Rating Rationale
April 19, 2018 | Mumbai
Mishra Dhatu Nigam Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.245 Crore (Reduced from Rs.252.16 Crore)
Long Term Rating CRISIL AA-/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its ratings on the bank facilities of Mishra Dhatu Nigam Limited (MIDHANI) at 'CRISIL AA-/Stable/CRISIL A1+'. CRISIL has also withdrawn its rating on the Rs 7.16 crore long term loan.The withdrawal is in line with CRISIL's withdrawal policy.

The ratings continue to reflect the company's strategic importance to, and support of, the government, established market position in the super alloys segment, and strong financial risk profile because of healthy networth, low gearing and comfortable debt protection metrics. These strengths are partially offset by susceptibility of profitability to volatility in raw material prices and foreign exchange (forex) rates, and large working capital requirement.

CRISIL has noted MIDHANI's initial public offer concluded on March 23rd, 2018, with sale of GoI's stake of 26% to the public. GoI continues to hold the balance stake. The stake sale will not make any material impact on the credit risk profile of the company as major control will remain with the government, the company being strategically important in the defence sector.

Analytical Approach

CRISIL has considered criteria for notching up standalone ratings of entities based on government support.

Key Rating Drivers & Detailed Description
Strengths:
*High strategic importance to government: MIDHANI was established by the government with the prime objective of achieving self-reliance in manufacturing special metals and super alloys critical to the growth of the defence, space, and atomic energy segments. Government has full control over the company's board and can also appoint its members. MIDHANI has been granted Miniratna status, giving it greater autonomy in operations and discretion to set up new projects. It also receives strong funding support from the government.

* Established market position in manufacturing super alloys for strategic sectors: MIDHANI, with a track record of three decades, has an established position as a leading supplier of wide range of super alloys to sectors such as defence, space, and atomic energy. MIDHANI has capability to manufacture wide range of advanced products across the value chain, including melting, forging, rolling, wire drawing, investment casting, machining and quality testing. This capability has led to strong long term customer relationships and patronage from its major customers in the defense and space research sector. Given GoI's 'Make in India''? initiative leading to boost defense production and heavy equipment manufacturing in India, the demand for MIDHANI's products is likely to increase in the medium term. As on January 31, 2018, the company's order book position was Rs.517 crore. MIDHANI has also planned to take up few new projects and aims for geographical expansion and to operate from multiple locations. MIDHANI also intends to cater to sectors such as oil and gas, mining, power and railways.

Revenue growth has been healthy over the five years through fiscal 2017. There has been sustenance in the operating margin at around 20-22% on account of improving efficiencies coupled with economies of scale and migrating to higher value added products.

* Strong financial risk profile
As on March 31, 2017, networth was at a healthy Rs 704 crore and gearing strong at below 0.5 time. Gearing has remained steady in the past five years on account of low dependence on external borrowing due to stable accrual and government funding for any major capex. Net cash accrual to total debt and interest coverage ratios were at 4.76 times and 38.39 times, respectively, in fiscal 2017, vis-a-vis 7.13 time and 33.02 times, respectively, in fiscal 2016.

Weaknesses:
* Susceptibility to volatility in raw material prices and forex rates
The company imports all raw materials such as nickel, cobalt, molybdenum, pure iron, and titanium, prices of which are highly volatile. Hence, profitability remains susceptible to fluctuations in raw material prices and forex rates.

* Working capital-intensive operations
Gross current assets (GCAs) were high at 334 days as on March 31, 2017, despite improving from 399 days as on March 31, 2016. High GCAs were due to stretched receivables and sizeable inventory. Working capital requirement will remain large over the medium term. 
Outlook: Stable

CRISIL believes MIDHANI will maintain its position over the medium term as a key manufacturer of super alloys and continue to benefit from government's focus on strategic sectors and from patronage of key customers. Financial risk profile is expected to remain robust, driven by comfortable gearing and debt protection metrics. The outlook may be revised to 'Positive' if working capital management improves, while maintaining growth in revenue and profitability. The outlook may be revised to 'Negative' if any change in defence policy leads to dilution in MIDHANI's importance to the government, or if large, debt-funded capex or further stretch in working capital cycle weakens financial risk profile.

About the Company

MIDHANI is majorly owned by the government and manufactures a variety of super alloys, titanium and titanium alloys, special-purpose steels, controlled-expansion alloys, soft magnetic alloys, electrical-resistance alloys, molybdenum products, and other special products that are made according to customer specifications. It also offers metallurgical testing, evaluation, and consultancy services. The company's quality control is recognised by the National Accreditation Board of Laboratories. MIDHANI is under the administrative control of the Ministry of Defence's Department of Defence Production.

For the half year ended September 30, 2017, revenue was Rs 208 crore and profit after tax was Rs 27 crore.

Key Financial Indicators
Particulars Unit 2017 2016
Revenue Rs Cr. 809.70 761.44
Profit After Tax Rs Cr. 126.31 119.37
PAT Margin % 15.6 15.7
Adjusted Debt/Adjusted Networth Times 0.03 0.02
Interest coverage Times 38.39 33.02
For the half year ended September 30, 2017, revenue was Rs 208 crore and profit after tax was Rs 27 crore.

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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)
Rating Assigned  with Outlook
NA Cash Credit NA NA NA 25 CRISIL AA-/Stable
NA Letter of Credit NA NA NA 120 CRISIL A1+
NA Bank Guarantee NA NA NA 100 CRISIL A1+
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Quantum Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  25  CRISIL AA-/Stable    No Rating Change    No Rating Change    No Rating Change    No Rating Change  CRISIL AA-/Stable 
Non Fund-based Bank Facilities  LT/ST  220  CRISIL A1+    No Rating Change    No Rating Change    No Rating Change    No Rating Change  CRISIL A1+ 
Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release.
 
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee 100 CRISIL A1+ Bank Guarantee 100 CRISIL A1+
Cash Credit 25 CRISIL AA-/Stable Cash Credit 25 CRISIL AA-/Stable
Letter of Credit 120 CRISIL A1+ Letter of Credit 120 CRISIL A1+
Long Term Loan 7.16 Withdrawn Long Term Loan 7.16 CRISIL AA-/Stable
Total 252.16 -- Total 252.16 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Engineering Sector
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Entities Based on Government Support

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