| Lalwani Ferro Alloys Limited | ||||||
| Ratings upgraded to 'CRISIL A/Stable/CRISIL A1' | ||||||
| Rating Action | ||||||
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| 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 upgraded its ratings on the bank facilities of Lalwani Ferro Alloys Limited (Lalwani) to ‘CRISIL A/Stable/CRISIL A1’ from ‘CRISIL A-/Stable/CRISIL A2+’.
The upgrade reflects a belief that the business risk profile of Lalwani will continue to improve owing to better-than-expected operating performance. Revenue stood at Rs 1290.07 crore in fiscal 2022, higher than revenue of Rs 726.18 crore in fiscal 2021 and more than earlier expectation. This increase was driven by higher sales volume and better sales price realisation. Revenue should further grow in fiscal 2023, supported by capacity augmentation and stable ferroalloys prices; revenue is likely to remain high over the medium term. The operating margin also improved in fiscal 2022 as compared to earlier years, driven by higher manufacturing sales, operating efficiency ensuing out of modernisation capital expenditure (capex) and steady ferroalloys realisation; the margin is expected to remain at higher-than-earlier levels going forward.
Better operating performance led to healthy net cash accrual of Rs 124.87 crore in fiscal 2022 (Rs 35.57 crore in fiscal 2021), which coupled with low reliance on external debt strengthened the financial risk profile. Augmented cash-generating ability and the absence of any debt-funded capex would lead to a leaner balance sheet going forward, thereby supporting the overall financial risk profile, particularly liquidity.
The ratings continue to reflect the extensive experience of its promoters in the steel industry and their established relationship with major steel players along with above-average financial risk profile of Lalwani. These strengths are partially offset by exposure to volatility in foreign exchange (forex) rates and raw material and finished good prices, and susceptibility to performance of end-user industry and cyclical demand in the ferroalloy industry |
Key Rating Drivers & Detailed Description Strengths: Extensive experience of promoters and established relationship with major steel players: Presence of more than three decades in the steel industry has enabled the promoters to develop strong understanding of market dynamics. Also, healthy experience of the promoters have helped them smooth flow of orders from Steel Authority of India Ltd (SAIL) and Jindal Steel & Power Ltd (JSPL) in the domestic market. Furthermore, with promoters’ industry experience, the company has been able to sustain strong foothold in the export market by ensuring repeat orders from overseas clients. CRISIL Ratings believes Lalwani’s business profile would continue to draw benefit over the medium term from extensive experience of the promoters.
Robust financial risk profile: Lalwani’s financial risk profile is healthy with networth at Rs 262 crore as on March 31, 2022 (against around Rs 142.00 crore a year ago).Healthy built up of networth level and gradually lowering term debt obligation has led to robust capital structure with gearing at 0.33 time as on March 31, 2022. The gearing is expected to further improve with no debt-funded capex plan over the medium term. Debt protection metrics are robust with interest coverage ratio (ICR) and net cash accruals to total debt (NCATD) at around 13.70 times and 1.46 times in fiscal 2022.
Weakness: Vulnerability to volatility in foreign exchange (forex) rates, and raw material and finished good prices: Prices and supply of key raw material, manganese ore, directly affect the pricing of silico-manganese. Hence, operating margin remains susceptible to any sharp changes in manganese ore, power, and coke rates. This is compounded by limited bargaining power against suppliers and customers, which are large players. Profitability also remains exposed to forex fluctuation risks. Moreover, though healthy capacity utilisation and close proximity to raw material sources will continue to drive profitability over the medium term, revenue will remain exposed to cyclical demand in the steel industry that is likely to affect realisations.
Susceptible to performance of end-user industry and cyclical demand in ferroalloy industry: Ferroalloys are intermediates for the steel industry. Hence, the prospects for the ferroalloy industry are linked to the overall fortunes of the steel industry, which is inherently cyclical, as indicated by a downswing during fiscals 2009 and 2016, resulting in a sharp fall in the demand and prices of ferroalloys. Subsequently also the realisation for ferro-alloys has been driven by the performance of steel sector. CRISIL believes that Lalwani's performance shall continue to remain susceptible to the performance of the steel industry. |
Liquidity: Strong Liquidity should remain supported by the ample surplus available in the bank lines and cash accrual. Bank limit utilisation was moderate at around 54% for the 12 months through September 2022. Cash accrual is projected at more than Rs 120 crore per annum, against negligible term debt obligation of Rs 0.08-0.09 crore over the medium term. Current ratio stood healthy at 1.66 times on March 31, 2022, and cash and bank balance at Rs 30.35 crore. The promoters are likely to extend timely, need-based funds (equity and unsecured loans) to aid financial flexibility. |
Outlook: Stable Lalwani will continue to benefit from the extensive experience of its promoters, their established relationship with major steel players and timely funding support. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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About the Company Lalwani, incorporated in 1986, is the flagship company of the Lalwani group. The company manufactures varied ferro and manganese alloys such as silico manganese, high-carbon ferromanganese, ferrosilicon magnesium and ferromolybdenum. It also trades in ferroalloy products (both raw materials and finished goods) such as nickel, low- and high-carbon ferrochrome and ferrosilicon. Mr Kamal Kishore Lalwani of Kolkata is the promoter. The company is a family managed business with all directors belonging to the promoter family |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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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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This Annexure has been updated on 19-Dec-2022 in line with the lender-wise facility details as on 1-Oct-2021 received from the rated entity.
Criteria Details
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