Rating Rationale
April 05, 2024 | Mumbai
Rajputana Stainless Limited
Ratings reaffirmed at 'CRISIL BBB/Stable/CRISIL A3+'; Rated amount enhanced for Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.165 Crore (Enhanced from Rs.125 Crore)
Long Term RatingCRISIL BBB/Stable (Reaffirmed)
Short Term RatingCRISIL A3+ (Reaffirmed)
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 reaffirmed its ratings on the bank facilities of Rajputana Stainless Limited (RSL) at 'CRISIL BBB/Stable/CRISIL A3+’.

 

CRISIL Ratings has upgraded its ratings on the bank facilities of RSL to 'CRISIL BBB/Stable/CRISIL A3+’ from ’CRISIL BBB-/Positive/CRISIL A3’ on October 11, 2023.

 

The rating reflects RSL's Extensive experience of the promoters in steel industry, well-established customer base and moderate debt protection metrics. These strengths are partially offset by the average capital structure, susceptibility of operating performance to volatility in raw material prices and Exposure to intense competition and cyclicality in the steel industry.

Key Rating Drivers & Detailed Description

Strengths:

  • Extensive experience of the promoters in steel industry: Promoters have worked in the steel industry for more than thirty years, which has aided in their comprehension of the dynamics of the sector and their ability to manage the business cycle. Revenues have increased to Rs 952 crores in fiscal 2023 from Rs 770 crores in fiscal 2022 backed by increased prices of end products and better volume sales with growing demand from end user industries. Till February 2024, the company has achieved Rs 848 crore revenue and is expecting moderation in revenue backed by lower scrap prices in global as well as domestic markets. CRISIL Ratings believes benefits from the extensive industry experience of the promoters would continue over the medium term.

 

  • Well established customer base: RSL has long-standing relationships with its customers and suppliers. Its customers include some of the well-established players in various industries such Aamor Incox, Ambica Steels, Hindustan Inox Limited etc. Repeat orders from customers result in steady revenue. Top 5 customers contribution is around 30-35% historically. Company’s customers include both end users and traders from segments like infrastructure, auto, engineering, oil manufacturers, Utensil Manufacturers, etc.

 

  • Moderate debt protection metrics: Debt protection metrics also remain moderate with interest cover and net cash accruals to total debt (NCA/TD) of 4.13 time and 0.35 time respectively in fiscal 2023. Debt protection metrics have improved in fiscal 2023 and are expected to improve further over the medium term due to an improvement in profitability.

 

Weaknesses:

  • Moderately leveraged capital structure: The company’s capital structure has been moderately leveraged over the past three fiscal years due to higher reliance on external debt, in terms of short term as well as long term debt and modest net worth. This is reflected by its gearing of about 0.86 times and total outstanding liabilities to total networth, which is around 2.21 times as on March 31, 2023. The ratio is likely to improve with steady accretion to reserves, leading to a higher net worth, and the absence of any major debt-funded capital expenditure. High leverage restricts the financial flexibility to raise incremental debt, to aid business growth requirement, and hence an improvement in capital structure to remain rating sensitivity factor.

 

  • Susceptibility of operating performance to volatility in raw material prices: As raw material accounts for 75-80% of production cost, the operating margin will remain exposed to sharp volatility in raw material prices. Further, the company is susceptible to the risk of volatility in the price of raw materials such as scraps, ferrous alloy, and base metals; the cost of input material varies depending on the demand-supply scenario. Any price hike, if not passed through, amid intense competitive pressure will continue to constrain scalability, pricing power and profitability. Operating performance will remain susceptible to volatility in raw material prices, and offtake by key user sectors.

 

  • Exposure to intense competition and cyclicality in the steel industry: Demand for steel products predominantly depends on the construction and infrastructure sectors which are closely linked to the economic activity, which exposes RSL’s business risk profile to inherent cyclicality in these sectors. Intense competition restricts the bargaining power of individual players, who are generally price takers. Huge fragmentation in the steel industry marked by low entry barriers with small capital and technological requirements. Operations are also vulnerable to any adverse change in global demand-supply dynamics.

Liquidity: Adequate

Bank limit utilization is moderate at around 85% percent for the past twelve months ending Feb 2024. Cash accruals are expected to be over Rs 35 crore, which is sufficient against term debt obligation of Rs 6-7 crore over the medium term. The company has cash and cash equivalent of around Rs 8.25 crore majorly in FDs as of Dec 2023. In addition, it will act as a cushion to the liquidity of the company. The current ratio is moderate at 1.26 times on March 31, 2023. The promoters are likely to extend support in the form of equity and unsecured loans to meet its working capital requirements and repayment obligations. CRISIL Ratings believes the RSL has sufficient accruals to meet the term debt repayment and incremental working capital needs over the medium term.

Outlook: Stable

CRISIL Ratings believes RSL will continue to benefit from the extensive experience of its promoter and will be able to maintain its improved business risk in the medium term.

Rating Sensitivity factors

Upward Factors:

  • Sustained increase in revenue and operating margin leading to higher accruals above Rs 40 crore.
  • Improvement in financial risk profile on account of increase in networth leading to TOLANW of 1.5 times or below.
  • Improvement in working capital cycle leading to shorter recovery period from customer.

 

Downward Factors:

  • An unexpected change in raw material prices led to lower revenues and decreased margin resulting in accruals of below Rs 20 crore.
  • Suddenly large debt funded capex leading to stretch on net cash accrual and weak financial risk profile.

About the Company

RSL was established in April 1991 and is based out of Kalol (Panchamahal) based company and is engaged in manufacturing and export of high-quality stainless-steel billet, black bars, and bright bars, Wire Rods etc in various grades and sizes.

Key Financial Indicators

As on/for the period ended March 31

Unit 

2023

2022

Operating income

Rs.Crore

951.90

770.88

Reported profit after tax

Rs.Crore

23.90

12.46

PAT margins

%

2.51

1.62

Adjusted Debt/Adjusted Networth

Times

0.84

1.65

Interest coverage

Times

4.30

3.21

Status of non cooperation with previous CRA

RSL has not cooperated with Brickwork Ratings India Private Limited (BWR) which has classified it as non-cooperative vide release dated 27th July 2022. The reason provided by BWR is non-availability of the information and lack of cooperation from the issuer for monitoring of ratings.

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 Issue size (Rs.Crore) Complexity levels Rating assigned with outlook
NA Working Capital Term Loan NA NA Jul-2027 14.5 NA CRISIL BBB/Stable
NA Cash Credit NA NA NA 65 NA CRISIL BBB/Stable
NA Non-Fund Based Limit NA NA NA 65 NA CRISIL A3+
NA Rupee Term Loan NA NA Jul-2027 7.43 NA CRISIL BBB/Stable
NA Proposed Long Term Bank Loan Facility NA NA NA 13.07 NA CRISIL BBB/Stable
Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 100.0 CRISIL BBB/Stable   -- 11-10-23 CRISIL BBB/Stable 25-08-22 CRISIL BBB-/Positive   -- Suspended
      --   -- 09-02-23 CRISIL BBB-/Positive   --   -- --
Non-Fund Based Facilities ST 65.0 CRISIL A3+   -- 11-10-23 CRISIL A3+ 25-08-22 CRISIL A3   -- Suspended
      --   -- 09-02-23 CRISIL A3   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 47.5 State Bank of India CRISIL BBB/Stable
Cash Credit 17.5 IDBI Bank Limited CRISIL BBB/Stable
Non-Fund Based Limit 25.57 State Bank of India CRISIL A3+
Non-Fund Based Limit 26.93 State Bank of India CRISIL A3+
Non-Fund Based Limit 12.5 IDBI Bank Limited CRISIL A3+
Proposed Long Term Bank Loan Facility 13.07 Not Applicable CRISIL BBB/Stable
Rupee Term Loan 7.43 Axis Finance Limited CRISIL BBB/Stable
Working Capital Term Loan 11.67 Axis Finance Limited CRISIL BBB/Stable
Working Capital Term Loan 2.83 IDBI Bank Limited 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 short term debt

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