ICRA has reaffirmed 'A+' rating to the Rs 1.87 billion (enhanced from Rs 1.35 billion) term loans and the Rs 750 million fund based working capital facilities of Kalyani Steels (KSL). The outlook on the long-term rating is stable.
ICRA has also reaffirmed the 'A1+' rating to the Rs 5 billion (enhanced from Rs 4.85 billion) non-fund based working capital facilities and the Rs 750 million commercial paper/ short term debt programme of KSL. ICRA has assigned an 'A+ / A1+' rating to the Rs 500 million proposed bank facilities of KSL.
Additionally, ICRA has withdrawn the long-term rating of 'A+ (Stable)' assigned to the non-convertible debenture programme of KSL, at the request of the company, as there is no amount outstanding against the rated instrument.
The reaffirmations of the ratings take into account improvement in operating income of KSL in current year, driven by wider product profile and sales to untapped markets; Improved profitability in the current year following the commissioning and stabilization of cost optimization projects; the established position as a key supplier of raw materials to Bharat Forge (BFL), rated at AA-/Stable/A1+, as well as other forging units approved by a number of domestic automobile manufacturers; KSL's status as a company belonging to the Kalyani Group and a comfortable capital structure at present.
The ratings also factor in KSL's significant exposure to the steel and auto sectors, which are characterised by inherent cyclicality, leading to volatility in cash flows and the company's sizeable debt repayments scheduled in medium term, which are likely to exert pressure on its liquidity profile. Although the share of sale to group companies has reduced during first half of 2013-14, with BFL and other group companies contributing to more than one third of KSL's sales, the company, nevertheless, remains exposed to sales concentration risks. ICRA also notes that KSL plans to implement a cost-reduction-cum-modernization capital expenditure in current year, which is expected to improve the operating profile of the company. However, a large part of the capital expenditure would be funded by debt (project gearing of about 4.0 times), which is likely to increase the gearing levels of the company in near term.
ICRA also notes that the company has plans to undertake large capacity expansion and cost optimization projects. However, given the nascent stage of the project, there is limited clarity on the implementation schedule as well as funding pattern for the project and hence ICRA is unable to factor in the impact of these projects on the credit profile of KSL. ICRA would continue to monitor the situation closely to assess the impact of these capital expenditure plans, as these would expose the company to project funding and implementation risks.
Shares of the company declined Rs 0.05, or 0.09%, to settle at Rs 56.30. The total volume of shares traded was 22,458 at the BSE (Wednesday).
