Rating Rationale
February 27, 2025 | Mumbai
Kishan Lal Pawan Kumar Jain
Rating reaffirmed at 'Crisil BBB / Stable'
 
Rating Action
Total Bank Loan Facilities RatedRs.80 Crore
Long Term RatingCrisil BBB/Stable (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’ rating on the long-term bank facilities of Kishan Lal Pawan Kumar Jain (KLPKJ).

 

The rating reflects the extensive experience of the partners, the comfortable financial risk profile of the firm and prudent working capital management. These strengths are partially offset by the low operating profitability owing to risks inherent in the trading business and exposure to risks related to price volatility and cyclicality.

Analytical Approach

Out of the unsecured loans of Rs 14.52 crore outstanding as on January 31, 2025, Rs 10 crore has been treated as neither debt nor equity as these loans are on need basis and are subordinated to bank debt and will remain in the business. The rest is considered as debt and bears an interest of 5%.

 

Crisil Ratings has evaluated the standalone business and financial risk profiles of KLPKJ

Key Rating Drivers & Detailed Description

Strengths:

  • Extensive experience of the partners: The partners’ experience of over four decades in the steel industry, understanding of market dynamics and healthy relationship with its supplier and customers will continue to support the business. The firm has association of over forty years with Tata Steel Ltd (TSL) and established relationships with more than 2,000 dealers/ retailers, which will continue to support the business.

 

  • Comfortable financial risk profile: The capital structure is expected to remain comfortable owing to low reliance on external debt, as indicated by expected gearing and total outside liabilities to adjusted networth ratios of around 0.75 time and 0.80 time, respectively, as on March 31, 2025, and will likely improve in fiscal 2026. Debt protection metrics are comfortable owing to low leverage as reflected in expected interest coverage and net cash accrual to total debt (NCATD) ratios of around 4.4 times and 0.10 time, respectively, in fiscal 2025. Interest coverage ratio is expected to improve to around 4.8 times in fiscal 2026. Networth, expected at Rs 84 crore as on March 31, 2025, is likely to improve further to around Rs 92 crore in fiscal 2026 backed by steady accretion to reserve. With no major debt-funded capital expenditure (capex), the financial risk profile will remain comfortable over the medium term.

 

  • Prudent working capital management

The working capital cycle is managed prudently, as reflected in expected gross current assets (GCAs) of around 58 days as on March 31, 2025, driven by receivables and inventory of around 10 days and 40 days, respectively. GCAs are expected to be at a similar level going forward and should remain monitorable over the medium term.

 

Weaknesses:

  • Low profitability owing to the trading nature of business: Operating margin was low at 0.8% in fiscal 2024 as the firm is engaged in the trading of steel products. Improvement in the operating margin will be a key monitorable.

 

  • Exposure to risks related to price volatility and cyclicality: Volatility in raw material prices and cyclicality inherent in the steel trading business have led to fluctuation in operating margin. The firm faces intense competition from several unorganised players, catering to local demand. Operating margin declined to 0.80% in fiscal 2024 (2.15% in fiscal 2023), owing to the continuation in the moderation in selling price due to market competition, which led to some inventory loss being incurred along with the higher trade discounts given to customers. However, operating margin improved to 2.1% in the first nine months of fiscal 2025 due to better negotiations with customers because of the expansion in customer base and better fixed cost absorption due to increased scale. Operating margin is expected to sustain at 1.5-2.0% in the medium term and will remain a key monitorable.

Liquidity: Adequate

Bank limit utilisation was moderate around 76% for the 12 months ended December 2024. Expected annual cash accrual of Rs 8-11 crore is sufficient against low term debt obligation of Rs 5-6 lakh over the medium term. In addition, it will act as cushion to the liquidity of the firm. Current ratio was  healthy at 1.86 times as on March 31, 2024. The partners are likely to extend support in the form of equity and unsecured loans to meet the working capital requirements and repayment obligations. Low gearing and moderate networth support financial flexibility.

Outlook Stable

Crisil Ratings believes KLPKJ will continue to benefit from its longstanding relationship with the principal supplier and experience of the management to mitigate the inherent risks in the trading business.

Rating sensitivity factors

Upward factors

  • Sustained revenue growth along with operating profitability of 2.5-3.0%, leading to cash accrual of more than Rs 10 crore.
  • Improvement in the financial risk and liquidity profiles.

 

Downward factors

  • Decline in operating profitability or operating income leading to cash accrual below Rs 3 crore.
  • Large, debt-funded capex or capital withdrawal weakening the liquidity and capital structure.

About the Company

KLPKJ was set up in 1944 by Mr Kishanlal Jain and Mr Pawan Kumar Jain. The firm is an authorised distributor for TSL across 56 districts of Uttar Pradesh. It is owned and managed by Mr Apurv Jain, Mr Ajai Kumar Jain, Mr Alok Kumar Jain and Mr Arun Kumar Jain.

Key Financial Indicators

As on / for the period ended March 31

 

2024

2023

Operating income

Rs crore

862

722

Reported profit after tax

Rs crore

3.01

9.87

PAT margin

%

0.35

1.37

Adjusted debt/Adjusted networth

Times

0.82

1.10

Interest coverage

Times

1.84

8.96

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.

For more details on the Crisil Ratings` complexity levels please visit www.crisilratings.com. 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 Outstanding with Outlook
NA Cash Credit NA NA NA 29.50 NA Crisil BBB/Stable
NA Channel Financing NA NA NA 50.50 NA Crisil BBB/Stable
Annexure - Rating History for last 3 Years
  Current 2025 (History) 2024  2023  2022  Start of 2022
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 80.0 Crisil BBB/Stable   --   -- 30-11-23 Crisil BBB/Stable   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 29.5 State Bank of India Crisil BBB/Stable
Channel Financing 50 State Bank of India Crisil BBB/Stable
Channel Financing 0.5 Axis Bank Limited Crisil BBB/Stable
Criteria Details
Links to related criteria
Basics of Ratings (including default recognition, assessing information adequacy)
Criteria for manufacturing, trading and corporate services sector (including approach for financial ratios)

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