March 05, 2021 Ramgad Minerals and Mining Limited: Ratings upgraded to [ICRA]A (Stable)/[ICRA]A1 Summary of rating action Previous Rated Amount Current Rated Amount Instrument* Rating Action (Rs. crore) (Rs. crore) [ICRA]A (Stable); upgraded from Fund Based - Term Loans 120.00 120.00 [ICRA]BBB+ (Stable) [ICRA]A (Stable); upgraded from Fund Based - Cash Credit 10.00 10.00 [ICRA]BBB+ (Stable) [ICRA]A1; upgraded from Short -Term - Non Fund-based 120.00 120.00 [ICRA]A2 Total 250.00 250.00 *Instrument details are provided in Annexure-1 Rationale For arriving at the ratings of Ramgad Minerals and Mining Limited (RMML), ICRA has taken a consolidated view of RMML and MSPL Limited (MSPL; rated [ICRA]A (Stable)/A1), along with MSPL’s subsidiaries – MSPL Maritime Pte Limited (MMPL) and its step-down subsidiary MSPL Diamond Pte Limited (MDPL), due to significant financial linkages between the entities, including the corporate guarantee extended by MSPL on behalf of MDPL’s borrowings and loans extended by RMML to MSPL. The upgrade in ratings considers the higher-than-anticipated deleveraging at consolidated level following the repayment of $30 million by MSPL, which led to a decline in MDPL’s (shipping subsidiary) debt level from $91 million as on March 31, 2020 to $61 million as on January 31, 2021. ICRA also takes note of the stated intent of the management to further deleverage the balance sheet through the proposed divestment of shipping assets, which would settle a large part of the outstanding debt of $61 million in MDPL. The ratings also factor in RMML’s healthy profitability and debt-coverage metrics in 9M FY2021, which are expected to remain comfortable in the near-to-medium term, supported by favourable iron ore prices. The ratings also factor in the established track record of the Baldota Group of over six decades in the iron-ore mining industry. The ratings continue to take comfort from the company’s considerable wind-energy generation capacity of 67.8 MW spread across Karnataka, Rajasthan, Maharashtra and Gujarat, which augments revenues and cash flows. The ratings are, however, constrained by the debt-funded capital expenditure incurred towards purchase of a 700-TPD air separation unit and a large investment in gold mine project, which are yet to be become operational. The company remains exposed to regulatory risks present in the mining industry and to the volatility in iron ore prices, given the inherent cyclicality in the end-user segments. These apart, the impact of variability in wind speed and grid availability on the plant load factors and the counterparty risks in the wind-power segment, given the exposure to state discoms, remain a concern. The ‘Stable’ outlook on the [ICRA]A rating reflects ICRA’s opinion that RMML will continue to benefit from its highly profitable iron ore mining business and will maintain a comfortable capital structure and healthy liquidity position in the near-to-medium term. Key rating drivers and their description Credit strengths Higher-than-anticipated deleveraging at consolidated level – MSPL repaid $30 million on behalf of MDPL, resulting in a decline in its debt levels from $91 million as on March 31, 2020 to $61 million as on January 31, 2021. The deleveraging was supported by higher-than-anticipated cash generation in MSPL, following a sharp rise in iron ore and pellet prices in the current year. MSPL reported revenues of Rs. 1,087.3 crore and operating margin of 50.0% in 10M FY2021 against revenues and operating margin Rs. 1,262.8 crore and 39.9% respectively in FY2020. Going forward, ICRA expects limited funding support from MSPL www.icra .in Page | 1 to MDPL as the proposed divestment of the shipping assets would settle a large part of the outstanding debt in MDPL, thereby resulting in further deleveraging at consolidated level. Healthy profitability and coverage indicators, backed by favourable iron ore prices – While RMML’s operating income declined by 3% in 10M FY2021 owing to revenue loss in Q1 FY2021, the company reported healthy operating margin of 61.4% in 10M FY2021 against 56.8% in FY2020, supported by rise in iron ore prices. The debt coverage indicators remained comfortable with total debt-to-operating profit of 1.3 times and interest cover of 7.3 times in 9M FY2021. The coverage metrics are expected to remain healthy in the near-to-medium term on the back of healthy profitability. Established track record of the Baldota Group in the iron-ore mining industry – RMML and MSPL are part of the Baltoda Group. RMML operates Iyli Gurunath iron ore mine in the Bellary district of Karnataka with adequate reserves of moderate quality iron ore and mining lease validity till 2026. ICRA takes comfort from the considerable experience of the promoters in the mining sector. Sizeable wind-energy generation capacity augments revenue and cash flows – RMML has considerable wind-energy generation capacity of 67.8 MW through its wind assets in Karnataka, Maharashtra, Gujarat and Rajasthan. Power purchase agreements signed with respective state discoms provide a steady flow of revenues and diversify the company’s sales mix. Credit challenges Large capex incurred by RMML in the past yet to generate any returns –RMML had incurred capital expenditure of Rs. 150 crore towards purchase of a 700-TPD air-separation unit for production of oxygen to cater to the requirements of steel industries. A large part of this was funded by debt. However, the company could not deploy the same and is now planning to sell the assets. The ratings also remain constrained by the uncertainty over the future capex plans towards the gold mine project, which is under litigation. Till date, the company has spent Rs. 70 crore towards development of the gold mines. Risks arising from operating in the highly regulated iron-ore mining industry, and the exposure of margins to volatility in iron ore prices – RMML’s earnings from the mining business remains volatile, as it is exposed to fluctuations in the prices of iron ore and any changes to the regulatory framework (as witnessed by the mining restriction in Karnataka and Goa in the past). Moreover, additional supply with restart of Donimalai mine by NMDC Limited in February 2021 and commencement of captive mine operations of three mines of JSW Steel Limited could limit the upside to iron ore prices in the medium term. Variability in wind speed and counterparty risk are concerns – RMML’s credit profile is partly constrained by the risks inherent to wind-power generation like seasonality in generation of wind power and counterparty risk associated with timely realisation of dues from the state discoms. Liquidity position: Adequate RMML’s liquidity position is adequate, supported by healthy cash and liquid investments of Rs. 25 crore as on December 31, 2020. It is expected to remain healthy on the back of RMML’s strong profitability, cash accruals and limited long-term debt repayment obligations of about Rs. 6-9 crore per annum in the near-to-medium term. The company’s working capital utilisation was low with an average utilisation of 8% of sanctioned limits between October 2019 and December 2020, providing additional cushion of about Rs. 8 crore as on December 31, 2020. Rating sensitivities Positive factors – A rating upgrade is unlikely in the medium term. However, ICRA could upgrade RMML’s ratings if the company demonstrates substantial increase in its scale of operations while maintaining healthy operating margins, moderate working capital intensity and a conservative capital structure. Negative factors – Negative pressure on RMML’s rating could arise in case of any unexpected major debt-funded capex and/or if the consolidated debt-to-operating profit remains above 2 times on a sustained basis. www.icra .in Page | 2 Analytical approach Analytical Approach Comments Corporate Credit Rating Methodology Rating Methodology for Mining Entities Applicable Rating Methodologies Rating Methodology for Wind Power Producers Consolidation and Rating Approach Parent/Group Support Not applicable For arriving at the ratings, ICRA has considered the consolidated financials of Consolidation/Standalone RMML and MSPL Limited along with its subsidiaries. As on March 31, 2020, MSPL had 3 subsidiaries that are enlisted in Annexure-2. About the company Ramgad Minerals and Mining Limited was set up as a partnership concern in 1979, and was reconstituted as a public limited company in 2009. RMML is a part of the Baldota Group of Companies, which has presence in diversified businesses such as iron ore mining, metal exploration, power, industrial gases and shipping. RMML held mining lease for three iron ore mines in Bellary district, of which only one is operational at present. RMML also owns wind assets spread across Gujarat, Karnataka, Rajasthan and Maharashtra and has a total installed capacity of 67.75 MW. RMML also holds a mining lease for a gold mine in Gadag district of Karnataka but the mine is yet to start operations due to pending litigation. In FY2020, on consolidated level, MSPL reported a profit after tax (PAT) of Rs. 289.0 crore on an operating income (OI) of Rs. 1,552.1 crore compared to a PAT of Rs. 358.6 crore on an OI of Rs. 1,579.2 crore in FY2019. Key financial indicators (audited) MSPL Limited (Consolidated*) FY2019 FY2020 Operating Income (Rs. crore) 1579.2 1552.1 PAT (Rs. crore) 358.6 289.0 OPBDIT/OI (%) 45.6% 41.7% PAT/OI (%) 22.7% 18.6% Total Outside Liabilities/Tangible Net Worth (times) 0.9 0.8 Total Debt/OPBDIT (times) 1.8 2.2 Interest Coverage (times) 5.7 5.5 Source: Company; PAT: Profit after Tax; OPBDIT: Operating Profit before Depreciation, Interest, Taxes and Amortisation; *includes MSPL, MDPL, Aaress Iron & Steel Limited, P Venganna Setty & Bros and Ramgad Minerals and Mining Limited; Source: MSPL Status of non-cooperation with previous CRA: Not applicable Any other information: None www.icra .in Page | 3 Rating history for past three years Current Rating (FY2021) Chronology of Rating History for the past 3 years Amou Amount Date & Rating Date & Rating in Date & Rating in Date & Rating in Instrume nt Outstanding in FY2020 FY2019 FY2018 nt Type Rated (Rs.