| Astrotech Steels Private Limited | ||||||
| Rating upgraded to 'CRISIL A-/Stable'; 'CRISIL A2+' assigned to Bank Debt; 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 upgraded its rating on the long-term bank facilities of Astrotech Steels Private Limited (ASPL) to ‘CRISIL A-/Stable’ from ‘CRISIL BBB+/Stable’. ‘CRISIL A2+’ has been assigned to the short-term bank facility.
The upgrade reflects substantial increase in scale of operations, driven by increased volumes and realisations, extensive experience of the promoters in the specialised fasteners segment and ability to sustain operating margin even amidst raw material price volatility and freight cost escalation. The ratings are also supported by healthy financial risk profile, driven by strong capital structure and debt protection metrics. These strengths are offset by high customer and geographical concentration and working capital-intensive nature of operations. Moreover, with majority of revenue coming from exports, the company is also exposed to foreign currency risk.
Revenue is estimated to have grown 172% to Rs 445 crore in fiscal 2022, driven by improvement in realisation (~70%) and volumes (~55%). The company had increased its capacities to 36,000 metric tonne per annum (MTPA; from 30,000 MTPA) during the third quarter of fiscal 2022, the full impact of which would be visible in fiscal 2023. Furthermore, capacities are further being expanded to 45,000 tonne per annum (TPA) this fiscal to service increasing demand. Apart from sustained demand from longstanding customers, such as Koki Holdings and SouthernCarlson, who contributed to over 70% of revenue in fiscal 2022, ASPL is in the process of adding Home Depot as a new customer in the US, which is expected to account for 15-20% of the volumes of the company over the next 2-3 years. ASPL has also been steadily increasing its geographical diversity with sales to Europe, Canada and Australia with non-US sales growing to Rs 44 crore in fiscal 2022 (Rs 5 crore in fiscal 2018). During the first quarter of fiscal 2023, ASPL generated revenue of Rs 134 crore. Going forward, revenue is expected to grow 8-12% per annum driven by sustained volume growth.
Operating margin in fiscal 2022 improved to 12.9% (11.9% in fiscal 2021) despite increase in raw material and freight costs. Since ASPL is a contract manufacturer, it is able to pass on majority of the raw material and freight expenses, which constitute 75-80% of total revenue. Also, substantial revenue growth in fiscal 2022 led to better absorption of fixed costs. Going forward, ASPL is expected to maintain operating margin of 11-13%.
ASPL’s financial risk profile continues to remain healthy with adequate networth estimated at around Rs 128 crore and total debt of Rs 83 crore as on March 31, 2022. Networth is expected to further improve with expected accrual of Rs 40-50 crore each fiscal over the medium term. The debt protection metrics are expected to remain healthy with interest coverage ratio of 8-11 times and Net Cash Accruals to Total Debt (NCATD) expected at 0.5-0.8 time. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has taken into account the standalone financial and business profiles of ASPL. |
Key Rating Drivers & Detailed Description Strengths:
Weaknesses:
Customer concentration risk is also high with the top five clients accounting for ~90% of revenue in fiscal 2022 and earlier years. Given that these clients have been with the company for a long time, their contribution to ASPL’s revenue is expected to remain high over the medium term as well. Reduction in client and geographical concentration will be a key monitorable over the medium term.
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Liquidity: Adequate ASPL’s liquidity is healthy with expected accrual of Rs 40-50 crore, which is sufficient to meet the debt obligation and capex in fiscals 2023 and 2024. The company also has liquid surplus of Rs 67 crore, of which Rs 40-45 crore is unencumbered as on March 31, 2022. ASPL has access to working capital limits of Rs 60 crore which were utilised at 75% on average in the 12 months through May 2022 providing a liquidity cushion to meet any exigencies. |
Outlook: Stable CRISIL Ratings expects ASPL’s business profile will continue to benefit from the promoters’ extensive experience in the business, continuous increase in customer base and higher geographical diversification of revenue which will result in higher accrual and improvement in the financial risk profile. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company Incorporated in 2011 in Sri City, Andhra Pradesh, ASPL is currently managed by Mr Arun Miranda and Mr Jaison Joseph. The company manufactures specialised fasteners which finds use in the construction and industrial sectors. ASPL has an installed capacity of 30,000 TPA currently and the projected capacity after the expansion would be 45,000 TPA. |
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)
*Pre-shipment credit of Rs 60 crore and letter of credit of Rs 15 crore as sublimit |
| 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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Criteria Details
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