Rating Rationale
November 17, 2022 | Mumbai
Sarthak Metals Limited
Rating outlook revised to 'Positive'; Rating Reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.27.25 Crore
Long Term RatingCRISIL BBB/Positive (Outlook revised from 'Stable'; Rating 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 revised its outlook on the long-term bank facilities of Sarthak Metals Limited (SML) to ‘Positive’ from ‘Stable’ and reaffirmed the rating at ‘CRISIL BBB’.

 

The revision in the outlook factors in SML improving market position on back of healthy revenue and profitability, supported by higher capacity utilization. In H1 fiscal 2023, revenue is estimated to be at Rs 237.46 crore with profit after tax and net cash accruals at Rs 17.62 crore and Rs 18.24 crore respectively. Operating margin during H1 fiscal 2023 improved to 10.35% against 9.01% in fiscal 2022. Higher capacity utilization has improved operating efficiency and liquidity coupled with strengthening of financial risk profile in fiscal 2022. Furthermore, production capacity is expected to increase over the medium term. Improvement in revenue and capacity utilization while sustenance of profitability remains key rating sensitivity factor.

 

The ratings continue to reflect extensive experience of promoters in the steel industry, comfortable scale of operations and healthy return on capital employed. These strengths are partially offset by large working capital requirement and exposure to risks related to competition from domestic and established players.

Key Rating Drivers & Detailed Description

Strengths:

Extensive experience of promoters: The Bansal family has been engaged in the industry for more than five decades which has enabled them to understand market dynamics and established relationships with suppliers and customers, including Tata Steel Ltd, Jindal Steel and Power Ltd, Jindal Stainless Limited which ensures repeat orders, and supply of raw material. Strong relationship with key customers and their sound credit worthiness mitigates risk of bad debt. SML is expected to continuously benefit from its promoters’ experience.

 

Comfortable scale of operations and operating efficiency: Revenue improved to Rs 455.29 crore in fiscal 2022 against Rs 216.40 crore in fiscal 2021. The improvement is driven by robust demand from the steel industry leading to volumetric growth of about 35%. Operating margins improved to 9.01% as on March 31, 2022 indicative of sufficient cost passthrough amid volatile prices of key raw material, aluminium and ferro alloy. Increased capacity utilization has led to healthy return on capital employed of over 25.5% and operating income to gross block ratio of over 21 times as on March 31, 2022. Sustenance of demand and improvement in market position on back of efficient capacity utilization remain key rating sensitivity factor.

 

Weaknesses:

Susceptibility of operating margin to volatility in raw material prices, and vulnerability to cyclicality in the infrastructure and real estate sectors: Cost of production and profit margin are heavily dependent on raw material prices (aluminium and ferro alloy). On account of variation in raw material prices, operating margins have also been volatile. Furthermore, profitability is linked to the fortunes of the inherently cyclical steel industry, which has strong correlation with overall growth in gross domestic product. Operating performance will remain susceptible to volatility in raw material prices, and offtake by key user sectors.

 

Moderate working capital cycle: Operations are moderately working capital intensive as reflected in gross current assets (GCAs) of 80 days as on March 31, 2022, driven by debtors of 46 days and inventory of 25 days, supported by creditors of 10 days. Over the last 3 fiscal through March 31, 2021, GCAs were in range of 98-129 days. Working capital cycle is expected to remain in range of 95-115 days over medium term.

Liquidity: Adequate

Cash accrual is expected to be sufficient in range of Rs 31-35 crore per fiscal against repayment obligation of Rs 1.68 crore in fiscal 2023 and Rs 2.58 crore in fiscal 2024. 12-month average bank limit utilization net of current account balances is estimated to be low around 17% through September 2022. Sufficient cushion in net cash accrual to repayment obligation ratio and healthy current account balances averaging Rs 15 crore during 12-months through September 2022 aid working capital requirement.

 

Low gearing provides financial flexibility in case of any adverse conditions or downturn in the industry. Current ratio was healthy at 2.97 times on March 31, 2022.

Outlook: Positive

CRISIL Ratings believes that SML will continue to benefit from the experience of its promoters along with established client base. Sustenance of profitability while improvement in revenue and capacity utilization over the medium term remain key monitorable.

Rating Sensitivity Factors

Upward factors

  • Sustained improvement in the scale of operations and capacity utilization leading to steady cash accrual over Rs 30 crore over medium term
  • Improvement in working capital cycle

 

Downward factors

  • Substantial decline in scale of operations leading to net cash accruals below Rs 15 crore
  • Larger, debt funded capex weakening liquidity

About the Company

SML was set up in 1995, in Durg, Chhattisgarh and is promoted by Mr. Manoj Bansal, Mr. Anoop Bansal and Mr. Kishor Bansal. The company manufactures metallurgical cored wires and aluminum flipping coil.

Key Financial Indicators

As on/for the period ended March 31

Unit

2022

2021

Operating income

Rs crore

457.31

221.93

Reported profit after tax

Rs crore

27.48

7.97

PAT margins

%

6.01

3.59

Adjusted Debt/Adjusted Networth

Times

0.29

0.58

Interest coverage

Times

10.37

4.91

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.crisil.com/complexity-levels. 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 level

Rating assigned with outlook

NA

Cash Credit

NA

NA

NA

27.25

NA

CRISIL BBB/Positive

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 LT 27.25 CRISIL BBB/Positive 01-02-22 CRISIL BBB/Stable 31-05-21 CRISIL BBB/Stable 10-02-20 CRISIL BBB/Stable 30-01-19 CRISIL BBB/Stable CRISIL BBB/Stable
Non-Fund Based Facilities ST   --   --   --   -- 30-01-19 CRISIL A3+ CRISIL A3+
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 27.25 State Bank of India CRISIL BBB/Positive

This Annexure has been updated on 17-Nov-22 in line with the lender-wise facility details as on 14-Dec-21 received from the rated entity.

Criteria Details
Links to related criteria
CRISILs Bank Loan Ratings
The Rating Process
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings
Rating criteria for manufaturing and service sector companies
Understanding CRISILs Ratings and Rating Scales

Media Relations
Analytical Contacts
Customer Service Helpdesk

Aveek Datta
Media Relations
CRISIL Limited
M: +91 99204 93912
B: +91 22 3342 3000
AVEEK.DATTA@crisil.com

Prakruti Jani
Media Relations
CRISIL Limited
M: +91 98678 68976
B: +91 22 3342 3000
PRAKRUTI.JANI@crisil.com

Rutuja Gaikwad 
Media Relations
CRISIL Limited
B: +91 22 3342 3000
Rutuja.Gaikwad@ext-crisil.com


Jaya Mirpuri
Director
CRISIL Ratings Limited
B:+91 22 3342 3000
jaya.mirpuri@crisil.com


Argha Chanda
Associate Director
CRISIL Ratings Limited
D:+91 33 4011 8200
argha.chanda@crisil.com


Puja Agarwal
Rating Analyst
CRISIL Ratings Limited
B:+91 33 4011 8200
Puja.Agarwal@crisil.com
Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
CRISILratingdesk@crisil.com
 
For Analytical queries:
ratingsinvestordesk@crisil.com


 

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper/magazine/agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL Ratings. However, CRISIL Ratings alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites and portals.


About CRISIL Ratings Limited (A subsidiary of CRISIL Limited)

CRISIL Ratings pioneered the concept of credit rating in India in 1987. With a tradition of independence, analytical rigour and innovation, we set the standards in the credit rating business. We rate the entire range of debt instruments, such as bank loans, certificates of deposit, commercial paper, non-convertible/convertible/partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 33,000 large and mid-scale corporates and financial institutions. We have also instituted several innovations in India in the rating business, including ratings for municipal bonds, partially guaranteed instruments and infrastructure investment trusts (InvITs).
 
CRISIL Ratings Limited ('CRISIL Ratings') is a wholly-owned subsidiary of CRISIL Limited ('CRISIL'). CRISIL Ratings Limited is registered in India as a credit rating agency with the Securities and Exchange Board of India ("SEBI").
 
For more information, visit www.crisilratings.com 

 



About CRISIL Limited

CRISIL is a global analytical company providing ratings, research, and risk and policy advisory services. We are India's leading ratings agency. We are also the foremost provider of high-end research to the world's largest banks and leading corporations.

CRISIL is majority owned by S&P Global Inc, a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.


For more information, visit www.crisil.com

Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK


CRISIL PRIVACY NOTICE
 
CRISIL respects your privacy. We may use your contact information, such as your name, address and email id to fulfil your request and service your account and to provide you with additional information from CRISIL. For further information on CRISIL’s privacy policy please visit www.crisil.com.



DISCLAIMER

This disclaimer is part of and applies to each credit rating report and/or credit rating rationale (‘report’) that is provided by CRISIL Ratings Limited (‘CRISIL Ratings’). To avoid doubt, the term ‘report’ includes the information, ratings and other content forming part of the report. The report is intended for the jurisdiction of India only. This report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the report is to be construed as CRISIL Ratings providing or intending to provide any services in jurisdictions where CRISIL Ratings does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this report does not create a client relationship between CRISIL Ratings and the user.

We are not aware that any user intends to rely on the report or of the manner in which a user intends to use the report. In preparing our report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the report is not intended to and does not constitute an investment advice. The report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind to enter into any deal or transaction with the entity to which the report pertains. The report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Ratings are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold or sell any securities/instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL Ratings assumes no obligation to update its opinions following publication in any form or format although CRISIL Ratings may disseminate its opinions and analysis. The rating contained in the report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the report should rely on their own judgment and take their own professional advice before acting on the report in any way. CRISIL Ratings or its associates may have other commercial transactions with the entity to which the report pertains.

Neither CRISIL Ratings nor its affiliates, third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively, ‘CRISIL Ratings Parties’) guarantee the accuracy, completeness or adequacy of the report, and no CRISIL Ratings Party shall have any liability for any errors, omissions or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the report. EACH CRISIL RATINGS PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Ratings Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. Public ratings and analysis by CRISIL Ratings, as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any), are made available on its website, www.crisilratings.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee – more details about ratings by CRISIL Ratings are available here: www.crisilratings.com.

CRISIL Ratings and its affiliates do not act as a fiduciary. While CRISIL Ratings has obtained information from sources it believes to be reliable, CRISIL Ratings does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and/or relies on in its reports. CRISIL Ratings has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL Ratings has in place a ratings code of conduct and policies for managing conflict of interest. For details please refer to:
https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html.

Rating criteria by CRISIL Ratings are generally available without charge to the public on the CRISIL Ratings public website, www.crisilratings.com. For latest rating information on any instrument of any company rated by CRISIL Ratings, you may contact the CRISIL Ratings desk at crisilratingdesk@crisil.com, or at (0091) 1800 267 1301.

This report should not be reproduced or redistributed to any other person or in any form without prior written consent from CRISIL Ratings.

All rights reserved @ CRISIL Ratings Limited. CRISIL Ratings is a wholly owned subsidiary of CRISIL Limited.

 

 

CRISIL Ratings uses the prefix ‘PP-MLD’ for the ratings of principal-protected market-linked debentures (PPMLD) with effect from November 1, 2011, to comply with the SEBI circular, "Guidelines for Issue and Listing of Structured Products/Market Linked Debentures". The revision in rating symbols for PPMLDs should not be construed as a change in the rating of the subject instrument. For details on CRISIL Ratings' use of 'PP-MLD' please refer to the notes to Rating scale for Debt Instruments and Structured Finance Instruments at the following link: https://www.crisil.com/en/home/our-businesses/ratings/credit-ratings-scale.html