| The Sandur Manganese And Iron Ores Limited | ||||
| Rating placed on 'Watch Positive' | ||||
| Rating Action | ||||
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| 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 placed its rating on the bank facilities of The Sandur Manganese And Iron Ores Limited (SMIORE) on ‘Rating Watch with Positive Implications’
The ratings action follows the corporate announcement made by SMIORE on APRIL 26, 2024. As per the announcement, SMIORE has signed a binding share purchase agreement to acquire 80% stake in Arjas Steel Private Limited (“ASPL”) from private equity firm ADV Partners for an enterprise value of Rs 3000 crore. The remaining stake in ASPL would be acquired by the promoters of SMIORE through a holding company. Hence post-acquisition, ASPL would be held completely by SMIORE and its promoters.
ASPL is an established specialty steel manufacturer with facilities in Andhra Pradesh and Punjab. The acquisition, a vertical integration, is expected to unravel strong synergies for the combined entity and strengthen the business risk profile by enhancing scale of operations, operating profits, and product & geographic diversity. While the transaction is to be funded with a mix of debt and equity; overall leverage levels and debt protection metrics are expected to remain comfortable post the transaction. The acquisition is subject to necessary statutory approvals.
CRISIL Rating will resolve the watch and take appropriate rating action, if warranted once the transaction is concluded and detailed information regarding the business and financial risk profile of the consolidated entity is available.
The rating continues to reflect a strong market position with a track record of seven decades and large mining reserves along with a strong financial risk profile. These strengths are partially offset by susceptibility to regulatory risks associated with the mining industry and susceptibility to inherent cyclicality in the steel sector. |
Key Rating Drivers & Detailed Description Strengths: Long track record and extensive mining reserves:SMIORE was set up in 1954 when Y. R. Ghorpade, the former Maharaja of Sandur, transferred the mining lease awarded to him in favor of the Company. Currently, it has two mining leases valid up to 31 December 2033, with estimated reserves of almost 110 million tons of iron ore and around 17 million tons of manganese ore with production capacity of 3.81 MTPA for the former and 0.46 MTPA for the latter. The production capacity was recently enhanced for iron ore and manganese from 1.6 MTPA and 0.286 MTPA respectively. The Company is among the few entities classified in category 'A' mining leases with production capacity of more than 1 MTPA of iron ore. The increase in mining capacities, which is available for production for full year commencing from fiscal 2025, is expected to drive the revenues in the medium term. The extensive reserves, long validity of the mining license, and presence of seven decades in the industry are expected to continue benefiting the company in the near term. However, the traction of revenues, quality ores and the realization from the mining segment will be the key monitorable going forward
Strong financial risk profile:The financial risk profile is strong marked by a healthy capital structure and robust debt protection metrics. The net worth stood strong at Rs.1933.82 crore and leverage levels remained low with gearing of 0.1 times as on March 31, 2023; likely to remain strong over the medium term. Debt protection metrics continues to remain robust with interest coverage and net cash accrual to adjusted debt of 15.75 and 1.58 times respectively in fiscal 2023 and likely to remain strong with healthy profitability and moderate debt levels over the medium term
Weakness: Susceptibility to regulatory risks associated with the mining industry: Mining industry in India is highly regulated by various state and central government agencies. Production, sale, expansion, environmental clearances, and extension/renewal of licenses are governed by various regulations and policies by these agencies. Any unfavorable change in any of these regulations may have an adverse impact on the business profile of the company. However, SMIORE is classified as a ‘Category A’ mining company and it has seven decades of track record of regulatory compliance and absence of any material operational disruptions due to environmental, societal or company specific regulatory issues. The mines are also rated ‘five star’ by the Indian Bureau of Mines, Government of India under its Sustainable Development Framework (SDF). While exposure to regulatory risk will remain a key monitorable, the scientific and systematic mining processes followed by the company, in adherence to existing rules and regulations, partially mitigates this risk.
Susceptibility to inherent cyclicality in the steel sector:SMIORE has significant exposure to the steel sector since the majority of its products find application in the steel industry, which is an inherently cyclical industry. This makes the Company vulnerable to decline in demand or realization during a downturn in the steel industry and could impact the volume and operating cash flow. However, moderate cost of production and favorable demand supply scenario in the state of Karnataka partially mitigate this risk |
Liquidity- Strong Bank limit utilization is low at around 37 percent for the past eleven months ended November 2023. Cash accruals are expected to be over Rs 600 crore, which are sufficient against term debt obligation over the medium term. The current ratio is healthy at 2.45 times on March 31, 2023. The company currently has around Rs 960 crore of liquid investments, supporting liquidity. Current low gearing and strong net worth support its financial flexibility and provides the financial cushion available in case of any adverse conditions or downturn in the business. |
Rating Sensitivity Factors Upward 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 third largest miner of manganese ore in India and is the flagship business of Ghorpade, the royal family of Sandur. SMIORE currently has a 95,000 TPA ferroalloy plant, a 32 MW captive power plant and a 0.5 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: |
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 | ||||||||||||||||||||||||||||||||
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Criteria Details
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