| Saurashtra Fuels Private Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL BB/Stable/CRISIL A4+’ ratings on the bank loan facilities of Saurashtra Fuels Private Limited (SFPL). The rating on Rs 143 crore Proposed Long Term Bank Loan Facility has been withdrawn at the company's request. The withdrawal is in line with CRISIL Ratings’ policy on withdrawal of bank loan ratings.
The ratings continue to reflect an established market position in the LAM (low ash metallurgical) coke manufacturing business and moderate capital structure. These strengths are partially offset by very high susceptibility of profitability to volatility in raw material prices, and impact of cyclicality in the end user industries on scale of operations.
Revenue declined by 61.7% in fiscal 2021 to Rs 212 crore on account of COVID-19 pandemic induced lockdown and related disruptions, impacting the demand for LAM. However, due to favourable input prices coupled with healthy realisations due to supply disruptions, operating profit and margin improved to Rs. 16.43 crores and 7.8%, respectively in FY 2021, compared to operating loss of Rs 2.27 crore in the previous fiscal. While, the second wave of COVID-19 pandemic in India has only had a marginal impact on the operating performance of the company, as reflected in revenue and operating margin of Rs 165.8 crores and 12.6%, respectively in first quarter of fiscal 2022.; sustenance of the same along with improvement in working capital cycle shall remain a key rating sensitivity. |
Key Rating Drivers & Detailed Description Strengths Established market position in the LAM coke business: Company is the largest LAM coke player in India in terms of capacity, with installed capacity of 14 lakh tonne per annum (TPA). The promoters have an experience of over two decades in the industry. Over the years, the company has developed a strong relationship with customers such as JSW Steel Ltd, Electrotherm India Ltd, Hindustan Zinc Ltd (‘CRISIL AAA/Stable/CRISIL A1+’), Gujarat Heavy Chemicals Ltd, and Nirma Ltd, resulting in repeat orders.
Moderate capital structure: The company has a moderate capital structure as reflected in total outside liability to adjusted debt (TOLANW) of 1.9 times as on March 31, 2021. Leverage levels are driven by deferred sales tax liability and unsecured loans/optionally convertible debentures (OCD) of Rs 34.19 crores; bank debt is around Rs 25.9 crores as on March 31, 2021. Gearing net of deferred sales tax liabilities /OCD is at 0.21 times. In the absence of any large debt fund capex in pipeline and moderate reliance on bank debt to fund working capital requirements, capital structure is expected to improve over the medium term with TOLANW maintained below 1.5 times.
Weaknesses High susceptibility of the operating margin to volatility in raw material prices: The prices of coking coal are subject to global demand-supply conditions and have been quite volatile. Consequently, the operating margin has also fluctuated sharply, from -0.41% to 13.7% over the five fiscals through FY 2021. The sharp fluctuations in operating profits has also resulted in a volatile debt protection metrics where the interest coverage has fluctuated from -0.08 to 3.94 times over the past five years through FY 2021 (3.03 times as on March 31, 2021). Efficient inventory management and keeping the inventory prices as current as possible remains critical in managing exposure to volatility in input prices. The management has been focusing on reducing the inventory levels over the past couple of fiscals, however operating margins have still remained volatile.
Susceptibility of scale of operations to cyclicality in the end user industries: LAM coke is used in blast furnaces and largely utilized in Iron and Steel, metals, cement and chemical industries. Any cyclicality in these industries, especially in Iron Steel Segment can constrain demand and have an impact on the scale of operations. Moderate diversification in the end user industries partially mitigates this risk |
Liquidity Stretched Net cash accruals were Rs 13.1 crores in fiscal 2021, against marginal debt obligations of Rs 0.37-0.70 crore per fiscal over the medium term. However company has large deferred sales tax liabilities and contingent liabilities in relation to its accruals. Unfavourable ruling on these contingent liabilities and any large volatility in margins can have material impact on the liquidity profile of the company. Average bank limit utilisation was around 65.4% during the 12 months through June 2021. OCD and Unsecured loans from the promoters and affiliates were at Rs 34.19 crore as on March 31, 2021. The company has deferred its expansion plans and accordingly not expected to have any debt funded capital expenditure. The current ratio was 2.0 times, and the unencumbered cash and bank balance Rs 0.88 crore, as on March 31, 2021. |
Outlook: Stable CRISIL Ratings believes that SFPL will continue to benefit over the medium term from the promoters' extensive industry experience and established market position |
Rating Sensitivity factors Upward Factors:
Downward factors:
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About the Company Founded in December 1993, SFPL is promoted by Mr Dipak Agarwalla and Mr S K Sinha. The company manufactures LAM coke used in the production of steel, ferroalloys, and pig iron. It has six manufacturing locations, one each at Mundra and Porbandar and two each at Anjar and Bachao, all in Gujarat, with installed capacity of 14 lakh tpa. |
Key Financial Indicators
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Status of noncooperation with previous CRA The company has not cooperated with Credit Analysis & Research Ltd (CARE), which have classified it as non-cooperative through releases dated May 28, 2021. The reason provided is non-furnishing of information 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. 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)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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* - Issuer did not cooperate; based on best-available information
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| Annexure - Details of Bank Lenders & Facilities | ||
| Facility | Amount (Rs.Crore) | Rating |
| Cash Credit | 10 | CRISIL BB/Stable |
| Cash Credit | 10 | CRISIL BB/Stable |
| Cash Credit | 10 | CRISIL BB/Stable |
| Letter of Credit | 17 | CRISIL A4+ |
| Letter of Credit | 12 | CRISIL A4+ |
| Letter of Credit | 13 | CRISIL A4+ |
| Proposed Long Term Bank Loan Facility | 143 | Withdrawn |
Criteria Details
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