| Kamdhenu Limited | ||||||
| Ratings removed from 'Watch Developing'; Ratings Reaffirmed | ||||||
| Rating Action | ||||||
| ||||||
| 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 removed its ratings on the bank facilities of Kamdhenu Limited (KL) from 'Rating Watch with Developing Implications' and has reaffirmed the ratings at 'CRISIL A-/CRISIL A2+’ while assigned a ‘Stable’ outlook to the long term rating. CRISIL Ratings has also withdrawn its rating on Rs 82 crore of the bank facilities at the company's request and on receipt of ‘no objection certificates’ (NOC) from the bankers. This is in line with the withdrawal policy of CRISIL Ratings.
On September 16, 2021, CRISIL Ratings had assigned its ‘CRISIL A-/CRISIL A2+’ ratings to the bank facilities of KL while placing the ratings on developing watch. This followed announcement of a plan to demerge the paint business from KL to a separate company, Kamdhenu Ventures Ltd (KVL). The proposed demerger is driven by the management’s intent to grow both businesses independently and provide better management focus and operational flexibility. Following the completion of the demerger of the paints division vide the order dated June 03, 2022, from the National Company Law Tribunal (NCLT), which became effective from April 01, 2022, CRISIL Ratings has removed the ratings from ‘Watch with Developing Implications’.
KL has a strong business risk profile, supported by established market position in the steel division. It is India’s largest thermo mechanically treated (TMT) steel bars brand with in-house capacity of 120,000 metric tonne per annum (38 lakh MT including franchise capacities) with 44 franchise units under the Kamdhenu brand, steel rebars with production capacity of 38 lakh MT p.a. with dedicated marketing network of 8,500 dealers.
The company achieved revenue of Rs 599 crore as on March 31, 2022, from the steel division and in the nine months of the current fiscal, it has achieved revenue of Rs 565 crore. The company is expected to achieve revenue of more than Rs 750 crore from the steel division for fiscal 2023. KL has stable operating margin of 6-9% from the steel division, over the medium term, which is expected to remain within a similar range.
The ratings continue to reflect KL’s strong market position, backed by its established brand - Kamdhenu - in steel long products. In the TMT bar segment, KL is one of the largest players in India. The ratings also factor in the company’s comfortable financial risk profile, as indicated by low gearing and above-average debt protection metrics. These strengths are partially offset by modest scale of operations and susceptibility to demand and price risks. |
Key Rating Drivers & Detailed Description Strengths: Established position in the domestic market with strong dealer network: KL has an established market position as reflected by its Kamdhenu brand in the TMT bar segment and access to large manufacturing capacity through its franchise network. Consolidated operating revenue increased to Rs 840.75 crore in fiscal 2022 against Rs 625.22 crore in fiscal 2021. The steel division, on standalone basis, has achieved revenue of Rs 599 crore as on March 31, 2022, and in the nine months of the current fiscal, it has achieved revenue of Rs 565 crore. The company is expected to achieve revenue of Rs 750 crore from the steel division in fiscal 2023.
Furthermore, the strong distribution network comprises around 8,500 dealers for the steel business. The business risk profile will be supported by a strong brand and expanding franchise network over the medium term.
Healthy operating efficiencies: KL has franchisee arrangements with more than 80 steel mills to produce and sell TMT bars under the Kamdhenu brand. These mills have a combined production capacity of 45 lakh tpa (tonne per annum) while the production capacity of KL is 1.20 lakh tpa only. The asset light model benefits the company by obtaining higher operating efficiencies. This is reflected in operating margin of 6-9% and return on capital employed (RoCE) of 16.93% for fiscal 2022. The operating margin is expected to improve further with the demerger of the paint division and is expected to be 7.5-8.5% in fiscal 2023.
Comfortable financial risk profile: Gearing was 0.4 time as on March 31, 2022 and may remain below 1 time over the medium term. Interest coverage ratio was 5.9 times in fiscal 2022, against 4.25 times in fiscal 2021. Thus, liquidity is expected to remain adequate over the medium term.
The company had healthy networth of Rs 218 crore in fiscal 2022. Going forward, it is expected to improve on account of healthy accretion to reserves. With the demerger, the debt protection metrics are expected to improve as the company will have Rs 15-17 crore of guaranteed emergency credit line (GECL) which is payable over the next 3-4 years. Also, the working capital lines are negligible. The gearing has remained comfortable at 0.40 time as on March 31, 2022. It is expected to improve going forward as the company has no plans to incur any additional capital expenditure (capex) over the medium term.
Weaknesses: Modest scale of operations: Revenue declined from Rs 1,232 crore in fiscal 2019 to Rs 840 crore in fiscal 2022, largely due to decline in the trading business. Revenue from manufacturing operations remained modest at estimated Rs 599.31 crore (steel business).
Susceptibility to demand and price risks: Demand for long-steel products depends on the level of construction and infrastructure activities and any movement in economic cycles. Furthermore, the steel industry remains exposed to global steel prices. While the company’s cost-efficiency and asset light model cushions its profitability against cyclical downturns, it shall remain exposed to inherent price and demand volatility in the steel industry. |
Liquidity: Strong Bank limit utilisation was 41% on average for the 12 months through October 2022. Cash accrual is expected to be Rs 30-35 crore in fiscals 2023 and 2024, which are sufficient against term debt obligation of Rs 4-6 crore over the medium term. Surplus accrual will provide a liquidity cushion to the company. Current ratio was healthy at 1.70 times as on March 31, 2022. The company had around Rs 12 crore of free cash and cash balance as on March 31, 2022. Low gearing and moderate networth support its financial flexibility for access of any additional debt in case of any adverse conditions or downturn in the business. |
Outlook: Stable CRISIL Ratings believes KL will continue to benefit, over the medium term, from its established business risk profile. |
Rating Sensitivity Factors Upward factors
Downward factors
|
About the Company KL (previously, Kamdhenu Ispat Ltd) is a public-listed entity, incorporated in September 1994, which started commercial operations in October 1995. The company manufactures TMT bars at its plant in Bhiwadi, Rajasthan, which has capacity to manufacture 1,20,000 tpa. It also manufactures ingots (capacity of 22,500 tpa) that are used for captive consumption. In addition, KL has franchisee arrangements with more than 80 steel mills to produce and sell TMT bars under the Kamdhenu brand. These mills have a combined production capacity of 45 lakh tpa. In the franchisee business model, KL earns royalty income on sales of TMT bars and other products by these franchisee units.
The company is also engaged in the paint business under the brand, Kamdhenu Paints-Colour Dreamz. Paints are manufactured at its facility in Chopanki, Rajasthan, which began operating in August 2008. This division is expected to be demerged into a separate company - KVL.
KL is listed on the Bombay Stock Exchange and the National Stock Exchange. |
Key Financial Indicators
|
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of instrument(s)
|
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||
|
This Annexure has been updated on 09-Feb-2023 in line with the lender-wise facility details as on 16-Sep-2021 received from the rated entity.
Criteria Details
|