Rating Rationale
February 18, 2025 | Mumbai
Shyam Steel Industries Limited
Ratings reaffirmed at 'Crisil AA-/Stable/Crisil A1+'; Rated amount enhanced for Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.732.1 Crore (Enhanced from Rs.582.1 Crore)
Long Term RatingCrisil AA-/Stable (Reaffirmed)
Short Term RatingCrisil A1+ (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 ‘Crisil AA-/Stable/Crisil A1+’ ratings on the bank loan facilities of Shyam Steel Industries Limited (SSIL; part of the Shyam Steel group).

 

The ratings reflect established market position in east India through focus on branding, healthy financial risk profile and prudent working capital management. These strengths are partially offset by vulnerability to fluctuations in the prices of raw material and finished goods and exposure to inherent cyclicality and slowdown in end-user industry.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of SSIL and its 100% subsidiary, Shyam Steel Manufacturing Limited (SSML, 'Crisil AA-/Stable/Crisil A1+') and its 80% step down subsidiary, Shyam Steel Works Private Limited (SSWPL, 'Crisil AA-/Stable/Crisil A1+'), as these companies, together referred to as the Shyam Steel group, have significant operational and financial linkages.

 

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 in east India through focus on branding: The Shyam Steel group is one of the most dominant players among integrated thermo-mechanically treated (TMT) bar manufacturers in East India. Over the years, the group has taken various initiatives to develop its brand through promotion and advertisement, including promotion through renowned brand ambassadors enabling the group to strengthen its market position and command premium pricing for its products. Despite volatility in the commodity market, the group has shown healthy capacity utilization consistently. Moreover, with stabilization of the new capacity at SSML and commissioning of the greenfield venture, SSWPL, group’s own production capacity has increased in fiscals 2024-25, and is expected to strengthen its market share over the medium term.

 

  • Healthy financial risk profile: Robust networth of Rs 1712 crore as on March 31, 2024, backed by steady accretion to reserve, yield gearing and total outside liabilities networth ratio of 1.0 time and 1.7 times respectively for fiscal 2024. Debt protection metrices were also comfortable with interest coverage and net cash accrual to adjusted debt ratio and 3.6 times and 0.2 time as on March 31, 2024. The capex of Rs 1451 crore, funded by debt equity ratio of 1.99 times, during fiscals 2021-2025 has commissioned commercial operations in fiscal 2025. Despite the contraction of external debt for the aforesaid capex and incremental capex of ~Rs 1050 crore to be funded by debt equity ratio of 2 times during fiscals 2025-28, the financial risk profile is expected to remain comfortable with gearing below unity over the medium term, supported by improvement in profitability margins and healthy accretion to reserves.

 

  • Prudent working capital management: Extensive experience of promoters and their close monitoring of the working capital cycle has ensured prudent working capital management over the years, limiting dependence on external liability for working capital. Checks on debtors’ and inventory management through stringent policies has been instrumental in maintaining gross current assets (GCAs) in range of 79-93 days during three fiscals through March 31, 2024. The group takes advances or bank guarantees from dealers and distributors and extends minimal credit. Normally, raw material inventory of 25-60 days is maintained as per requirement. Hence, prudent working capital management has curtailed exposure to external working capital debt.

 

Weaknesses:

  • Vulnerability to fluctuations in the prices of raw material and finished goods: Operating margin is vulnerable to fluctuations in the prices of inputs (such as iron ore and coal), level of integrated operations as well as realization from finished goods. The prices and supply of the main raw material, iron ore, directly impacts the realisations of finished goods. Finished TMT prices follow suit in line with raw material prices and accordingly operating margins are susceptible to input price movement. Moreover, secondary steel players like Shyam Steel group, continue to remain dependent on external sourcing for procurement of coal and iron ore and level of integration and improvement in earnings before interest taxes depreciation and amortization per ton over the medium term remains key rating sensitivity factor.

 

  • Exposure to inherent cyclicality and slowdown in end-user industry: Demand for the products of the group, such as TMT bars, is linked to the capex plans of end-users such as the civil construction, and engineering industries, which are cyclical. Slowdown in capex in these segments may have a direct bearing on the performance of the group.

Liquidity: Superior

Bank limit utilisation is moderate around 75 percent for the past twelve months ending September 2024. Cash accruals are expected to be around Rs 400-750 crore per fiscal which are sufficient against term debt obligation of around Rs 81-243 crore over the medium term. In addition, it acts as an adequate source of financing for the on-going capex and cushions incremental working capital requirement. Positive cash flow from operations and healthy cash and cash equivalent of more than Rs 737 crore as on Sept 30, 2024 cushions liquidity of the group and provides the necessary financial flexibility. Moreover, as per the understanding provided by the management, the strong liquidity profile (minimum Rs 300 crore of cash and equivalents) of the group is expected to be sustained over the medium term despite capex being undertaken by the group.

Outlook: Stable

Crisil Ratings believes the Shyam Steel group will continue to benefit from its established market position driven by superior brand and the extensive experience of its promoters. The financial risk profile is likely to strengthen further, driven by stability in the on-going capex, a conservative financial policy and strong liquidity.

Rating sensitivity factors

Upward factors:

  • Strengthening of business risk profile driven by stabilisation of the back integration capex undertaken by the group translating to sustained earnings before interest, taxes, depreciation, and amortisation (EBIDTA) per tonne of around Rs.7500.
  • Sustenance of efficient working capital management and string financial risk profile
     

Downward factors:

  • Deterioration in operating performance by 20% due to weakening demand having substantial impact on operating profitability and cash accruals.
  • Larger than expected debt-funded capex/acquisition leading to deterioration in debt metrics and/or liquidity

About the Group

The Shyam Steel group is an integrated steel producer. The group primarily manufactures TMT bars marketed under the brand, Shyam Steel. As part of its backward integration initiatives, the group also manufactures billet, sponge iron, and ferro alloys and has captive power plants. The facilities are in West Bengal

Key Financial Indicators

As on / for the period ended March 31

Unit

2024

2023

Operating income

Rs crore

6,489

5,575

Reported profit after tax

Rs crore

233

203

PAT margins

%

3.59

3.64

Adjusted Debt/Adjusted Net worth

Times

1.03

0.81

Interest coverage

Times

3.59

7.74

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 Outstanding with Outlook
NA Bank Guarantee NA NA NA 125.00 NA Crisil A1+
NA Cash Credit NA NA NA 395.00 NA Crisil AA-/Stable
NA Letter of Credit NA NA NA 60.00 NA Crisil A1+
NA Non-Fund Based Limit NA NA NA 2.10 NA Crisil A1+
NA Working Capital Term Loan NA NA 31-Mar-30 150.00 NA Crisil AA-/Stable

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Shyam Steel Industries Limited

Full

Parent

Shyam Steel Manufacturing Limited

Full

100% subsidiary

Shyam Steel Works Private Limited

Full

80% step down subsidiary
Annexure - Rating History for last 3 Years
  Current 2025 (History) 2024  2023  2022  Start of 2022
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 545.0 Crisil AA-/Stable   -- 14-03-24 Crisil AA-/Stable 12-10-23 Crisil AA-/Stable 01-06-22 Crisil AA-/Stable / Crisil A1+ Crisil AA-/Stable / Crisil A1+
      --   --   -- 08-09-23 Crisil AA-/Stable 27-04-22 Crisil AA-/Stable / Crisil A1+ --
      --   --   -- 22-03-23 Crisil AA-/Stable / Crisil A1+ 04-04-22 Crisil AA-/Stable / Crisil A1+ --
      --   --   -- 02-03-23 Crisil AA-/Stable / Crisil A1+   -- --
Non-Fund Based Facilities ST 187.1 Crisil A1+   -- 14-03-24 Crisil A1+ 12-10-23 Crisil A1+ 01-06-22 Crisil A1+ Crisil A1+
      --   --   -- 08-09-23 Crisil A1+ 27-04-22 Crisil A1+ --
      --   --   -- 22-03-23 Crisil A1+ 04-04-22 Crisil A1+ --
      --   --   -- 02-03-23 Crisil A1+   -- --
Commercial Paper ST   --   --   --   -- 04-04-22 Withdrawn Crisil A1+
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 55 IndusInd Bank Limited Crisil A1+
Bank Guarantee 65 ICICI Bank Limited Crisil A1+
Bank Guarantee 5 State Bank of India Crisil A1+
Cash Credit 74 HDFC Bank Limited Crisil AA-/Stable
Cash Credit 30 IndusInd Bank Limited Crisil AA-/Stable
Cash Credit 35 Axis Bank Limited Crisil AA-/Stable
Cash Credit 60 Union Bank of India Crisil AA-/Stable
Cash Credit 10 ICICI Bank Limited Crisil AA-/Stable
Cash Credit 186 State Bank of India Crisil AA-/Stable
Letter of Credit 10 ICICI Bank Limited Crisil A1+
Letter of Credit 28.5 State Bank of India Crisil A1+
Letter of Credit 21.5 Axis Bank Limited Crisil A1+
Non-Fund Based Limit 1.1 Axis Bank Limited Crisil A1+
Non-Fund Based Limit 1 State Bank of India Crisil A1+
Working Capital Term Loan 150 ICICI Bank Limited Crisil AA-/Stable
Criteria Details
Links to related criteria
Criteria for manufacturing, trading and corporate services sector (including approach for financial ratios)
Basics of Ratings (including default recognition, assessing information adequacy)
Criteria for consolidation

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