Detailed Rationale

Crisil Ratings has upgraded its ratings on the bank facilities of Prime Steel Industries Private Limited (PSIPL) to ‘Crisil BBB+/Stable/Crisil A2’ from ‘Crisil BBB/Stable/Crisil A3+’. Also, Crisil Ratings has withdrawn its rating on the Rs.19.84 crore proposed fund-based bank limits based on PSIPL request. The withdrawal is in line with Crisil Ratings’ policy.

 

The upgrade in ratings factor in the improved business risk profile of the company, supported by volumetric growth of 10-12% in fiscal 2025, fueled by growing recognition for the ‘Kamadhenu’ brand and increasing demand from the construction sector. Growth momentum should sustain through fiscal 2026. Further, the company has a dominant position and exclusive rights to sale Kamadhenu steel bars in primary locations within various cities of Himachal Pradesh, Punjab and Haryana. Additionally, launch of its own steel brand (HMT Steel) should help the company expand in the pipes segment. Operating margin has improved to 4.1% in fiscal 2024 and 4.6% in the first 10 months of fiscal 2025 and should sustain above 4% in the medium term. This is attributed to increased scalability, better pricing and moderation in raw material cost, leading to enhanced net cash accrual. Moving forward, the company's ability to sustain business growth and improve operating efficiency will be closely monitored.

 

The upgrade also factors in the improved financial risk profile, with total outside liabilities to adjusted networth ratio projected to be lower than 1.2 times as on March 31, 2025. The ratio should improve in fiscal 2026, aided by regular debt repayment and improved profitability. Bank limit utilisation is likely to average 84% for full 2025 leaving sufficient cushion to support the liquidity. Moreover, net cash accrual of Rs 27-30 crore expected per fiscal in 2025 and 2026 should suffice to cover the working capital requirement over the medium term, given the moderate yearly debt obligation of Rs 8-9 crore. Further, constant support from promoters, provided via unsecured loans, supports liquidity. Steady accretion to reserves should support the financial risk profile in the absence of any sizeable debt-funded capital expenditure (capex) plans over the medium term.

 

The ratings reflect the established market position of the company in the steel industry, its efficient working capital management and healthy financial risk profile. These strengths are partially offset by the moderate scale of operations and concentration of business operations towards Kamadhenu.

Analytical Approach

Crisil Ratings has evaluated the standalone business and financial risk profiles of PSIPL.

 

Unsecured loan of Rs 29.88 crore outstanding as on March 31, 2024, has been treated as 75% equity and 25% debt, as it the loans are likely to be retained in the business over the medium term.

Key Rating Drivers & Detailed Description

Strengths:

• Established market position: The three-decade-long experience of the promoters in the steel industry, their strong understanding of market dynamics, and healthy relationships with suppliers and customers, will continue to support the business risk profile. The company has been associated with Kamdhenu Ltd since 2019, to market and produce thermo-mechanically treated (TMT) bars under the Kamdhenu brand, exclusively in the regions of Himachal Pradesh, Tricity (Chandigarh) and areas near GT Road (Haryana). Better demand from the construction sector, with the launch of products such as pipes under own brand (HMT Steel), has aided volumetric growth. Operating margin rose to 4.1% in fiscal 2024, and to 4.6% in the first 10 months of fiscal 2025, and is expected to sustain above 4% in the medium term. This is attributed to increased scalability, better pricing and moderation in raw material cost, leading to enhanced net cash accrual and improving Ebitda /metric tonne at Rs 2,000-2,200 in fiscal 2025. Despite fall in realisations, the company has achieved revenue of Rs 700 crore till February 2025 and is expected to close fiscal 2025 with revenue ranging from Rs 750-770 crore. Scale up of operations, marked by volumetric growth, and sustenance of the operating margin remain key rating sensitivity factors.

 

• Efficient working capital management: Despite the healthy scale of operations, the working capital cycle is managed efficiently. Gross current assets (GCAs) are projected to be low at 35-40 days as on March 31, 2025 (as against 39 days a year ago), driven by inventory of 20-25 days and negligible receivables of 7-10 days. Receivables are realised quickly, as majority of sales are made against cash or limited credit of 7-10 days. The company takes advances or bank guarantees from dealers and distributors and extends minimal credit. It maintains raw material of 25-30 days, based on the order pipeline. GCAs should remain steady over the medium term. Efficient working capital management, amidst business growth, will be closely monitored.

 

• Healthy financial risk profile: Networth is estimated to be healthy at Rs 80-82 crore as on March 31, 2025 (as against around Rs 71 crore a year ago). Capital structure remains moderate, led by steady accretion to reserve and low reliance on debt. Gearing is estimated at 0.8-1 time and total outside liabilities to adjusted networth (TOLANW) ratio at 1-1.2 times as on March 31, 2025 (as against 1.09 times and 1.38 times, respectively, as on March 31, 2024). This demonstrates sufficient headroom to contract additional debt to support business requirements over the medium term. Debt protection metrics may remain robust, aided by an adequate operating margin. Interest coverage and net cash accrual to adjusted debt ratios are estimated at 4.3-4.6 times  (~3.85 times for fiscal 2024) and 0.3-0.4 time, respectively, for fiscal 2025, and likely to improve over the medium term. Steady accretion to reserve, despite the debt-funded capex, should strengthen the financial risk profile.

 

Weaknesses:

• Moderate scale of operations: Revenue has recorded a healthy compound annual growth rate of 29% over the three fiscals through March 2024. However, it is estimated to remain moderate at Rs 750-780 crore, despite the improving brand recall for Kamadhenu products. With realisations moderating by 7-8% across industry, revenue growth will be supported by volumetric growth of 10-12% expected for full fiscal 2025, and should sustain over the medium term, as backed by volumetric sales of 1,44,289 metric tonne in the first 11 months of fiscal 2025. With the company now manufacturing pipes under its own brand and the unit having commenced operations recently, growth is yet to be witnessed in this new segment. Sustained growth in revenue and volumetric sales will be closely monitored.

 

• Exposure to concentration risk towards Kamadhenu: The company has had a 6-year association with Kamadhenu Limited, which has granted it exclusive rights to sell the brand's TMT bars in certain cities, resulting in significant benefits. Over the past few years, the company has experienced rapid expansion and substantial volumetric growth, enabling it to launch its own brand, HMT Steel, in the pipes segment. Despite this progress, the company's exposure to Kamadhenu Limited remains considerable, accounting for 40-50% expected of Prime Steel’s business. However, the risk associated with this dependence is partially mitigated by Kamadhenu's strong performance and brand reputation. Further diversification of the company's operations under its own brand is expected to reduce its reliance on the main principal, leading to a potential improvement in its business risk profile, which will continue to be monitored.

Liquidity: Adequate

Bank limit utilisation was low, averaging around 84.41% for the 12 months ended February 28, 2025. Expected cash accrual of Rs 20-23 crore should suffice to cover the term debt obligation of Rs 1.5-2 crore over the medium term. Current ratio was moderate at 1.30 times on March 31, 2024. The promoters are likely to extend support via equity and unsecured loans to cover the working capital requirement and debt obligation. Free cash and bank balances of Rs 3-4 crore also support liquidity.

Outlook: Stable

Crisil Ratings believes PSIPL will continue to benefit from the extensive experience of its promoters in the steel industry and their established relationships with clients.

Rating sensitivity factors

Upward factors

• Sustained and significant improvement in volumetric sales and operating profitability of over 5.5%, leading to higher-than-expected net cash accrual
• Efficient working capital management, reducing reliance on external debt

 

Downward factors

• Decline in revenue or operating margin (to below 3.5%), leading to lower-than-expected net cash accrual
• Any significant, debt-funded capex or stretch in the working capital cycle, increasing dependence on external debt, and weakening the financial risk profile, with TOL/ANW ratio rising to 2.3-2.5 times

About the Company

PSIPL (erstwhile AM Iron and Steel Rolling Mills Pvt Ltd) was incorporated in 2007; the company manufactures TMT bars and mild steel billets at its unit in Solan, Himachal Pradesh. It was previously engaged in trading of TMT bars. It started manufacturing TMT bars in December 2019. Mr Rohit Kumar Garg and Ms Gunjan Garg are the promoters.

Any other information: Not Applicable