adjusted debt ratios of 5 times and 0.25-0.30 time, respectively, in fiscal 2022 because of a stable operating profitability.
Weaknesses:
Material cost comprises over 70% of the revenue. Thus, any sharp fluctuation in raw material prices could adversely impact profitability. Moreover, the group imports scrap steel as raw material for manufacturing billets, which exposes profitability to volatile forex rates. However, operating margin has remained at 6% over the past three fiscals and is expected to be 6.2% in fiscal 2022 on the back of a reputed clientele and better realisations. Though addition of high value-added products to the portfolio (bright bars shops) will support profitability, sustaining it at similar levels will remain a key monitorable.
Gross current assets were 134 days as on March 31, 2021, driven by stretched receivables (78 days) and moderate inventory (27 days). Receivables level was high as around 35% of the total sales were made in the last quarter of fiscal 2021, while the need to maintain products in many sizes and compositions led to moderate inventory. Receivables are expected to remain at a similar level over the medium term. Working capital is partially supported by payables of 40-50 days and cushion in bank limit. Efficient working capital management amid increasing scale of operations will remain a key monitorable. |
Liquidity: Strong Bank limit utilisation was moderate at 79.04% for the 12 months through December 2021. Cash accrual is expected to be Rs 45-50 crore against term debt obligation of Rs 15 crore over the medium term; the remaining accrual will cushion liquidity. Current ratio was healthy at 1.46 times as on March 31, 2021. The promoters are likely to extend equity and unsecured loans to meet working capital requirement and debt obligation. |
Outlook: Stable The Arora group will continue to benefit from the experience of its promoters and healthy relationships with customers. |
Rating Sensitivity factors Upward Factors:
Downward Factors:
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About the Group AISPL was incorporated in 1995 while JI was established as a partnership firm in 1997. The Ludhiana (Punjab)-based group has integrated operations to manufacture hot-rolled products to be used in the auto industry. It has also backward integrated into manufacturing ingots and billets. Operations are managed by Mr Raminder Pal Singh (director). |
Key Financial Indicators
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 05-May-2022 in line with the lender-wise facility details as on 05-May-2022 received from the rated entity.
Criteria Details
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