Rating Rationale
March 01, 2023 | Mumbai
Nitin Castings Limited
Ratings migrated to 'CRISIL BBB- / Stable / CRISIL A3 '
 
Rating Action
Total Bank Loan Facilities RatedRs.32.34 Crore
Long Term Rating^CRISIL BBB-/Stable (Migrated from 'CRISIL BB+ / Stable ISSUER NOT COOPERATING*')
Short Term Rating&CRISIL A3 (Migrated from 'CRISIL A4+ ISSUER NOT COOPERATING*')
& *Issuer did not cooperate; based on best-available information
^ *Issuer did not cooperate; based on best-available information
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

Due to inadequate information, CRISIL Ratings, in line with SEBI guidelines, had migrated the rating of Nitin Castings Ltd (NCL) to 'CRISIL BB+/Stable/CRISIL A4+ Issuer Not Cooperating'. However, the management has subsequently started sharing requisite information, necessary for carrying out comprehensive review of the rating. Consequently, CRISIL Ratings is migrating the rating on bank facilities of NCL from 'CRISIL BB+/Stable/CRISIL A4+ Issuer Not Cooperating' to 'CRISIL BBB-/Stable/CRISIL A3'.

 

The ratings reflect the NCLs healthy financial risk profile, marked by low gearing, comfortable net worth and adequate debt protection metrics. The ratings also reflect the benefits that the company derives from its promoters' extensive experience in the steel manufacturing industry. These rating strengths are partially offset by the company's average business risk profile, constrained by moderate scale of operations and susceptibility of operating margin to volatility in raw material prices

Key Rating Drivers & Detailed Description

Strengths:

Established position in the alloy steel manufacturing industry:

Promoters have over five decade-long experience in the alloy steel manufacturing industry. Over the years company has established relationships with customers across various end user industries like cement, petrochemical, and steel industries among others. Company will continue to benefit from promoters’ extensive experience and diversified end user industry. Company has already reported revenue of Rs.103 Crores during 9MFY23 as against Rs.68 Crores during 9MFY22.

 

Above average financial risk profile:

The financial risk profile has improved continuously over the years on back of steady accretion to reserves with plough back of the profits in the business. The gradual improvement in capital structure is reflected in total outside liabilities to total net worth ratio of 0.40 times as on March 31, 2022. Debt protection metrics have also improved as indicated by healthy interest coverage and net cash accrual to adjusted debt ratio of 35 times and 1.79 time, respectively, for fiscal 2022. While company is expected to undertake capex partly funded by debt financial risk profile will continue to remain comfortable.

 

Weakness:

Moderate business risk profile:

Although on improving trend, company’s scale of operations continues to be moderate despite being in business since for a long time. Company has already reported revenue of Rs.103 Crores during 9MFY23 as against Rs.68 Crores during 9MFY22. Revenue is expected to remain moderate over the medium term. Also due to moderate scale of operations, accruals and return on capital employed (ROCE) were moderate at Rs. 6.90 crore and at 12.3%, respectively, for fiscal 2022.

 

Susceptibility to volatility in raw material prices:

Operating margins are susceptible to the volatility in metal prices which forms the raw material for the company. The company can pass on rise in input cost to customers, only with a time lag. Operating margin was in the range of 7.6% -10.9% for the three fiscals ending March 31, 2022. Company’s operating margin was at 7.5% for 9 months of fiscal 2023. Profitability stays vulnerable to fluctuations in input prices (such as SS scrap, MS scrap, Nickel, Ferro alloys) as well as realisations of finished goods. Furthermore, revenue largely depends on demand from the large steel players, which is inherently cyclical. Nevertheless, the impact of these pressures on margins are likely to be mitigated by benefits of increasing volumes and increasing contribution from higher margin export business.

Liquidity Adequate

Bank limit utilization is low at around 7.62 percent for the past twelve months ended December 2022. Cash accruals are expected to be over Rs 8 crore which are sufficient against term debt obligation of Rs 0.40 crore over the medium term. In addition, it will be act as cushion to the liquidity of the company. Current ratio are healthy at 2.3 times on March 31, 2022. Liquid investments of around Rs.18.96 crore in shares, debentures, and mutual funds as on March 31, 2022. Low gearing and moderate net worth support its financial flexibility, and provides the financial cushion available in case of any adverse conditions or downturn in the business

Outlook Stable

CRISIL Ratings believes NCL will maintain its financial risk profile over the near-to-medium term, supported by strong capital structure, steady accretion to reserve and absence of any major capital expenditure (capex) plans

Rating Sensitivity factors

Upwards Factors

• Sustained increase in revenue and sustenance of operating profit margin at above 10% results in higher net cash accruals above Rs.12 Crores.

• Stable capital structure and working capital cycle sustains financial risk profile.

 

Downward Factors

• Significant decline in revenue with operating profit margins below 6%, leading to much lower net cash accrual.

• Any large advances made to group companies or stretch in working capital cycle or any large debt-funded capital expenditure or acquisition, weakening the capital structure, particularly liquidity.

About the Company

The Nitin group, promoted by the Kedia family, and currently headed by Mr. Nitin Kedia and Mr. Nirmal Kedia, manufactures alloy-steel products. It entered the castings business in 1962, through its flagship company, NCPL. NAGL was established in 1998, to expand capacity. The company merged the castings division of NCPL into NAGL and renamed NAGL as NCL in 2016

Key Financial Indicators

As on / for the period ended March 31

 

2022

2021

Operating income

Rs crore

96.74

62.07

Reported profit after tax

Rs crore

5.10

3.25

PAT margins

%

5.33

5.25

Adjusted Debt/Adjusted Net worth

Times

0.07

0.07

Interest coverage

Times

29.00

6.62

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

Complexity Level

Issue size (Rs crore)

Rating assigned with outlook

NA

Cash Credit

NA

NA

NA

NA

4

CRISIL BBB-/Stable

NA

Cash Credit

NA

NA

NA

NA

9.4

CRISIL BBB-/Stable

NA

Letter of credit & Bank Guarantee

NA

NA

NA

NA

10.6

CRISIL A3

NA

Term Loan

NA

NA

Dec-26

NA

4.25

CRISIL BBB-/Stable

NA

Proposed Working Capital Facility

NA

NA

NA

NA

4.09

CRISIL BBB-/Stable

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 21.74 CRISIL BBB-/Stable 24-01-23 CRISIL BB+ /Stable(Issuer Not Cooperating)* 31-10-22 CRISIL BBB- /Stable(Issuer Not Cooperating)* 29-01-21 CRISIL BBB-/Stable   -- CRISIL BBB-/Stable
      --   -- 07-02-22 CRISIL BBB-/Stable   --   -- --
Non-Fund Based Facilities ST 10.6 CRISIL A3 24-01-23 CRISIL A4+ (Issuer Not Cooperating)* 31-10-22 CRISIL A3 (Issuer Not Cooperating)* 29-01-21 CRISIL A3   -- CRISIL A3
      --   -- 07-02-22 CRISIL A3   --   -- --
All amounts are in Rs.Cr.
* - Issuer did not cooperate; based on best-available information
 
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Rating
Cash Credit 9.4 CRISIL BBB-/Stable
Cash Credit 4 CRISIL BBB-/Stable
Letter of credit & Bank Guarantee 5.6 CRISIL A3
Letter of credit & Bank Guarantee 5 CRISIL A3
Proposed Working Capital Facility 4.09 CRISIL BBB-/Stable
Term Loan 1.3 CRISIL BBB-/Stable
Term Loan 2.95 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
Assessing Information Adequacy Risk
Rating Criteria for Steel Industry
CRISILs Criteria for rating short term debt

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