Rating Rationale
August 29, 2019 | Mumbai
The Sandur Manganese And Iron Ores Limited
Ratings Reaffirmed
Rating Action
Total Bank Loan Facilities Rated Rs.470 Crore
Long Term Rating CRISIL A-/Stable (Reaffirmed)
Short Term Rating CRISIL A2+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its ratings on the bank facilities of The Sandur Manganese and Iron Ores Limited (SMIORE; part of the Sandur group) at 'CRISIL A-/Stable/CRISIL A2+'.

The ratings continue to reflect a strong market position as the fifth-largest iron ore miner in Karnataka and the largest private miner of manganese ore in India, supported by a track record of more than six decades with large mining reserves and a long tenure of mining licences and strong financial risk profile. These strengths are offset by project risk related to large ongoing debt funded capital expenditure plan, susceptibility to heightened regulatory risks and vulnerability of operating margin to commodity prices.

Analytical Approach

For arriving at the ratings, CRISIL has combined the business and financial risk profiles of SMIORE and its subsidiary, Star Metallics and Power Private Limited (SMPPL). That's because the two companies, together referred to as the Sandur group, have a common management, and 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
* Long track record and extensive mining reserves:
SMIORE was set up in 1954 when Mr 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 118.5 million tonne of iron ore and around 14.7 million tonne of manganese with production capacity of 1.6 million tpa for the former and 0.289 million tpa for the later. The company is among the few entities with category 'A' iron ore mining leases with production capacity of more than 1 million tpa. 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 group in the near term.
* Strong financial risk profile; likely to be maintained despite planned capex:
The group had a combined networth of more than Rs 700 crore as on March 31, 2019, on account of steady accretion to reserves over the years. Despite the planned debt-funded capex, the capital structure is expected to remain sound, with total outside liabilities to tangible networth ratio at less than 1 time in the next two fiscals. Interest outlay will increase sharply, owing to the term debt raised for funding the capex, in fiscals 2020 and 2021. Nevertheless, the Sandur group's interest coverage and net cash accruals to total debt (NCATD) ratios are expected to remain in the range of 5-6 times, and 0.27-0.35 times respectively, over the next two fiscals.
* Exposure to project risk related to large ongoing debt funded capital expenditure plan:
The group has commenced a major debt-funded capex programme, budgeted at Rs 600 crore. This is to be funded through term debt of Rs 400 crore and internal cash accrual parked mainly in debt mutual funds. The capex is multi-pronged, wherein the group plans to set up a 0.4 million tonne per annum (tpa) coke oven facility, a 30 megawatt (MW) waste heat recovery-based (WHRB) power plant, and also upgrade the existing ferroalloy plant apart from establishing additional evacuation infrastructure for its mines. The WHRB power plant is expected to bring down power cost substantially. Reduced power cost is likely to result in major cost savings for the ferroalloy manufacturing business, operations of which are currently creating a lag on overall profitability. There are, however, sizeable risks relating to cost and time overruns for setting up the new facilities, apart from major offtake risks for the coke production. However the project progress has been good till May 2019 ' a significant portion of the estimated costs (around 57%) has been incurred, with limited debt funding and it is expected to be completed by March 2020.  The progress of the capex shall remain a key monitorable over the medium term.
* Susceptibility to heightened regulatory risks:
Over the past few years, 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.
* Vulnerability of operating margin to commodity prices:
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 group's operating margin will remain vulnerable to changes in commodity prices.

Liquidity: Strong
Cash accrual was Rs 154 crore in fiscal 2019 against nil repayment obligation. Cash and cash equivalents were around Rs 140 crore as on March 31, 2019. Cash accrual is expected at Rs 88-107 crore per fiscal over medium term, against no repayment obligation. The fund-based bank limit of Rs 10 crore was not utilised during the 12 months through June 2019. The current capex of around Rs 600 crore, expected to be completed by March 2020, is debt-funded to extent of 66%. With no debt as on March 31, 2019, there is sufficient gearing headroom to raise additional debt to meet capex requirement. The debt funding for the capex has a two-year moratorium period from the date of first disbursement (April 2019), which provides additional support to liquidity. The bank lines are expected to meet incremental working capital requirement, which is assessed to be minimal.
Outlook: Stable

CRISIL believes the Sandur group will continue to benefit from its strong market position in the mining industry.

Rating Sensitivity Factors
Upward Factors:
* Maintaining the operating margin at over 25%, leading to higher-than-expected net cash accrual
* Timely completion and commencement of the ongoing capex within the budgeted cost estimates
* Maintaining strong financial risk profile

Downward Factors:
* Decline in the operating margin to below 20% due to volatility in prices or decline in revenue, leading to lower-the-expected net cash accrual
* Time or cost overrun in the ongoing capex, or if demand-side issues result in lower-than-expected offtake of the coke produce
* Deterioration in financial risk profile.

About the Group

SMIORE mines low-phosphorous manganese and iron ore in the Hospet-Bellary 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.

SMPPL, a subsidiary of SMIORE, has a 36,000 tpa ferroalloy plant and a 32 MW coal-based captive power plant.

Key Financial Indicators
Particulars Unit 2019 2018
Revenue Rs crore 717.8 622.6
Profit After Tax (PAT) Rs crore 147.36 111.3
PAT Margin % 20.6 17.9
Adjusted debt/adjusted networth Times 0.00 0.00
Interest coverage Times 20.1 35.3

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)
ISIN Name of instrument Date of
Rate (%)
Maturity date Issue
Rating Assigned
with Outlook
NA Bank Guarantee NA NA NA 40 CRISIL A2+
NA Cash Credit & Working Capital demand loan NA NA NA 10 CRISIL A-/Stable
NA Letter of Credit NA NA NA 20 CRISIL A2+
NA Term Loan NA NA Mar-2027 400 CRISIL A-/Stable
Annexure - List of Entities Consolidated
Names of Entities Consolidated Extent of Consolidation Rationale for Consolidation
The Sandur Manganese And Iron Ores Limited Full Financial, Operational and Managerial Linkages
Star Metallics and Power Private Limited Full Financial, Operational and Managerial Linkages
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  410.00  CRISIL A-/Stable      31-05-18  CRISIL A-/Stable    --    --  -- 
Non Fund-based Bank Facilities  LT/ST  60.00  CRISIL A2+      31-05-18  CRISIL A2+    --    --  -- 
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee 40 CRISIL A2+ Bank Guarantee 40 CRISIL A2+
Cash Credit & Working Capital demand loan 10 CRISIL A-/Stable Cash Credit & Working Capital demand loan 10 CRISIL A-/Stable
Letter of Credit 20 CRISIL A2+ Letter of Credit 20 CRISIL A2+
Term Loan 400 CRISIL A-/Stable Term Loan 400 CRISIL A-/Stable
Total 470 -- Total 470 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Mining Industry
CRISILs Approach to Recognising Default
CRISILs Bank Loan Ratings
CRISILs Criteria for Consolidation
The Rating Process
Understanding CRISILs Ratings and Rating Scales

For further information contact:
Media Relations
Analytical Contacts
Customer Service Helpdesk
Saman Khan
Media Relations
CRISIL Limited
D: +91 22 3342 3895
B: +91 22 3342 3000

Naireen Ahmed
Media Relations
CRISIL Limited
D: +91 22 3342 1818
B: +91 22 3342 3000

Vinay Rajani
Media Relations
CRISIL Limited
D: +91 22 3342 1835
M: +91 91 676 42913
B: +91 22 3342 3000

Rahul Guha
Director - CRISIL Ratings
CRISIL Limited
D:+91 22 4097 8320

Jumana Badshah
Associate Director - CRISIL Ratings
CRISIL Limited
D:+91 22 3342 8324

Keval Doshi
Rating Analyst - CRISIL Ratings
CRISIL Limited
D:+91 22 4254 8335
Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
For Analytical queries:


Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper / magazine / agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL. However, CRISIL alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites, portals etc.

About CRISIL Limited

CRISIL is a leading agile and innovative, global analytics company driven by its mission of making markets function better. We are India’s foremost provider of ratings, data, research, analytics and solutions. A strong track record of growth, culture of innovation and global footprint sets us apart. We have delivered independent opinions, actionable insights, and efficient solutions to over 1,00,000 customers.
We are majority owned by S&P Global Inc., a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.
For more information, visit www.crisil.com 


About CRISIL Ratings
CRISIL Ratings is part of CRISIL Limited (“CRISIL”). We pioneered the concept of credit rating in India in 1987. CRISIL is registered in India as a credit rating agency with the Securities and Exchange Board of India (“SEBI”). With a tradition of independence, analytical rigour and innovation, CRISIL sets the standards in the credit rating business. We rate the entire range of debt instruments, such as, bank loans, certificates of deposit, commercial paper, non-convertible / convertible / partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 24,500 large and mid-scale corporates and financial institutions. CRISIL has also instituted several innovations in India in the rating business, including rating municipal bonds, partially guaranteed instruments and microfinance institutions. We also pioneered a globally unique rating service for Micro, Small and Medium Enterprises (MSMEs) and significantly extended the accessibility to rating services to a wider market. Over 1,10,000 MSMEs have been rated by us.

CRISIL respects your privacy. We may use your contact information, such as your name, address, and email id to fulfil your request and service your account and to provide you with additional information from CRISIL.For further information on CRISIL’s privacy policy please visit www.crisil.com.


This disclaimer forms part of and applies to each credit rating report and/or credit rating rationale that we provide (each a “Report”). For the avoidance of doubt, the term “Report” includes the information, ratings and other content forming part of the Report. The Report is intended for the jurisdiction of India only. This Report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the Report is to be construed as CRISIL providing or intending to provide any services in jurisdictions where CRISIL does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this Report does not create a client relationship between CRISIL and the user.

We are not aware that any user intends to rely on the Report or of the manner in which a user intends to use the Report. In preparing our Report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the Report is not intended to and does not constitute an investment advice. The Report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind or otherwise enter into any deal or transaction with the entity to which the Report pertains. The Report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Rating are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities / instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL assumes no obligation to update its opinions following publication in any form or format although CRISIL may disseminate its opinions and analysis. CRISIL rating contained in the Report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the Report should rely on their own judgment and take their own professional advice before acting on the Report in any way.CRISIL or its associates may have other commercial transactions with the company/entity.

Neither CRISIL nor its affiliates, third party providers, as well as their directors, officers, shareholders, employees or agents (collectively, “CRISIL Parties”) guarantee the accuracy, completeness or adequacy of the Report, and no CRISIL Party shall have any liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the Report. EACH CRISIL PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the Report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. CRISIL’s public ratings and analysis as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any) are made available on its web sites, www.crisil.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee – more details about CRISIL ratings are available here: www.crisilratings.com.

CRISIL and its affiliates do not act as a fiduciary. While CRISIL has obtained information from sources it believes to be reliable, CRISIL does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and / or relies in its Reports. CRISIL keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of the respective activity. As a result, certain business units of CRISIL may have information that is not available to other CRISIL business units. CRISIL has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL has in place a ratings code of conduct and policies for analytical firewalls and for managing conflict of interest. For details please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html

CRISIL’s rating criteria are generally available without charge to the public on the CRISIL public web site, www.crisil.com. For latest rating information on any instrument of any company rated by CRISIL you may contact CRISIL RATING DESK at CRISILratingdesk@crisil.com, or at (0091) 1800 267 1301.

This Report should not be reproduced or redistributed to any other person or in any form without a prior written consent of CRISIL.

All rights reserved @ CRISIL