Rating Rationale
October 17, 2023 | Mumbai
K.Amishkumar Trading Private Limited
Ratings reaffirmed at 'CRISIL BBB/Stable/CRISIL A3+'
 
Rating Action
Total Bank Loan Facilities RatedRs.400 Crore
Long Term RatingCRISIL BBB/Stable (Reaffirmed)
Short Term RatingCRISIL A3+ (Reaffirmed)
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL BBB/Stable/CRISIL A3+’ ratings on the bank loan facilities of K.Amishkumar Trading Private Limited (KATPL).

 

The operating income declined to Rs 1,366 crores in fiscal 2023 as compared to a high base of Rs 1,840 crores in fiscal 2022 due to significant reduction in prices. The volumes also declined by ~11% on year. Going forward, the operating income is expected to improve to ~Rs 1500 crore. The operating margin though declined in fiscal 2023 to 1.6%, is expected to remain at around 2.5-3.5% in the medium term. For the first five months of the current fiscal, the company achieved a revenue of Rs 534 crores with operating margin of ~2.8%.

 

Going forward, the business risk profile is expected to improve in the medium term as the company has added value-added products like high-tension steel plates that will majorly be imported and have higher margins, supporting cash generation.

 

The working capital cycle slightly moderated with gross current assets (GCA) of 73 days as on March 31, 2023, against 63 days in the previous fiscal. Liquidity stands adequate with unencumbered cash and equivalent of Rs 8.4 crore as of Aug 2023 and average bank limit utilisation of ~15% (of total fund-based limits of Rs 75 crores) for the 12 months ended Aug 2023.

 

The rating also factors in comfortable financial risk profile with nil long-term debt and prudent working capital management with total outside liabilities to tangible networth (TOL/TNW) ratio of 1 time as on March 31, 2023 and the ratio is expected to remain below 1 time over the medium term. 

 

The ratings continue to factor in the extensive experience of the promoters in the steel trading business, established market position and comfortable financial risk profile. These strengths are partially offset by susceptibility of operating profitability to fluctuations in commodity prices and exposure to intense competition.

Analytical Approach

CRISIL Ratings have analysed the business and financial risk profile of the K. Amishkumar Trading Private Limited on a standalone basis.

 

Unsecured loans of Rs 30 crore as on March 31, 2023 (Rs 30 crore as on March 31, 2022), from the promoters and their affiliates have been treated as debt as these bear interest and have been repaid in the past.

Key Rating Drivers & Detailed Description

Strengths:

  • Extensive experience of the promoters: Presence of over four decades in the iron and steel trading segment has helped the promoters to build strong relationships with customers. Also, the association of over three decades with JSW Steel Ltd (JSW) has enabled KATPL to become its primary dealer in Maharashtra. Recently, the company started procuring materials from Arcelor Mittal Nippon Steel India Ltd (AMNS India). The promoters have also extended need-based funding support.

 

  • Comfortable financial risk profile: Networth improved to Rs 171 crore as on March 31, 2023, from Rs 163 crore as on March 31, 2021. The TOLTNW ratio and gearing are likely to remain strong at below 1.5 times and under 0.4 times, respectively, over the medium term. The ability to sustain operating performance, resulting in healthy cash accrual and debt protection metrics, will remain a key rating sensitivity factor.

 

Weaknesses:

  • Susceptibility to fluctuations in commodity prices: Operating profitability will remain susceptible to volatility in commodity prices and foreign exchange (forex) rates. Forex risk has now increased with increase in imports (~16% of total purchases in fiscal 2023). Any change in procurement policy and the associated forex risk would remain key monitorables. Furthermore, a large inventory in the trading business exposes the company to significant risks related to volatility in traded commodity prices.

 

  • Exposure to intense competition: The steel trading segment is highly fragmented, which limits bargaining power and, therefore, profitability. It is crucial to maintain effective relationships with suppliers and customers to tackle uncertainties during the business cycles. Margin could also be susceptible to overreliance on specific stakeholders. Any policy change with stakeholders would be a key monitorable.

Liquidity: Adequate

Cash and equivalent stood adequate at ~Rs 44 crore as on Aug 31, 2022, of which Rs 8.4 crore was unencumbered. Fund-based limit of Rs 75 crore was utilised at ~15% on average over the 12 months ended Aug 2023, while non-fund-based limit was utilised at 90-100%. Liquidity is supported by short-term, unencumbered fixed deposits maintained to repay letter of credit obligations. Unsecured loans of Rs 30 crore (as on March 31, 2023) from the promoters also support liquidity. Internal accrual, cash and equivalent and unutilised bank limit will be sufficient to meet incremental working capital requirement and dues of non-fund-based limits, over the medium term.

Outlook: Stable

The company will continue to benefit from its longstanding relationships with suppliers and customers. Operations will remain healthy, backed by steady demand from end-user industries.

Rating Sensitivity factors

Upward factors:

  • Better operating performance leading to sustained improvement in operating margin of above 4%
  • Significant improvement in liquidity on account of continued efficient working capital management

 

Downward factors:

  • Weak operating performance resulting in operating margin remaining below 2.5%
  • Stretched working capital cycle adversely affecting liquidity

About the Company

Incorporated in February 2006 and promoted by Mr P N Kamdar and his son, Mr Ketan P Kamdar, KATPL is a dealer of JSW's hot-rolled steel coils and plates in Maharashtra. It used to import flat steel products such as hot- and cold-rolled coils, sheets and plates for sale in India but now only sources from local suppliers, including JSW and AMNS India.

Key Financial Indicators

Particulars

Unit

2023

2022

Revenue

Rs crore

1,366

1,840

Profit after tax (PAT)

Rs crore

8

40

PAT margin

%

0.6

2.19

Adjusted debt/ adjusted networth

Times

0.32

0.27

Interest coverage

Times

1.80

4.93

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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

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.

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Annexure - Details of Instrument(s)

ISIN Name of the
instrument		 Date of
Allotment		 Coupon
Rate (%)		 Maturity
Date		 Issue size
(Rs. Crore)		 Complexity
Level		 Rating assigned
with outlook
NA Cash Credit NA NA NA 50 NA CRISIL BBB/Stable
NA Letter of Credit NA NA NA 350 NA CRISIL A3+
Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 50.0 CRISIL BBB/Stable   -- 09-09-22 CRISIL BBB/Stable 11-06-21 CRISIL BBB/Stable 20-04-20 CRISIL BBB/Negative CRISIL BBB/Stable
Non-Fund Based Facilities ST 350.0 CRISIL A3+   -- 09-09-22 CRISIL A3+ 11-06-21 CRISIL A3+ 20-04-20 CRISIL A3+ CRISIL A3+
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 25 Bank of Baroda CRISIL BBB/Stable
Cash Credit 25 The Federal Bank Limited CRISIL BBB/Stable
Letter of Credit 70 The Federal Bank Limited CRISIL A3+
Letter of Credit 80 HDFC Bank Limited CRISIL A3+
Letter of Credit 200 Bank of Baroda CRISIL A3+
Criteria Details
Links to related criteria
Criteria for rating trading companies
CRISILs Approach to Financial Ratios

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