| The Sandur Manganese And Iron Ores Limited | ||||||
| Ratings upgraded to 'CRISIL A/Stable/CRISIL A1 ' | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has upgraded its rating on the long-term bank facilities of The Sandur Manganese and Iron Ores Limited (SMIORE) to ‘CRISIL A/Stable/CRISIL A1’ from ‘CRISIL A-/Stable/CRISIL A2+’.
The rating upgrade takes into account CRISIL Ratings’ belief that the business risk profile of the Company will continue to improve over the medium term, benefitting from ramp up of recently completed coke production facilities. This is likely to aid in diversification in the product portfolio.
The Company has setup coke production facilities with capacity of 0.4 Million Tonnes Per Annum (MTPA) and this became entirely operationalized from January 18, 2021. During fiscal 2021, the Company’s revenue grew by 26% to Rs 746 crore over the previous fiscal, on the back of contribution from sale of coke and also better realizations on iron-ore, ferro-alloys and manganese ore. The Company is likely to report strong growth in the current fiscal, with already reporting Rs 475 crore of revenues in first quarter of fiscal 2022 (year-on-year growth of 270%), despite the second COVID wave impact. Demand for metallurgical coke is likely to remain strong supported by the steel entities located in Ballari (Karnataka). Operating profitability has improved last fiscal, with contribution from coke sales, which has higher margins. This is likely to continue, coupled with sustenance of higher realization on other products. As a result, the cash accruals are likely to remain strong and over Rs 350 crore over the medium term, which will support any capital investments and also further strengthen financial risk profile.
SMIORE’s financial profile continues to remain strong, with gearing of 0.37 times as on 31 March, 2021, despite the company completing a debt funded capex. Further, the company has strong cash and equivalents of Rs 352 crore as on same date and this will support the liquidity going forward.
The rating continues to reflect a strong market position with a track record of more than six decades and large mining reserves and strong financial risk profile. These strengths are offset by susceptibility to heightened regulatory risks and vulnerability of operating margin to commodity prices. |
Key Rating Drivers & Detailed Description Strengths:
SMIORE was set up in 1954 when Y. R. Ghorpade, the former Maharaja of Sandur, transferred the lease awarded to him in the Company's name. Currently, it has two mining leases valid up to 2033, with estimated reserves of almost 110 million tonne of iron ore and around 14 million tonnes of manganese with production capacity of 1.6 MTPA for the former and 0.286 MTPA for the later. The Company is among the few entities with category 'A' mining leases with production capacity of more than 1 MTPA of iron ore. The extensive reserves, long validity of the mining licence, and presence of more than six decades in the industry are expected to continue benefiting the Company in the near term.
The Company had a net worth of Rs 993 crore as on 31 March, 2021, on account of steady accretion to reserves over the years. The capital structure is expected to remain sound with gearing at 0.4 times as on 31 March, 2021 and is expected to be at similar levels in the next two fiscals. The Company’s interest coverage was at 20 times for FY 2021 and is expected to remain at similar levels, over the next two fiscals.
Weaknesses:
In the past, the mining industry has witnessed scams and irregularities (including illegal mining, over-mining, encroachment of forest areas, and underpayment of government royalties, and conflicts with the tribal population regarding land rights) in ore-rich states, especially Karnataka, Goa, and Odisha. This led the Supreme Court to impose a ban on mining. Furthermore, there are local agitations and issues in obtaining approvals in regions where mining is operational. The business risk profile should remain constrained by high regulatory risks.
Metal ore and ferroalloy prices typically exhibit considerable cyclicality, and are highly sensitive to global demand patterns and general macro-economic factors. Accordingly, like any other private miner or alloy producer, the Company's operating margin will remain vulnerable to changes in commodity prices. Ramp up in newly commissioned facilities and fixed cost absorption will be a key monitorable for operating margin. |
Liquidity: Strong The Company’s liquidity will remain strong, with strong accruals against repayment obligations and also healthy cash and equivalents. Cash accrual is expected at Rs 380 - 450 crore per fiscal over medium term, against repayments of Rs 57 crore in fiscal 2022 onwards. The Company created a Debt Service Reserve Amount (DSRA) totalling to a quarter of principal and interest repayment in March 2021, which provides additional comfort on debt servicing. Cash and equivalents were at Rs 352 crore, as on 31 March, 2021, including investments in liquid mutual funds. With efficient working capital management, the Company’s bank limit of Rs 10 crore, was utilized at 14% during the 12 months through May 2021. |
Outlook: Stable CRISIL Ratings believes the company will continue to benefit from its strong market position in the mining industry. |
Rating Sensitivity factors Upgrade factors:
Downward factors:
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About the Company SMIORE mines low-phosphorous manganese and iron ore in the Hosapete-Ballari region of Karnataka. It is the fifth-largest iron ore miner in Karnataka and the largest private miner of manganese ore, and is the flagship business of the royal family of Ghorpade.
SMIORE has a 48,000 TPA ferroalloy plant, a 32 MW captive power plant and a 0.4 MTPA coke oven plant with two waste recovery boilers |
Key Financial Indicators
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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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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | |||
| Facility | Name of Lender | Amount (Rs.Crore) | Rating |
| Cash Credit | 5 | Axis Bank Limited | CRISIL A/Stable |
| Cash Credit | 5 | ICICI Bank Limited | CRISIL A/Stable |
| Letter of Credit | 55 | Axis Bank Limited | CRISIL A1 |
| Letter of Credit | 30 | ICICI Bank Limited | CRISIL A1 |
| Letter of Credit | 81 | IndusInd Bank Limited | CRISIL A1 |
| Letter of Credit | 19 | IndusInd Bank Limited | CRISIL A1 |
| Letter of Credit | 100 | RBL Bank Limited | CRISIL A1 |
| Letter of Credit | 56 | YES Bank Limited | CRISIL A1 |
| Term Loan | 200 | Axis Bank Limited | CRISIL A/Stable |
| Term Loan | 100 | ICICI Bank Limited | CRISIL A/Stable |
| Term Loan | 100 | IndusInd Bank Limited | CRISIL A/Stable |
This Annexure has been updated on 03-Jan-2022 in line with the lender-wise facility details as on 31-Dec-2021 received from the rated entity.
Criteria Details
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