Rating Rationale
July 15, 2022 | Mumbai
Posco Maharashtra Steel Private Limited
Rating reaffirmed and Withdrawn
 
Rating Action
Total Bank Loan Facilities RatedRs.713 Crore
Short Term RatingCRISIL A1+ (Rating reaffirmed and Withdrawn)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its CRISIL A1+’ rating on the bank facilities of POSCO Maharashtra Steel Pvt Ltd (POSCO Maharashtra) and has subsequently withdrawn the ratings based on the company’s request and on receipt of no-objection certificate from the lender. This is in line with the policy of CRISIL Ratings regarding withdrawal of bank loan ratings. 

 

The company posted strong performance in fiscal 2022, as indicated by operating income of around Rs 11500 crore on provisional basis against Rs 6140 crore in fiscal 2021. This was primarily due to recovery in demand from end use industries, coupled with higher realisations in the fiscal. The margins also improved to around 16% in fiscal 2022 from around 11.4% in fiscal 2021.

 

The financial risk profile has improved significantly, driven by debt reduction over the last two fiscals (primarily working capital borrowings) supported by higher credit period from the parent. Because of healthy operating performance and improvement in the financial risk profile, the debt protection metrics have strengthened. The financial risk profile will sustain, supported by strong financial flexibility on account of the parent.

 

The ratings continue to reflect the strong business and financial linkages of POSCO Maharashtra with the parent, POSCO Korea (rated ‘A-/Stable’ by S&P Global Ratings [S&P]), and presence in the high-end products segment, comprising cold-rolled (CR) coils, galvanised and galvannealed coil and cold-rolled non-grain oriented (CRNGO) steel. These strengths are partially offset by exposure to risks related to fluctuations in foreign exchange (forex) rates and cyclicality in the steel industry

Analytical Approach

CRISIL Ratings has factored in the strong business and financial linkages of the company with the parent owing to the similar line of business, common name, and criticality of operations to the Indian market, with 100% ownership and management control. POSCO Korea has guaranteed the long-term debt of POSCO Maharashtra and extended a letter of comfort for the short-term debt. The parent has also infused capital every year over the five years through fiscal 2017. POSCO Asia Co Ltd, Hong Kong (a wholly owned subsidiary of the parent company), continues to provide unsecured loans to the company.

Key Rating Drivers & Detailed Description

Strengths:

  • Strong linkages with the parent: The ratings continue to reflect the strong linkages with, and technological and financial support from, the parent. POSCO Maharashtra procures 40-50% of its hot rolled coil (key raw material) requirement from parent and supports POSCO Maharashtra by providing flexible credit terms to support the liquidity. POSCO Maharashtra will continue to be strategically important to its parent’s growth plans in India.

 

  • Presence in the high-end product segment and strong clientele: Revenue has registered compound annual growth rate of 18% overthe five fiscals through 2022, driven by increase in demand for CR coils, galvanised coils and CRNGO. These products find application in manufacturing automobiles, white goods and consumer durables. While the revenue declined in fiscal 2021 due to the impact of covid-19 pandemic on the end user demand, the company witnessed strong recovery in fiscal 2022 on the back of improved demand and healthy economic recovery during the fiscal.. Presence in the high-value products segment safeguards the company from intense competition and allows it to supply across large geographies at competitive rates.

 

Weaknesses

  • Susceptibility to volatility in forex rates: POSCO Maharashtra is susceptible to fluctuations in forex rates because of borrowings in foreign currency, which are unhedged, leading to forex losses, in case of depreciating domestic currency scenario.

 

  • Exposure to cyclicality in the steel industry: The company remains susceptible to cyclicality in the steel industry, as growth is strongly linked to domestic and global economies. The industry caters to sectors such as infrastructure, building and construction, capital goods and automobiles. Given that these sectors are some of the key contributors to the country’s gross domestic product, the steel industry is susceptible to economic downturns and, hence, is cyclical. Profitability is linked to the overall fortunes of the steel industry.

Liquidity Strong

The company had cash and cash equivalents of more than Rs 70 crore as of March 2022. Additionally, the company had unutilized fund based working capital limits of Rs 2493 crores, which remained unutilized as on March 31, 2022. Internal accrual, unutilised bank lines, fund support through unsecured loans and cash and equivalents are expected to sufficiently cover the debt obligation and incremental working capital requirement if any, over the medium term. Further, the company receives support in the form of unsecured loans from group entities, which aids its liquidity profile.

Rating Sensitivity factors

Downward factors

  • Downgrade in credit ratings of the parent company by more than one  notch by S&P, with materially weaker operating performance of POSCO Maharashtra Steel
  • Weakening of the financial risk profile because of decline in profitability, forex losses and/or stretch in the working capital cycle on a sustained basis

About the Company

POSCO Maharashtra, a fully owned subsidiary of POSCO Korea commissioned in 2012, provides high-quality galvanised and galvannealed steel used in the construction, home appliance and automotive industries. The company supplies high-quality steel products to automotive customers, with capacity of 0.45 million tonne per annum (MTPA) for coated steel and 1.8 MTPA for CR steel.

 

POSCO Electrical Steel India Pvt Ltd merged with POSCO Maharashtra with effect from April 1, 2016.

Key Financial Indicators(CRISIL Ratings-adjusted numbers)

As on / for the period ended March 31   2022 2021
Operating income  Rs crore 11693 6140
Profit after tax (PAT) Rs crore 884 3
PAT margin % 7.6 -
Adjusted debt/Adjusted networth Times 0.48 0.82
Interest coverage Times 56.5 3.19

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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)

Complexity levels

Rating assigned with outlook

NA

Short-term loan^

NA

NA

NA

428.00

NA

CRISIL A1+ (Rating reaffirmed and Withdrawn)

NA

Overdraft#

NA

NA

NA

285.00

NA

CRISIL A1+ (Rating reaffirmed and Withdrawn)

^INR equivalent of USD 60 million

# INR equivalent of USD 40 million

Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities ST 713.0 CRISIL A1+ (Rating Reaffirmed and Withdrawn)   -- 19-07-21 CRISIL A1+ 26-11-20 CRISIL A1+ / CRISIL AA/Stable 18-11-19 CRISIL A1+ / CRISIL AA/Stable CRISIL AA/Stable
      --   --   --   -- 03-09-19 CRISIL AA/Stable --
Commercial Paper ST   --   -- 19-07-21 Withdrawn 26-11-20 CRISIL A1+ 18-11-19 CRISIL A1+ CRISIL A1+
      --   --   --   -- 03-09-19 CRISIL A1+ --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Rating
Overdraft Facility^ 285 CRISIL A1+ (Rating Reaffirmed and Withdrawn)
Short Term Loan# 428 CRISIL A1+ (Rating Reaffirmed and Withdrawn)

^INR equivalent of USD 60 million

# INR equivalent of USD 40 million

Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Steel Industry
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

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