| Iraki Enterprise Limited | ||||||
| 'CRISIL A-/Stable/CRISIL A2+' assigned to 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 assigned ‘CRISIL A-/Stable/CRISIL A2+’ ratings to the bank facilities of Iraki Enterprise Limited (IEL; a part of Iraki group).
The ratings reflect Iraki group’s established market position, moderate working capital cycle and healthy financial risk profile. These strengths are partially offset by risk associated with susceptibility of margin to volatility in raw material prices and low value addition and exposed to end user industry cyclicality and geographical concentration. |
Analytical Approach For arriving at its ratings, CRISIL Ratings has combined the business and financial risk profiles of IEL, Haq Steel and Metaliks Ltd (HSML), Haq Steels Private Limited (HSPL), and German TMX Pvt Ltd (GTPL). This is because all the entities, collectively referred as Iraki Group (IG) are under same promoter and management and have operational and financial linkages.
CRISIL Ratings has treated unsecured loan from promoters and their family member’s has been treated as 75 percent equity as its 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:
The extensive experience of the promoters and their presence in the industry for more than 5 decades have benefited the group as reflected in revenue grown at CAGR of 27% during past seven years to over Rs 1390 crore in FY22 (reflects y-o-y growth of 43%). The group started operations with trading business and over the years, have entered manufacturing segment. Over the past few years, group has done various capacity expansion and subsequent successfully ramp up in scale of operations supporting overall business risk profile. Aside this, plant of group is fully integrated and having established presence in western market through brand name ‘German TMX’.
The group has 2 revenue segments; firstly trading (scrap and pig iron), which further comprises of exclusive tie up with Jindal Saw Ltd and Tata Metaliks Ltd and secondly manufacturing (TMT Bars, billets, and sponge iron). Over the period of time, distributors/dealers network of group had strengthened with dealers of over 1800 as of now. Group also increased its presence on export market with revenue from export market increasing to over 8% in FY22.
Group has a healthy capital structure with expected net worth and gearing of around Rs 207 crore and 0.98 times respectively as on March 31, 2022. Its lower reliance on external borrowing and funding support from promoters with USL of Rs 73 crore as on March 31, 2022 has led to healthy financial risk profile despite various capital expenditure (capex) in past years. The debt protection measures are also estimated to remain healthy with interest coverage and net cash accrual/ adjusted debt around 5.1 times and 0.3 times respectively for FY22. In absence of large debt funded capex and lower reliance on external borrowings, the financial risk profile expected to strengthen over the medium term.
The operations of group are moderately working capital intensive as reflected in gross current asset (GCA) days of 91 days in FY22, although slightly increased from 84 days in FY21 due to marginal increase in debtor days. Group has debtors of 38 days and an inventory of 29 days in FY22. The portion of working capital requirement is being met through creditors of 23 days. Over the medium term, GCA days are expected to remain in range of 90-110 days.
Weaknesses:
The operating margins of group are susceptible to volatility in prices of raw material; however, its impact is limited on account of lower inventory levels. Since input price varies, operating margin have remained volatile (around 5.6% in fiscal 2022 as against 6.8% in fiscal 2021). Operating margin of group expected to improve over the medium term backed by expected commencement of ongoing capex for waste heat recovery power plant from October 2022 onwards. Although, operating margin were range bound in past due to limited value addition, ability of group to derive benefit in terms of power saving post commencement of power plant and subsequent improvement in operating will be key monitorable.
Demand for steel is derived from sectors such as real estate, construction, and infrastructure, which are linked to economic cycle. Additionally, group’s revenue is mainly derived from the state of Gujarat which exposes group’s revenue to the risk associated with geographical concentration. Any slowdown in the economic activity, drop in investments in infrastructure and household or disruption in the state will significantly impact the group’s scale of operation. Though the end-user industries have been witnessing a slowdown for the past couple of years, the established dealer network and customer relationships the promoters have helped partly mitigate this risk. |
Liquidity: Adequate The group has adequate liquidity backed by healthy accruals of over Rs 55 crore against repayment obligations of Rs 4-9 crore; the surplus funds are expected to deploy towards incremental working capital requirement in tandem with growing scale of operations. The bank lines were utilized at around 45 percent over the 12 months ended July 2022. Liquidity further supported by unsecured loan from promoters and their family members amounting Rs 73 crore as on March 31, 2022 and would provide further support in case of any exigencies. The group had unencumbered cash and bank balance/fixed deposits of over Rs 24 crore as on March 31, 2022. |
Outlook: Stable CRISIL Ratings believes, IG group will continue to benefit from the extensive experience of the promoters and established relations. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Group Iraki group (IG) is involved in trading of pig iron and iron scrap and manufacturing of TMT, sponge iron, billets. The group was started in 1970 by Mr. Samsul Haq Iraki and comprises of HSML, Haq Steels Private Limited (HSPL), Iraki Enterprise Limited (IEL), and German TMX Pvt Ltd (GTPL). The current operations are managed by the 2nd and 3rd generation of the Iraki family.
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Key Financial Indicators (Consolidated)
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: CRISIL Ratings will disclose complexity level for all securities – including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available. For more details on the CRISIL Ratings’ complexity levels please visit www.crisil.com/complexity-levels. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
^Fully interchangeability with invoice discounting |
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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Criteria Details
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