By Barath Ramjee

India Ratings and Research (Ind-Ra) has upgraded Gallantt Metal Limited’s (Gallantt) Long-Term Issuer Rating to ‘IND A’ from ‘IND A-’. The Outlook is Stable. The instrument-wise rating actions are as follows:

Instrument Type

Date of Issuance

Coupon Rate (%)

Maturity Date

Size of Issue (million)

Rating/Outlook

Rating Action

fund-based limits

-

-

-

INR500

IND A/Stable/IND A1

Upgraded

Non-fund-based limits

-

-

-

INR1,250

IND A1

Upgraded

KEY RATING DRIVERS

Improved Operational Performance due to Upswing in TMT Bars Industry: In line with the pick-up in the iron & steel industry, the thermo mechanically treated (TMT) bars industry too has seen a significant turnaround with revival in infrastructure and housing sectors in western India. Blended quantity sold increased to 0.24mmt in FY18 (FY17: 0.22mmt million), resulting in value sales improving 37% yoy. Blended EBITDA/tonne also improved to INR3,643/MT in FY18 (FY17: INR2,346/MT), resulting in a rise in EBITDA margins to 10.2% (8.5%). 

Large Capex Entirely Self-Funded
: The company has over the last one year announced a large capex of INR2.25 billion to enhance its TMT capacity by 55% from 0.25mmt, which would make it a medium-sized player in the TMT industry. The entire project would be completed by December 2019 using internal accruals. The company has already spent around INR0.5 billion and has completed the civil works while ordering for part of the plant and machinery. Gallantt expects to generate INR1 billion of EBITDA in FY19 and FY20, which is likely to provide sufficient internal accruals to complete the project. This capex is likely to improve the company’s scale of operations which is at a modest level with revenue of INR8,456 million (FY17: INR6,167 million)

Near Debt-free Nature of Operations:
The company expects to remain debt free, subject to the drawal of working capital debt of INR0.5 billion as and when needed. The projected net debt/EBITDA is expected to remain subdued (below 0.5x) in the medium term as against 0.63x in FY18 (FY17: 1.41x; FY16: 0.95x). The coverage also is likely to remain comfortable in the medium term. 

Unsecured Loans Extended to Unrelated Companies; But Adequate Liquidity
: The company has as of March 2018 extended unsecured loans of INR700 million to unrelated companies as corporate deposits, because it had excess funds. Gallantt has indicated that this money is available on call and could be used by them as and when needed for the capex plans. Also, its fund-based working capital utilisation was at an average of 60% for the 12 months ended July 2018.


RATING SENSITIVITIES

Positive: A significant increase in the scale of operations along with the maintenance of the EBITDA margin and credit metrics on a sustained basis could lead to a positive rating action. 

Negative: A sustained increase in net leverage above 1x would lead to a negative rating action.


COMPANY PROFILE

Incorporated in 2005, GML manufactures sponge iron, mild steel billets and re-rolled products (TMT bars). It also has a 33MW captive power plant. GML is promoted by Mr. Chandra Prakash Agrawal and is listed on the Bombay Stock Exchange and National Stock Exchange.

FINANCIAL SUMMARY
 

Particulars

FY18

FY17

Revenue (INR million)

8,456

6,167

EBITDA (INR million)

865

526

Interest cost (INR million)

66

63

EBITDA margins (%)

10.2

8.5

Net leverage (x)

0.63

1.41

Gross interest coverage (x)

13.18

8.37

Source: Gallantt, Ind-Ra


RATING HISTORY

Instrument Type

Current Rating/Outlook

Historical Rating/Outlook

Rating Type

Rated Limits (million)

Rating

10 July 2017

21 March 2016

Issuer rating

Long-term

-

IND A/Stable

IND A-/Stable

IND A-/Stable

Fund-based limits

Long-term/Short-term

INR500

IND A/Stable/IND A1

IND A-/Stable/IND A2+

IND A-/Stable/IND A2+

Non-fund-based limits

Short-term

INR1,250

IND A1

IND A2+

IND A2+


COMPLEXITY LEVEL OF INSTRUMENTS

For details on the complexity levels of the instrument, please visit https://www.indiaratings.co.in/complexity-indicators.

SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings. 

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

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About India Ratings and Research: India Ratings and Research (Ind-Ra) is India's most respected credit rating agency committed to providing India's credit markets accurate, timely and prospective credit opinions. Built on a foundation of independent thinking, rigorous analytics, and an open and balanced approach towards credit research, Ind-Ra has grown rapidly during the past decade, gaining significant market presence in India's fixed income market. 

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Applicable Criteria

Analyst Names

  • Primary Analyst

    Barath Ramjee

    Associate Director
    India Ratings and Research Pvt Ltd Wockhardt Towers, 4th floor, West Wing Plot C-2, G Block. Bandra Kurla Complex Bandra (East), Mumbai 400051
    +91 22 40356168

    Media Relation

    Namita Sharma

    Manager – Corporate Communication
    +91 22 40356121