Rating Rationale
August 21, 2023 | Mumbai
Mukand Limited
'CRISIL BBB+/Stable/CRISIL A2' assigned to Bank Debt; 'CRISIL BBB+/Stable' assigned to Fixed Deposits
 
Rating Action
Total Bank Loan Facilities RatedRs.1585 Crore
Long Term RatingCRISIL BBB+/Stable (Assigned)
Short Term RatingCRISIL A2 (Assigned)
 
Rs.75 Crore Fixed DepositsCRISIL BBB+/Stable (Assigned)
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 assigned its ‘CRISIL BBB+/Stable/CRISIL A2’ ratings on the bank facilities and fixed deposit of Mukand Limited (ML).

 

The ratings reflect Mukand group’s established market position in the steel industry supported by strong brand name,  and diversified end user industry. The rating further incorporates comfortable financial risk profile and adequate liquidity backed by timely fund based support of the promoter group. These strengths are partially offset by susceptibility of operating margins due to volatility in raw material prices, large working capital requirement.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of ML with its 100% owned subsidiary Mukand Sumi Metal Processing Limited (MSMPL) which is strategically important to, and have a significant degree of operational integration. CRISIL Ratings considers these entities as being strategic ML in view of their strong integration with ML’s operations.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

  • Established brand and extensive experience of management in the steel industry: ML has established a strong market presence in the steel industry driven by a strong brand name BAJAJ MUKAND and extensive experience of the promoter - Mr Niraj Bajaj. The promoter has an experience of more than 3.5 decades in the steel industry which has provided him a deep understanding of the market dynamics and has further established strong longstanding relations with the customers and suppliers. ML is one of the established players in the steel manufacturing industry and this can be reflected in the healthy revenue growth at a CAGR of 24% over the past three years. The company has achieved revenues of Rs. 5568 crore in fiscal 2023 and has further generated around Rs. 1382 crores in Q1 fiscal 2024. The company is expected to maintain its scale over the medium term supported by healthy demand for the products as well as strong repeat orders from established customers.  CRISIL Ratings believes the business profile of the group would continue to be supported from the extensive experience of the promoters and strong brand name.

 

  • Diversified end user industry: The group is engaged in the manufacturing of alloy and stainless steel and has a large product basket- offering around 650 grades of steel. The company has a reach in the domestic as well as export market with around 9-10% of the revenues from the export market. Further the group caters to a diversified end user industry including automobile, electrical, industrial, power generation, aerospace etc. This protects from slowdown in demand in a single industry.

 

  • Fund support from the promoters: ML will benefit from the need-based fund support from the promoter group companies. The loans of ML are backed by corporate guarantee provided by Jamnalal Sons Private Limited (JSPL) to the bankers. ML has also historically received support from promoters in the form of unsecured loans. While there are no unsecured loans from promoters as on March 31, 2023, historically promoter group companies have infused funds which stood at Rs  1884.51 crores as on March 31, 2020 and Rs  1676.37 crores as on March 31,2019. CRISIL Ratings believes ML would continue to receive support from the promoter group companies in case of any exigency over the medium term.

 

  • Comfortable financial risk profile: Financial profile has been improving for the past few fiscals marked by increase in networth to Rs. 822 crore as on March 31, 2023, from Rs.456 crore as on March 31, 2021. Gearing and total outside liabilities to adjusted networth (TOLANW) has reduced to 1.8 and 2.7 times from 4.6 and 6.1 times respectively during the same period. This is driven by steady accretion to reserves as well as reduced reliance on external debt and creditors to support working capital requirement. Debt protection metrics have also improved marked by improvement in interest coverage and net cash accruals to adjusted debt (NCAAD) to 2.2 and 0.13 times in fiscal 2023 as compared to 0.4 and -0.07 times in fiscal 2021.This is driven by reduced leverage leading to lower interest and finance cost and large other income. The financial profile is further expected to improve with increase in scale of operation and steady accretion to reserves, improvement in operating margins and moderate leverage over the medium term.

 

Weaknesses:

  • Susceptibility of revenues and operating margins to volatility in the steel and raw material prices: Revenues as well as operating margins are susceptible to volatility in the prices of steel and raw materials. Raw material (iron ore, met coke, steel scrap and ferro alloys) accounts for around 75-85% of the manufacturing cost. The operating margins are hence susceptible to sharp fluctuation in the prices of raw materials. This can be reflected in the volatility in the margins in the range of (-17)% to 5% for the past four fiscals through fiscal 2023. The margins have been around 5-5.5% in Q1 FY2024 and is expected to remain around 4.5-5.5% over the medium term driven by capacity optimization. Sustenance of margins would remain a key monitorable over the medium term.

 

  • Large working capital requirement: The group has large working capital requirement reflected in gross current assets of 147 days as on March 31, 2023 driven by moderate debtors and high inventory levels of 34 and 103 days respectively. The group provides a moderate credit period of 30-45 days to its customers and hence debtors have remained in the range of 30-40 days. The group has to maintain inventory levels of around 1.5-2 months as it has a high lead time due to imports and long conversion cycle. The working capital requirement would continue to remain large over the medium term.

Liquidity: Adequate

Liquidity is adequate marked by healthy expected cash accruals of Rs. 130-135 crore in fiscal 2024 and 2025 and no large repayment obligations during the period except for fixed deposit repayments of around Rs 16crores in fiscal 2025 and Rs. 27 crore in fiscal 2026, however, the company has a bullet repayment of Rs. 1400 crore in fiscal 2026. The bank borrowings are backed by the corporate guarantee of JSPL, and promoters will continue to support to meet the debt obligations as well as other liquidity requirements on need basis, as seen historically. Current ratio was 3.04 times as on March 31, 2023. Cash and bank balance stood at Rs. 41.8 crore as on March 31, 2023, out of which Rs 39 crores were unencumbered.

Outlook: Stable

ML will continue to benefit from the established market position, strong brand name and extensive experience of promoters over the medium term.

Rating Sensitivity factors

Upward factors:

  • Steady growth in scale and sustained improvement in operating margins in the range of 6%-8% leading to higher cash accruals
  • Improvement in the working capital cycle leading to improved financial risk profile and liquidity

 

Downward factors:

  • Decline in operating margins or revenues leading to lower-than-expected cash accruals
  • Increased reliance on debt or creditors to support working capital requirement leading to deterioration in financial profile with TOLANW of more than 3 time

About the Group

Incorporated in 1937, Mukand Iron & Steel Works Limited (MISWL) was acquired by Shri Jamnalal Bajaj and Shri Jeevan Lal Shahin 1939. MISWL's name was changed to  ML in 1989. During FY 2021-22, Bajaj group acquired the stake of Shah family in ML. As on 31st March 2023, Promoter along with the family member’s shareholding in ML is 9.37 % and promoter group companies have a shareholding of 64.99%. The group is engaged in the manufacturing of Alloy, Stainless steel and Industrial Machinery with manufacturing facilities located in Hospet (Karnataka) and Thane (Maharashtra) respectively. The Mukand group is managed by Mr. Niraj Bajaj and his son Mr. Nirav Bajaj.

Key Financial Indicators

As on / for the period ended March 31

 

2023

2022

Operating income

Rs crore

5570

4644

Reported profit after tax (PAT)

Rs crore

172

176

PAT margin

%

3.1

3.8

Adjusted debt/adjusted networth

Times

1.83

3.08

Interest coverage

Times

2.16

1.69

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 Bank Guarantee NA NA NA 184.9 NA CRISIL A2
NA Cash Credit NA NA NA 0.1 NA CRISIL BBB+/Stable
NA Term Loan NA NA Jul-25 200 NA CRISIL BBB+/Stable
NA Working Capital Term Loan NA NA Jul-25 1200 NA CRISIL BBB+/Stable
NA Fixed Deposit NA NA NA 75 Simple CRISIL BBB+/Stable

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Mukand Limited

Full

Parent company

Mukand Sumi Metal Processing Limited

Full

Subsidiary
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 1400.1 CRISIL BBB+/Stable   --   --   --   -- --
Non-Fund Based Facilities ST 184.9 CRISIL A2   --   --   --   -- --
Fixed Deposits LT 75.0 CRISIL BBB+/Stable   --   --   --   -- --
Structured Obligation LT   --   --   --   --   -- Withdrawn*

All amounts are in Rs.Cr.
*The ratings were withdrawn in March 2011
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 184.9 Citi Bank CRISIL A2
Cash Credit 0.1 Citi Bank CRISIL BBB+/Stable
Term Loan 200 Citi Bank CRISIL BBB+/Stable
Working Capital Term Loan 1200 Citi Bank CRISIL BBB+/Stable
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Steel Industry
CRISILs criteria for rating fixed deposit programmes
Understanding CRISILs Ratings and Rating Scales
CRISILs Criteria for Consolidation

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