| Shyam Ferro Alloys Limited | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings ratings on the bank loan facilities of Shyam Ferro Alloys Ltd (SFAL; part of the Shyam Ferro group) continues to reflect sustenance of healthy operating efficiency of Shyam Ferro group over last three fiscals ending fiscal 2021. The group’s operating profitability has remained healthy and sustained at 10-12% during the mentioned period. The improvement in profitability has been driven by increased revenue contribution from low carbon & medium carbon ferro-alloys, better capacity utilization and increased revenue share from export sales over the years. CRISIL Ratings believes the group’s operating profitability will sustain over medium term with better operational efficiencies.
Furthermore, better operating profitability has led to better cashflows which in turn has led to improved liquidity profile of the group. The group’s bank limits have remained moderately utilized at an average of 27% over last 12 months ending March 2021. The group do not have any repayment obligation and as such the entire cash accruals would be free.
The ratings also reflect the group’s strong business risk profile driven by established market position in the ferro-alloy industry, promoters’ extensive industry experience, and healthy financial risk profile reflected from its robust capital structure and debt protection metrics. These strengths are partially offset by moderate working capital intensive operations, susceptibility to performance of end-user industry, and vulnerability to volatility in raw material and finished good prices.
CRISIL Ratings had upgraded its long-term rating on bank loan facilities of SFAL to ‘CRISIL A+/Stable’ from ‘CRISIL A/Stable’ on April 27, 2021. |
Analytical Approach For arriving at its ratings, CRISIL Ratings has combined the business and financial risk profiles of SFAL and its wholly owned subsidiary, Sundaram Alloys Ltd (SAL). This is because both the companies, together referred to as the Shyam Ferro group, have a common management, share significant financial links, and are in the same business. SAL is 100% subsidiary of SFAL.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths: Established market position and extensive experience of promoters Presence of more than a decade in the ferro alloys industry has enabled the promoters to develop a strong insight into market dynamics. This has helped to initiate production of low and medium carbon ferro alloy that, being a higher variant product, has better realisations. This alloy also has limited competition in the domestic market, thus commanding a better operating margin. The group is among the largest manufacturers of low and medium carbon ferro alloy in the domestic market.
Longstanding presence has aided sustenance of healthy topline in the range of Rs 1400-1500 crores over last few fiscals ending fiscal 2021. Furthermore, the group through SAL has shown faster ramp up of operations and has established its strong customer base in export market.
Healthy financial risk profile: Networth has remained healthy and at consolidated level is expected to be at around Rs 600 crores increased from around Rs 430 crore as on March 31, 2018, backed by steady accretion to reserves. Gearing is also expected to remain strong at around 0.17 time, thus enhancing financial flexibility. With absence of any debt funded capex plans over the medium term, gearing is expected to remain steady. Debt protection metrics too remained comfortable, with interest coverage and net cash accrual to total debt ratios expected at around 8.8 times and 1.3 times, respectively, for fiscal 2021.
Weaknesses: Moderately working capital-intensive operations: Gross current assets is expected to remain at around 110-115 days as on March 31, 2021 and has remained in the range of 110-125 days over the last two fiscals, because of inventory and receivables of 60-80 days in the last two years. However, a significant portion of working capital requirement is expected to be funded from internal accrual, thereby keeping reliance on external debt minimum.
Vulnerability to volatility in raw material and finished goods prices: Operating margin remains susceptible to fluctuations in input (manganese ore, power, and coke) prices and realisations of finished goods. Prices and supply of raw materials directly affect realisations of ferro alloys, and any sharp delta in input prices with absence of a similar rise in realisations can dent profitability significantly.
Susceptible to performance of end-user industry and cyclical demand in ferroalloy industry: Ferroalloys are intermediates for the steel industry. Hence, the prospects for the ferroalloy industry are linked to the overall fortunes of the steel industry, which is inherently cyclical, as indicated by a downswing during fiscals 2009 and 2016, resulting in a sharp fall in the demand and prices of ferroalloys. Subsequently also the realisation for ferro alloys has been driven by the performance of steel sector. CRISIL Ratings believes that Shyam Ferro group’s performance shall continue to remain susceptible to the performance of the steel industry. |
Liquidity: Strong The liquidity profile of the group is string. The fundbased bank limits have remained utilized at around 27% over the last 12 months through March 2021. The group is expected to generate healthy net cash accruals of around Rs 120-130 crores as against nil debt repayment obligation.
The liquidity profile of the group is also augmented by maintenance of healthy unencumbered liquid funds expected to remain at the upwards of Rs 250 crores at any point of time and no debt funded capex plan over the medium term. |
Outlook Stable CRISIL Ratings believes the Shyam Ferro group will continue to benefit from its promoters’ extensive experience and established market position. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Group Incorporated in 1995, SFAL manufactures ferro manganese, silico manganese, ferro chrome, and stainless steel and mild steel flat products. Unit has ferro alloy manufacturing capacity of 11,8000 tonne per annum (tpa).
Established in September 2007, SAL manufactures ferro alloys such as silico manganese, ferro manganese, and ferro silico. Facility in special economic zone in Vishakapatnam has total capacity of 33,000 tpa. |
Key Financial Indicators
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Any other information: Not applicable |
| 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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