Fitch Ratings has today assigned a 'BB+(ind)' National Long-term rating to Rashmi Metaliks Ltd (RML). The Outlook is Stable. At the same time, the agency has assigned the following ratings to the RML's various bank loans:
- INR790.3m outstanding long-term debt (as on 31 December 2008): 'BB+(ind)';
- INR1560.0m Cash Credit (CC) limit: 'BB+(ind)'; and
- INR1700.0m non fund-based facilities: 'F4(ind)'.
The ratings reflect RML's limited operational track record (with commencement of facilities in FY08), its exposure to volatility in raw material and end product prices, and the regulatory risks associated with the export of iron ore fines from the country. Fitch notes that while the company's manufacturing facilities are focused on pig iron, a large part of the revenues and EBITDA during the past one year has been generated from exporting iron ore fines - thus limiting value addition and exposing it to significant regulatory risks. The ratings also take into account the company's plans to set up a sponge iron facility of 180,000 tpa and a captive power plant of 15MW, to be commissioned by mid FY10 at a cost of INR1500m.
RML has reported revenue of INR4551.2m in FY08, with an operating EBITDA margin of 12.5% and total debt of INR1535.9m. The leverage (total adjusted debt net of cash/operating EBITDA) was 2.5x in the same period, although Fitch expects this to increase over the next two years on account of its proposed capex and increased working capital requirements.
A sustained improvement in operating margins with leverage below 2.5x on a sustained basis could be a positive rating trigger. On the other hand, a delay in project execution, or decline in margins coupled with additional debt funded capex that leads to a deterioration of its credit metrics above 4.0x on a sustained basis, will be reason for a downgrade. Any significant regulatory changes impacting cash flows could also potentially impact the rating negatively.
RML was incorporated in 2004 and promoted by Mr.Sajjan Kumar Patwari. The firm was initially engaged in the trading of cement and steel for 14 years before gradually entering into the manufacturing business. The company has a mini blast furnace (MBF) for manufacturing pig iron with an installed capacity of 100,000MTPA at Gokulpur, near Kharagpur in West Bengal. It also has a sinter plant with an installed capacity of 288,000MTPA, iron ore crusher with an installed capacity of 1,056,000 MTPA and private railway siding of 5km (2.33 km at Barbil and 2.67 km at Gokulpur).
Also Read
Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(ind)' for National ratings in India. Specific letter grades are not therefore internationally comparable.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Fitch Ratings is one of the three large global credit rating agencies. Fitch rates 5900 financial institutions, including some 3,200 banks and 2,400 insurance companies, more than 1,700 corporates and 100 sovereigns as well as public finance, sub-sovereigns and structured finance transactions.
Fitch India has four rating offices located at Mumbai, Delhi, Chennai and Kolkata. Fitch is recognised by Reserve Bank of India, Securities Exchange Board of India (SEBI) and National Housing Bank.
