Rating Rationale
December 03, 2021 | Mumbai
Jyoti Strips Private Limited
Ratings upgraded to 'CRISIL BBB+ / CRISIL A2 '; outlook revised to 'Stable'
 
Rating Action
Total Bank Loan Facilities RatedRs.372 Crore
Long Term RatingCRISIL BBB+/Stable (Upgraded from 'CRISIL BBB/Positive' and outlook revised to 'Stable')
Short Term RatingCRISIL A2 (Upgraded from 'CRISIL A3+')
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has upgraded the ratings on the bank facilities of Jyoti Strips Private Limited to ‘CRISIL BBB+/CRISIL A2’ from CRISIL BBB/CRISIL A3+ while revising the outlook on long-term ratings to ‘Stable’ from ‘Positive’.

 

The rating revision factors in the improvement in scale of operations of JSPL marked by volume growth and increase in commodity prices as well as successful ramp up of operations in its recently acquired subsidiary: Uttam Strips Ltd [USL; rated CRISIL BBB+ (CE)/Stable/CRISIL A2 (CE)*].

 

The ratings continue to factor in JSPL's established position in the steel trading business in Northern India, diversified customer base, comfortable financial risk profile, and efficient working capital management. These strengths are partially offset by exposure to supplier concentration risk and to intense competition in the steel trading industry.

 

*based on credit enhancement backed by an unconditional and irrevocable guarantee, and additional undertaking provided by JSPL

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of JSPL and its wholly owned subsidiary, USL for this rating action. This is because both the entities have common management and are expected to derive significant business synergies. Further, JSPL has given an unconditional and irrevocable guarantee, and additional undertaking provided for the bank facilities availed by USL.

 

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 in North India: JSPL benefits from its promoters' experience of more than three decades and strong relationship with key principal supplier: Tata Steel BSL (formerly known as Bhushan Steel Ltd [BSL]). The consolidated revenue stood increased to Rs. 2,109 crore in Fiscal 2021 from Rs 1,637 crore in fiscal 2020. The increase in largely on account of ramp-up of operations in USL (wherein standalone revenue increased to Rs. 690 crore in Fiscal 2021 from Rs. 86 crore in Fiscal 2020).

 

Rapid growth in scale of operations has continued in first half of Fiscal 2022 (Apr-Sep 2021) as reflected by standalone revenue of Rs. 1,236 crore for JSPL and Rs. 678 crore for USL as both the companies have benefited from recent rally in steel product prices and revival of demand from end user industries.

 

The same is complimented by a diversified clientele of over 3,000 regular, large, and medium-sized corporations spread across the automobile, general and heavy engineering, fabrication, pipe and tubes, home appliances, and power and infrastructure segments. This reduces sales risk and lends stability to revenue profile. The customer-mix of USL also is spread across industries such as automobile, home appliances, among others.

 

  • Healthy financial risk profile: With a consolidated networth of Rs. 454 crore as on March 31, 2021, the overall gearing was comfortable at 0.87 times as on March 31, 2021. Debt protection metrics were also comfortable, with interest coverage ratio of around 6 and Net Cash Accruals to total debt of 0.28 times for Fiscal 2021 at consolidated level.

 

With recent enhancement in sanctioned bank line for USL and plans for capex to increase installed capacity in the company (for which term loan has already been sanctioned and partially drawn-down), the total debt on consolidated basis is expected to peak towards Fiscal 2022 end. Nonetheless, the financial risk profile and coverage indicators are expected to be comfortable. Going forward, higher than anticipated debt or cost over-runs in planned capex would remain key rating monitorable.

 

Weaknesses:

  • Exposure to supplier concentration risk: JSPL meets a sizable of its procurements from Tata Steel BSL Limited. For JSPL to meet growth in sales of over medium term, steady flow from Tata Steel BSL will remain a critical factor. USL, being a forward integration entity, also partially relies on supplies from Tata Steel BSL.

 

  • Exposure to intense competition: The steel trading industry is dominated by many unorganised players catering to local demand. These players primarily cater to regional demand to save on high transportation cost, as price is the main differentiating factor. Also, since steel is a commodity product where brand recognition and loyalty are not high, demand is extremely sensitive to change in prices. Commoditized industry and the resultant intense competition may continue to constrain scalability, pricing power, and profitability.

 

The consolidated profitability margins were 6.4% during Fiscal 2021, increasing from around 3.3% in Fiscal 2022, largely on account of increase in value-additive manufacturing process at USL as against trading in JSPL. Operating margins are expected to be in range of 5-6% at consolidated level over medium term.

Liquidity: Adequate

The bank limit utilisation was moderate at around 89% through the past twelve months ending October 2021. Consolidated Net Cash Accrual (NCA) are expected to be over Rs 100 crore for Fiscal 2022 and over Rs. 125 crore in Fiscal 2022 against which would be sufficient to meet the term debt obligations of Rs. 30-40 crore. Current ratio are moderate at 1.33 times on March 31, 2021. Further, USL’s liquidity is underpinned by the financial support of JSPL, backed by an unconditional and irrevocable guarantee

Outlook: Stable

CRISIL Ratings believe JSPL will continue to benefit from the extensive experience of its promoter and will continue to maintain an established position in the steel trading segment.

Rating Sensitivity factors

Upward factors:

  • Sustained improvement scale of operations backed by volumetric growth on Year on Year basis
  • Consolidated Revenue of more than Rs. 3000 crore and operating margins upward of 6-7% on sustainable basis, leading to higher cash accruals.
  • Timely completion of capex in USL leading to increase in volumes without stretching of working capital cycle

 

Downward factors:

  • Decline in profitability by 200 basis point, with revenue dropping by 15% leading to lower than expected net cash accruals
  • Large debt-funded capital expenditure weakens capital structure
  • Stretch in working capital cycle weakening liquidity

About the Company

Established in 1998 in Faridabad, Haryana, as a proprietorship firm and reconstituted as a private limited company in 2007, JSPL trades in flat steel products such as hot-rolled and cold-rolled coils, sheets, and plates. It is an authorised distributor of BSL since inception. The company is promoted by the late Mr Harprasad Garg and his son, Mr Naresh Garg. JSPL also has coil cutting and slitting facilities.

 

JSPL acquired 100 % stake in USL from June-2019. The company is involved in manufacturing of cold rolled closed annealed (CRCA) sheets, coils and strips along with precision tubes, wire rods, metallic home products such as ironing boards, space savers, driers, step ladders and automotive components.

Key Financial Indicators

As on / for the period ended March 31*

 

2021

2020

Operating income

Rs crore

2,109.07

1,636.75

Reported profit after tax

Rs crore

82.89

10.69

PAT margins

%

3.9

0.7

Adjusted Debt/Adjusted Net worth

Times

0.87

0.77

Interest coverage

Times

6.07

2.56

*CRISIL adjusted figures

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)

ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs crore) Complexity Levels Rating assigned with outlook
NA Cash Credit NA NA NA 38 NA CRISIL BBB+/Stable
NA Proposed working capital Facility NA NA NA 67.28 NA CRISIL BBB+/Stable
NA Auto Loans NA NA Mar-2027 14.46 NA CRISIL BBB+/Stable
NA Electronic Dealer Financing Scheme(e-DFS) NA NA NA 30 NA CRISIL A2
NA Loan against property NA NA Mar-2025 5.15 NA CRISIL BBB+/Stable
NA Working capital demand loan NA NA NA 25.11 NA CRISIL BBB+/Stable
NA Letter of Credit & NA NA NA 100 NA CRISIL A2
NA Letter of Credit NA NA NA 92 NA CRISIL A2

& - 100% inter-changeability To E-VFS

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Uttam Strips Limited

Full

Financial and operational linkages

Jyoti Strips Private Limited

Full

Ownership and financial and operational linkages

 

Annexure - Rating History for last 3 Years
  Current 2021 (History) 2020  2019  2018  Start of 2018
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT/ST 180.0 CRISIL BBB+/Stable / CRISIL A2 12-02-21 CRISIL A3+ / CRISIL BBB/Positive   -- 19-11-19 CRISIL A3+ / CRISIL BBB/Stable 16-01-18 CRISIL BBB+/Stable CRISIL BBB+/Stable / CRISIL A2
      -- 30-01-21 CRISIL BBB/Positive   -- 13-11-19 CRISIL BBB/Stable   -- --
      --   --   -- 20-08-19 CRISIL BBB+/Watch Developing   -- --
      --   --   -- 22-05-19 CRISIL BBB+/Watch Developing   -- --
      --   --   -- 06-03-19 CRISIL BBB+/Watch Developing   -- --
      --   --   -- 28-02-19 CRISIL BBB+/Watch Developing   -- --
Non-Fund Based Facilities ST 192.0 CRISIL A2 12-02-21 CRISIL A3+   -- 19-11-19 CRISIL A3+ 16-01-18 CRISIL A2 CRISIL A2
      -- 30-01-21 CRISIL A3+   -- 13-11-19 CRISIL A3+   -- --
      --   --   -- 20-08-19 CRISIL A2/Watch Developing   -- --
      --   --   -- 22-05-19 CRISIL A2/Watch Developing   -- --
      --   --   -- 06-03-19 CRISIL A2/Watch Developing   -- --
      --   --   -- 28-02-19 CRISIL A2/Watch Developing   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Auto Loans 3.08 Axis Bank Limited CRISIL BBB+/Stable
Auto Loans 0.23 Kotak Mahindra Bank Limited CRISIL BBB+/Stable
Auto Loans 1.96 ICICI Bank Limited CRISIL BBB+/Stable
Auto Loans 9.19 TATA Motor Finance Limited CRISIL BBB+/Stable
Cash Credit 10 HDFC Bank Limited CRISIL BBB+/Stable
Cash Credit 15 State Bank Of India CRISIL BBB+/Stable
Cash Credit 1 The Kaur Vysya Bank Limited CRISIL BBB+/Stable
Cash Credit 12 The Karnataka Bank Limited CRISIL BBB+/Stable
Electronic Dealer Financing Scheme(e-DFS) 30 Yes Bank Limited CRISIL A2
Letter of Credit& 100 State Bank Of India CRISIL A2
Letter of Credit 29 The Kaur Vysya Bank Limited CRISIL A2
Letter of Credit 33 The Karnataka Bank Limited CRISIL A2
Letter of Credit 30 HDFC Bank Limited CRISIL A2
Loan Against Property 5.15 DMI Housing Finance Private Limited CRISIL BBB+/Stable
Proposed Working Capital Facility 67.28 NA CRISIL BBB+/Stable
Working Capital Demand Loan 1.76 The Kaur Vysya Bank Limited CRISIL BBB+/Stable
Working Capital Demand Loan 20.99 State Bank Of India CRISIL BBB+/Stable
Working Capital Demand Loan 2.36 The Karnataka Bank Limited CRISIL BBB+/Stable

This Annexure has been updated on 03-Dec-2021 in line with the lender-wise facility details as on 02-Dec-2021 received from the rated entity.

& - 100% inter-changeability To E-VFS
Criteria Details
Links to related criteria
Criteria for rating trading companies
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Steel Industry
CRISILs Criteria for rating short term debt
CRISILs Criteria for Consolidation

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