The Outlook is Stable.
Key Rating Drivers
The ratings reflect BSIL's overall comfortable financial profile in FY13 (year end March). Revenues grew 9.1pc yoy to INR2,751m on account of an increase in sales volume of billets.
However, EBITDA has been constant at around INR220m since FY11 and margins have been declining (FY13: 8.1pc , FY12: 9.1pc , FY11: 9.9pc ) due to higher power and fuel expenses.
Notwithstanding, the company could maintain credit metrics at comfortable levels as debt was stable at around INR730m. Gross financial leverage was 3.32x in FY13 and interest coverage was 1.79x.
However, net adjusted leverage increased to 4.59x (FY12: 4x) on account of a corporate guarantee extended to the bank facility of its associate company Balajee Ministeel and Rerolling Pvt Ltd (Balajee) in FY12.
Balajee has close linkage with BSIL by way of common director, inter-firm funding, corporate guarantee and the same line of business.
BSIL's capacity utilisation improved to around 75pc in Q4FY13 and Q1FY14 from around 50pc in the last four years which will result in higher sales from manufacturing and lower dependence on trading activity.
The ratings are supported by the two decade-long experience of the group's founders in the steel industry.
The ratings are, however, constrained by the company's tight liquidity position indicated by its near-full working capital use during the 12 months ended September 2013. Higher working capital requirement is likely to continue in the near future on the back of higher inventory holding due to an increase in production.
The ratings also reflect BSIL's exposure to volatility in the prices of raw materials and finished goods due to the highly competitive and commoditised nature of the iron and steel business. Furthermore, since BSIL manufactures highly power intensive billets and ferro alloys, it is exposed to power tariff hikes.
Positive: Easing of liquidity pressures and improvement of gross leverage to below 3.0x would result in a rating upgrade.
Negative: A decline in EBITDA margins leading to deterioration in gross leverage to over 4.0x could result in a negative rating action.
BSIL was founded in 1999 by Sri Nawal Kumar Kanodia.
The company has manufacturing facilities at Giridih (Jharkhand) and is engaged in manufacturing of sponge iron (90,000MT), pig iron (37,000MT), billets (90,000MT), ferro alloys (18,000MT) and TMT steel bars (50,000MT).
- INR72m long-term loans: assigned Long-term 'IND BBB-'
- INR430m fund-based limits: assigned Long-term 'IND BBB-'
- INR200m non-fund-based limits: assigned Short-term 'IND A3'
--IBNS (Posted on 28-10-2013)