Rating Rationale
April 05, 2018 | Mumbai
Gallantt Ispat Limited
 
Rating Action
Total Bank Loan Facilities Rated Rs.128 Crore
Long Term Rating CRISIL BBB-/Stable
Short Term Rating CRISIL A3
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL ratings on the bank facilities of Gallantt Ispat Limited (GIL; part of GIL group) continues to reflect the established presence of GIL in the steel industry, comfortable financial risk profile, and sufficient liquidity. These strengths are partially offset by the geographical concentration risk in revenue, volatility in operating margins and demand risks related to the recent capacity expansion undertaken by the group.

On Mar 27, 2018, CRISIL had assigned its 'CRISIL BBB-/Stable' rating on the bank facilities of GIL.

Analytical Approach

CRISIL has consolidated the business and financial risk profile of Antarmukh Steel Manufacturer Pvt Ltd, Bhavika Smeltors and Food Products Pvt Ltd, Shrinu Rolls and Milling Pvt Ltd and Satlaj Rolls and Milling Pvt Ltd with GIL, together referred to as Gallantt group, as the 4 companies are under merger process and will be merged with GIL once all the regulatory formalities are completed.

Key Rating Drivers & Detailed Description
Strengths:
* Established presence in the industry: Though GIL was incorporated in 2005, it is a part of the Gallantt group that has been in the steel business since 1984. The group operates a primary steel plant and own private railway siding in Uttar Pradesh and has an established presence in the steel industry with its Gallant brand. The GIL group has expanded capacities and also benefits from the integrated operations with captive power consumption.

* Comfortable financial risk profile: Large networth of Rs 511 crore led to a strong gearing of 0.3 time, as on March 31, 2017. Further, despite availing of term loan of Rs 30 crore during fiscal 2018, gearing is expected to remain steady. Though the term loan will have a bearing on interest coverage ratio, it will remain healthy at 10-13 times. Also, the proposed capex of Rs 510 crore is expected to happen in a granular manner after 2 to 3 years, thereby providing stability to the financial risk profile over the medium term.

* Adequate liquidity: The accruals over and above repayments will aid the growing working capital requirements. As against the annual accruals of Rs 60-80 crore, the repayments are likely to remain in the range of Rs 8-10 crore per year, thereby providing cushion to the liquidity.

Weaknesses
* Geographical concentration in revenue: Since majority of revenue comes from Uttar Pradesh, business risk profile will remain exposed to any downturn or political disturbance in that state.

* Volatile operating profitability: Changing steel prices have led to fluctuations in operating margin to 12.3% in fiscal 2017 from 9.8% in fiscal 2016 and 10.4% in fiscal 2014. However, fully integrated operations and installation of private railway siding for easy movement of raw material and finished goods have led to lower logistic costs, which will improve profitability over the medium term.

* Demand risk from the expanded capacities: The group has expanded its sponge iron, ingot manufacturing and rolling mill capacities in fiscal 2018 and hence is expected to face demand risk for the sales of the rolling products since it is majorly present in Uttar Pradesh. However, the strong brand positioning under the Gallant brand will aid the sales over the medium term.
Outlook: Stable

CRISIL believes that the GIL group will continue to benefit over the medium term from the extensive experience of its promoter and fully integrated operations. The outlook may be revised to 'Positive' if more-than-expected increase in revenue and profitability improves business risk profile, while maintaining working capital cycle. The outlook may be revised to 'Negative' if revenue and profitability deteriorate, or sizeable debt-funded capital expenditure affects financial risk profile.

About the Company

Incorporated in 2005 in Gorakhpur, Uttar Pradesh, and promoted by Mr Chandra Prakash Agrawal, GIL is a public limited company listed on the Bombay Stock Exchange and National Stock Exchange. The company with its fully integrated operations manufacturers TMT bars under the Gallant brand and also operates a flour mill.

Key Financial Indicators
Particulars Unit 2017 2016
Revenue Rs crore 430 535
Profit after tax (PAT) Rs crore 44 29
PAT margin % 10.3 5.3
Adjusted debt/adjusted networth Times 0.3 0.4
Interest coverage Times 12.3 6.9

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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)
ISIN Name of Instrument Date of Allotment Coupon
Rate (%)
Maturity Date Issue
Size
(Rs Cr)
Rating Assigned with Outlook
NA Cash Credit NA NA NA 50 CRISIL BBB-/ Stable
NA Long term loan NA NA Mar-2023 30 CRISIL BBB-/ Stable
NA Letter of credit NA NA NA 40 CRISIL A3
NA Bank Guarantee NA NA NA 6 CRISIL A3
NA Proposed Non fund based limits NA NA NA 2 CRISIL A3
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Quantum Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  80  CRISIL BBB-/Stable  27-03-18  CRISIL BBB-/Stable    --    --    --  -- 
Non Fund-based Bank Facilities  LT/ST  48  CRISIL A3  03-04-18  CRISIL A3    --    --    --  -- 
Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee 6 CRISIL A3 Bank Guarantee 6 CRISIL A3
Cash Credit 50 CRISIL BBB-/Stable Cash Credit 50 CRISIL BBB-/Stable
Letter of Credit 40 CRISIL A3 Letter of Credit 56 CRISIL A3
Long Term Loan 30 CRISIL BBB-/Stable Long Term Loan 14 CRISIL BBB-/Stable
Proposed Non Fund based limits 2 CRISIL A3 Proposed Non Fund based limits 2 CRISIL A3
Total 128 -- Total 128 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies

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