February 07, 2017 Samruddha Resources Limited
Instrument* Rated Amount (in crore) Rating Action Fund Based Limits 25.00 (PY 30.00) [ICRA]B- (Stable) upgraded from [ICRA]D
Short term non-fund based limits Nil (PY 3.00) [ICRA]D withdrawn Total 25.00
*Instrument Details are provided in Annexure-1; PY – Previous Year
Rating Action ICRA has upgraded the long-term rating from [ICRA]D (pronounced as ICRA D)1 to [ICRA]B- (pronounced as ICRA B minus) for the Rs. 25.00 crore2 (reduced from Rs. 30.00 crore) cash credit facility of Samruddha Resources Limited (SRL). The outlook on the long-term rating is ‘Stable’. ICRA has withdrawn the short term rating of [ICRA]D (pronounced as ICRA D) assigned to the Rs. 3.00 crore non-fund based facility of SRL as there is no amount outstanding against the rated instruments.
Rationale The revision of long-term rating takes into account improved liquidity profile of the company in recent months, which has resulted in regularisation of debt service obligations. The rating also takes into account the expected increase in profitability in the current year on the back of decline in port charges and removal of export duty on sub 58% Fe grade ore. The rating continues to draw comfort from the long experience of the promoters in the iron ore mining business and the company’s comfortable capital structure on account of low debt levels.
The rating, however, is constrained by a sharp revenue de-growth in FY2016 due to steep decline in iron ore prices and financial support extended by the company to other group entities, which adversely impacts SRL’s financial risk profile. ICRA also notes that the company remains exposed to risks arising from operating in a highly regulated industry and to cyclicality inherent in iron ore prices, which is likely to keep its cash flows volatile. The rating also factors in high customer concentration risks as a single customer accounted for almost half of SRL’s total sales in FY2016. Any unanticipated increase in the financial support to the group entities and ability to effectively manage working capital cycle by reducing receivables remain the key rating sensitivities for SRL.
Key rating drivers
Credit Strengths ● Improvement in liquidity profile in recent months, which has resulted in regularisation of the debt service obligations ● Comfortable capital structure on account of low debt levels ● Decline in port charges and removal of export duty on sub 58% Fe grade ore in the current year, which is likely to improve profitability ● Long experience of the promoters in the iron ore mining business
Credit Weakness ● Sharp revenue de-growth in FY2016 due to steep decline in iron-ore prices ● Significant financial support extended by SRL to other group entities, which adversely impacts its financial risk profile ● Risks arising from operating in a highly regulated industry
1 For complete rating scale and definitions, please refer to ICRA's website www.icra.in or other ICRA Rating Publications 2 100 lakh = 1 crore = 10 million
● Exposure to cyclicality inherent in iron ore prices, which is likely to keep its cash flows volatile ● High customer concentration risk with a single customer accounting for almost half of the total sales in FY2016
Description of key rating drivers highlighted above:
SRL carries out iron ore mining from its 32.5 hectare iron ore mine located at Kalane village in Sindhudurg district of Maharashtra and exports the same to China. The company curtailed iron ore mining during FY2016 to reduce losses following steep decline in iron ore prices. While sales volumes declined by 28% in FY2016, realisations declined by around 50% during the same period. ICRA notes that the reduction in export duty and decline in freight expense would improve cost structure of the company in the current fiscal. This, coupled with decline in port charges from Rs. 250 per MT to Rs. 150 per MT from December 2016 following transfer of control of port operations from Redi Port Limited to Maharashtra Maritime Board would improve SRL’s profitability. Nonetheless, ICRA notes that significant financial support extended by SRL to its group companies by way of equity investments and interest-free unsecured loans adversely impacts its financial risk profile. The company also remains exposed to regulatory risks and to the cyclicality inherent in iron ore prices.
Analytical approach: For arriving at the ratings ICRA has taken into account the standalone financials of the company along with key operational developments in the recent past.
Links to applicable Criteria Corporate Credit Rating – A Note on Methodology
About the Company: Incorporated in 1997, Samruddha Resources Limited (SRL) is involved in mining and trading of iron ore fines. It carries out mining operations from its 32.5 hectare iron ore mine located at Kalane village in Sindhudurg district of Maharashtra. The mining lease is owned by M/s Minerals and Metals, with whom SRL has entered into an agreement to extract and sell iron ore fines. SRL also has mining leases for five other mines in Sindhudurg district, which are non-operational at present.
SRL recorded a net profit of Rs. 1.8 crore on an operating income of Rs. 88.0 crore for the year ending March 31, 2016.
Status of non-cooperation with previous CRA: Not Applicable
Any other information: Not Applicable
Rating History for last three years:
Table: Rating History
Current Rating Chronology of Rating History for the past 3 years Name of S.No Instrument Month-year & Type Rated amount Month-year & Rating Rating (Rs. Crores) Jan 2017 Nov 2015 Aug 2014 Aug 2013 Long [ICRA]BB+ [ICRA]BB- 1 Cash Credit 25.00 [ICRA]B- (Stable) [ICRA]D Term (Stable) (Stable) Short term non-fund Short 2 Withdrawn - [ICRA]D [ICRA]A4+ [ICRA]A4 based limits Term
Complexity level of the rated instrument: ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly Complex". The classification of instruments according to their complexity levels is available on the website www.icra.in
Annexure-1 Details of Instrument Name of the Date of Coupon Maturity Size of the Current Rating and instrument issuance rate Date issue(Rs. Cr) Outlook Cash Credit - - - 25.00 [ICRA]B- (Stable) Short term non-fund - - - - Rating withdrawn based limits Source: Samruddha Resources Limited
Name and Contact Details of the Rating Analyst(s): Analyst Contacts Jayanta Roy Priyesh Ruparelia +91 33 2287 6617 +91 22 6169 3328 [email protected] [email protected]
Anshuman Bharati +91 22 6169 3351 [email protected]
Name and Contact Details of Relationship Contacts:
Jayanta Chatterjee +91 80 4332 6401 [email protected]
About ICRA Limited: ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and financial services companies as an independent and professional investment Information and Credit Rating Agency. Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited Company, with its shares listed on the Bombay Stock Exchange and the National Stock Exchange. The international Credit Rating Agency Moody’s Investors Service is ICRA’s largest shareholder. For more information, visit www.icra.in
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