Key Rating Drivers & Detailed Description

Strengths:

Established brand position in eastern India: The Shyam Steel group is one of the 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, including promotion through a renowned brand ambassador. These measures have helped the group to strengthen its brand position and thereby command premium pricing for its products. The group generated turnover of Rs.3062 crore in FY 2021 as against Rs.2637 crore in FY 2020 driven by healthy volume demand from August 2021 onwards and healthy realizations. Amidst cyclicality in the industry, the group has shown consistent healthy utilization of the existing TMT capacity of 5, 93,960 MTPA at over 90%. Consistent capacity addition and its optimum utilization reflects strong product sale ability and brand recall of Shyam TMT. Thus, increase in the TMT capacity by 2,14,500 MTPA will add to the growth of the company further.

Healthy financial risk profile: Networth was robust at Rs 1146 crore as on March 31, 2021 (Rs 958 crore a year earlier), backed by steady accretion to reserve, while gearing was moderate at around 0.21 time. Financial flexibility, especially to cope with industry down cycles, is, therefore, adequate. Interest coverage and net cash accrual to total debt ratios were 13.80 times and 1.43 time, respectively, in fiscal 2021. Gearing and debt protection metrics are expected to remain strong despite the debt-funded capital expenditure [capex; with borrowings of Rs 350 crore] being undertaken in SSML for increasing the TMT, billet, sponge iron and captive power plant capacity.

Prudent working capital management: The group has a policy of rigorous debtor management. The company takes advances or bank guarantees from dealers and distributors and extends minimal credit. Normally, raw material inventory of 30-45 days is maintained as per requirement. Gross current assets were at 90 days as on March 31, 2021, with debtors and inventory of 41 and 42 days, respectively.

Weakness:

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) as well as realisation from finished goods. The prices and supply of the main raw material, iron ore, directly impacts the realisations of finished goods. While iron ore prices have currently moderated, non-coking prices have been rising starting June 21. Finished TMT prices follow suit in line with RM prices. Secondary steel player like Shyam Steel group, continue to remain dependent on external sourcing for procurement of coal.

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 programmes of end-users such as the civil construction, and engineering industries; which are cyclical. Slowdown in capex in these segments may impact the performance of the group.

Key Financial Indicators

Annexure - Details of Instrument(s)

Annexure – List of entities consolidated

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