| Rashmi Metaliks Limited | ||||||
| Ratings reaffirmed at 'CRISIL A / CRISIL A1 '; outlook revised to 'Positive' | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has revised its rating outlook on the long-term bank loan facilities of Rashmi Metaliks Ltd (RML; part of the Rashmi group) to ‘Positive’ from ‘Stable’ while reaffirming the rating at ‘CRISIL A’; the short-term rating has been reaffirmed at ‘CRISIL A1’
The outlook revision reflects steady improvement in the credit risk profile, which is expected to sustain, backed by a better business risk profile and a sound financial risk profile, particularly liquidity. Revenue had a compound annual growth rate (CAGR) of above 40% over the three fiscals through 2021 to an estimated Rs 10,000 crore from Rs 3,085 crore in fiscal 2017; the growth is likely to be sustained. This was driven by continuous capacity addition over this period. Currently, the company has net manufacturing capacity of around 1,09,93,800 tonne per annum (including intermediate goods). Earlier, due to the Covid-19 pandemic-induced supply chain issue, a decline in revenue was expected in fiscal 2021. However, revenue is estimated to have risen by around 10% in fiscal 2021 compared with the previous fiscal. This was driven by an increase in sales volume of iron ore pellets and overall increase in realisation prices due to heathy international demand in the first half and pick up of demand in the domestic market in the second half of fiscal 2021.
Also, the operating margin has remained healthy at 16.7-18.1% in the three fiscals through 2020. Further, towards the end of fiscal 2020, the group had substantially increased its inventory of raw material (to nine months) as iron ore mines were due to conduct auctions. This has benefited the group in fiscal 2021 where raw material prices increased significantly, thus benefitting profitability. The improvement in the business risk profile is expected to be sustained over the medium term.
The financial risk profile has remained healthy with a substantial networth of Rs 5,264 crore and nil external debt as on March 31, 2020 (estimated at around Rs 6,282 crore and nil respectively as on March 31, 2021) Working capital requirement was mainly financed through internal sources and unsecured loans from related parties. This helped to sustain robust debt protection metrics as indicated by the interest coverage ratio of above 21 times and net cash accrual to adjusted debt ratio of above 2 times in fiscal 2020 and estimated to have sustained in fiscal 2021. Liquidity is also comfortable, with average bank limit usage of around 14% (limit of Rs 238 crore) in the 12 months through January 2021. Unencumbered liquid funds were Rs 402 crore as on March 31, 2020.
The ratings continue to reflect an established market position in the iron and steel industry, healthy operating efficiency and a robust financial risk profile. These strengths are partially offset by the ongoing dispute with South Eastern Railways (SER), and exposure to volatility in the prices of inputs and finished goods. |
Analytical Approach For arriving at the ratings, CRISIL has combined the business and financial risk profiles of RML, Orissa Metaliks Pvt Ltd (OMPL) and Rashmi Cement Ltd (RCL). That’s because all these companies, collectively referred to as the Rashmi group, have a common management, and significant operational and financial linkages.
Please refer Annexure - Details of consolidation, which captures the list of entities considered and their analytical treatment of consolidation |
Key Rating Drivers & Detailed Description Strengths Established market position The Rashmi group is one of the largest players in the iron and steel industry in eastern India. Over the years, it has also increased its foothold in global markets. Backed by the established market position, revenue reached about Rs 9,112 crore (on a consolidated basis) in fiscal 2020 from Rs 3,043 crore in fiscal 2019, at a CAGR of above 40%. Revenue should remain healthy over the medium term too, given the recent capacity expansion.
Healthy operating efficiency The integrated nature of operations has continued to support profitability. Apart from the benefits derived from the value chain, the group is supported by its presence in railway siding and captive power plant segments. Furthermore, it is flexible in terms of customer base, captive consumption, and outside sale requirements; this helps maximise realisations and profitability.
Comfortable financial risk profile The financial risk profile is likely to be maintained over the medium term, supported by steady accretion to reserves and timely infusion of equity. The networth was strong at Rs 5,264.9 crore as on March 31, 2020 (estimated at around Rs 6,282 crore as on March 31, 2021). The gearing was low at 0.12 time, thereby enhancing financial flexibility. The gearing is likely to remain stable over the medium term, as the projected capital expenditure (capex) will mostly be funded by internal cash accrual. Debt protection metrics were strong, with interest coverage and net cash accrual to total debt ratios at 21.3 times and 2.03 times, respectively, in fiscal 2020 (estimated at 29 times and 5 times, respectively, for fiscal 2021).
Weaknesses Ongoing dispute with SER The Rashmi group and SER have been embroiled in a legal dispute over the freight charges paid by them for transporting iron ore. According to the railways, the group had fraudulently transported iron ore under concessional freight rates for consumption at its plant in West Bengal. Though currently, there is no crystallised payable monetary liability, any imposition of penalties may constrain the financial risk profile.
Vulnerability to volatility in the prices of raw material and finished goods The prices and supply of the key raw material (iron ore) directly impact realisations of finished goods. Any sharp increase in input prices with the absence of almost a similar difference in realisations could dent profitability significantly. Driven by such volatility, the margin had dipped sharply in fiscals 2015 and 2016 and has thereafter shown lower volatility but still remains exposed to such risk. |
Liquidity Strong Cash accrual improved to Rs 1,270 crore in fiscal 2020 from Rs 583 crore in fiscal 2019, and is estimated to have improved further to Rs 1,300 crore in fiscal 2021. Cash flow from operations has been positive in the five fiscals through 2020 due to prudent working capital management. Modest utilisation of the fund-based working capital limit in the 12 months through January, 2021 (averaging 14%) and significant unencumbered cash and cash equivalents (around Rs 400 crore as on March 31, 2020) enhance financial flexibility in the absence of any long-term debt. Liquidity is likely to remain strong over the medium term. |
Outlook Positive The Rashmi group should continue to benefit from its established market position, significant backward integration, negligible debt, and healthy cash accrual. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Group The Rashmi group, based in Kolkata, was formed in 1991 with the incorporation of RCL and is promoted by Mr Sajjan Kumar Patwari and his family members. RML was incorporated in 2004 to increase the spread in the steel industry. OMPL was incorporated in 2006 but started operations from fiscal 2016 when some of the assets were sold to it by RML for better operations management. The group has been in the iron and steel industry for over four decades. |
Key Financial Indicators (Consolidated)
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Status of non cooperation with previous CRA: RML has not cooperated with Credit Analysis & Research Ltd. (CARE), which has classified it as issuer not cooperative through a release dated June 29, 2020. The reason provided is non-furnishing of information for monitoring of ratings |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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