By Aishwarya Arora

India Ratings and Research (Ind-Ra) has affirmed MBG Commodities Private Limited’s (MBG) a Long-Term Issuer Rating at ‘IND BBB-’. 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

-

-

-

INR50 (reduced from INR150)

IND BBB-/Stable/IND A3

Affirmed

Non-fund-based limits

-

-

-

INR2,400 (reduced from INR3,250)

IND BBB-/Stable/IND A3

Affirmed

ANALYTICAL APPROACH: Ind-Ra has changed its rating approach to standalone from a consolidated view, owing to MBG’s dilution of stake in its subsidiary Maheswari Mining and Energy Pvt Ltd. (MMEPL) to 11.31% (FYE20: 50.45%). Though there were outstanding preference shares and loans and advances of INR299.4 million in MMEPL in FYE21 (FYE20: 62.98%; FYE19: 62.98%), MBG is not likely to extend any further support to MMEPL. Also, the advances given are likely to be repaid once the cash flows of MMEPL improve post commissioning of its projects.

KEY RATING DRIVERS

Revenues and Margin Could Improve after Steep decline during FY21: Ind-Ra expects the revenue in each segment to improve in FY22, and the total revenues to increase to INR2.5 billion to 3 billion. MBG expects the coal imports to increase gradually, basis the demand recovery in power sector in FY22 and beyond. MBG also has plans to diversify in the real estate business, though the overall contribution would be small in the overall revenue. Owing to the diversification of the business profile and the expected improvement in the coal trading operations, the EBITDA margins for the company are expected to turn positive.

MBG’s revenue fell sharply in FY21 to INR33 million (FY20: INR10.6 billion; FYE19: INR14.6 billion), owing to a decline in the volumes of coal imported, which led to a decline in the segmental revenue of trading operations to INR310 million (INR10.3 billion; INR14.6 billion). The coal trading volumes declined due to a decline in coal imports by the power sector, because of a lower power demand led by the COVID-19 led lockdown. The revenues in FY21 were supported to some extent by the scaling up in the cargo handling segment, where the revenue increased to INR533 million in FY21 (FY20:INR313 million; FY19: INR67 million), as well as in the new polymer trading segment where the revenue increased INR108 million (nil; nil). The EBITDA margins turned negative 11.2% (FY20: 3.3%; FY19:2.9%), due to the significant decline in the coal trading operations.

Credit Metrics Likely to Improve post EBITDA Losses in FY21:  Ind-Ra expects the net leverage to be in the range of negative 1.5x to negative 2.5x in the short to medium term, owing to an improvement in the EBITDA and continued negative net debt. Ind-Ra expects interest coverage to turn positive and remain comfortable at 7x-9x in FY22, owing to low interest expense, due to low working capital utilisation by the company. However, interest costs could increase if there is any additional drawdown to fund the payables, which could subsequently lead to deterioration in the interest coverage and result in negative cash flow from operations.


MBG’s consolidated gross debt stood at INR288 million in FY21 (FY20: INR313 million; FY19:INR289 million). Though the EBITDA turned negative this year, the net debt also remained negative supported by cash accruals. Hence, the net leverage of FY21 is not meaningful (FY20: negative 4.4x; FY19: negative 1.5x). Despite the decrease in debt, MBG’s interest coverage turned negative in FY21 (FY20: 9.9x; FY19:14.2x), owing to the negative EBITDA.

 

Liquidity Indicator: Adequate;: The company reported cash and equivalents of INR2.1 billion at end FY21 (FYE20: INR1.8 billion). Moreover, it has a fund-based bank limits of INR50 million, which was mostly unutilised over the 12 months ended March 2021. The company had a total debt of INR288 million at FYE21 (FYE20: INR312 million, FYE19: INR289 million), of which INR10 million (INR23 million, INR7 million) is external bank debt and the balance is loans and advances from related parties and corporate bodies. The company has a moderate debt repayment of INR10 million in FY22, which can comfortably be met with the current cash balances.


Additionally, MBG had investments to the tune of INR267 million at FYE21 (FY20:INR292 million), and loans and advances of INR493 million (INR438 million). The company had an outflow of INR30.25 million for investments made and loans advanced, and basis the history, MBG may continue to make investments in the short to medium term, leading to additional cash outflows.

 

Business Profile Remains Exposed to Counterparty Risk: The company’s debtors outstanding fell to INR1.9 billion at FYE21 (FYE20: INR4.5 billion; FYE19: INR6.3 billion). The FY21 receivables included retention money outstanding of INR1.2 billion, which could be released in FY22. Owing to the significant decline in the revenues, the debtor days increased to 748 days (FY20: 136 days; FY19: 158 days). MBG’s business remains exposed to the credit profile of weak state power generating utilities who are the bulk customers for the coal trading and the coal cargo handling business segments. Additionally, as per the management, the retention money outstanding in the receivables usually sees a recovery in a period of 12 to 18 months. With a shift in the business profile and an overall decline in the revenues of the company, Ind-Ra expects the company’s debtor days to about 200-250 days for the short to medium term. Led by the high outstanding payables, the working capital as on FYE20 continued to be negative at INR1,151 million (FY20: INR566 million; FY19: INR39 million). 

High Payables Remain Outstanding:
MBG has INR3.1 billion of payables outstanding since FY16, which continue to be under litigation, for which the company withheld payments to suppliers. However, the company has received payments from the utilities against those orders. The disputed amount could become due in the medium term, though the company believes the dues to be paid are not time barred. Ind-Ra expects the payment to be made in a staggered manner in case of any resolution, but if any sudden pay-out is needed, the same shall be funded out of existing cash balances depending on the amount. In case of any short fall, company may require additional funds from banks.


RATING SENSITIVITIES

Positive: A sharper-than-expected improvement in the scale of operations and EBITDA margins along with an improvement in the debtor cycle, leading to significant accretion of cash and easing of the liquidity mismatch, could be positive for the ratings. 

Negative:
Deterioration in the profitability and debtor cycle along with increased liquidity mismatch on the outstanding dues, leading to a substantial build-up of debt, could be negative for the ratings. 


COMPANY PROFILE

Established in 1982 as Maheswari Brothers, MBG was converted into a private limited company in 2012. MBG trades in imported coal, which it imports mainly from Indonesia, South Africa, Russia and Australia, and mainly caters to the coal needs of the power sector. MBG is promoted by Raj Kumar Mandhani, his brother Ashok Kumar Mandhani and their family members.

FINANCIAL SUMMARY

Particulars (INR million)

FY21

FY20

Revenue

933

10,642

EBITDA

-105

348

Gross interest expenses

29

35

Source: MBG, Ind-Ra 



RATING HISTORY

Instrument Type

Current Rating/Outlook

Historical Rating/Outlook

Rating Type

Rated Limits (million)

Rating

22 July 2020

23 April 2019

Issuer rating

Long-term

-

IND BBB-/Stable

IND BBB-(ISSUER NOT COOPERATING)

IND BBB-/Stable

Fund-based limits

Long-term/Short-term

INR50

IND BBB-/Stable/IND A3

IND BBB-(ISSUER NOT COOPERATING)/IND A3(ISSUER NOT COOPERATING)

IND BBB-/Stable/IND A3

Non-fund-based limits

Long-term/Short-term

INR2,400

IND BBB-/Stable/IND A3

IND BBB-(ISSUER NOT COOPERATING)/IND A3(ISSUER NOT COOPERATING)

IND BBB-/Stable/IND A3



COMPLEXITY LEVEL OF INSTRUMENTS

Instrument Name

Instrument Complexity

Fund-based limits

Low

Non-fund-based limits

Low

 

For details on the complexity levels of the instruments, 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.

ABOUT INDIA RATINGS AND RESEARCH

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. 

Ind-Ra currently maintains coverage of corporate issuers, financial institutions (including banks and insurance companies), finance and leasing companies, managed funds, urban local bodies and project finance companies. 

Headquartered in Mumbai, Ind-Ra has seven branch offices located in Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad, Kolkata and Pune. Ind-Ra is recognised by the Securities and Exchange Board of India, the Reserve Bank of India and National Housing Bank. 

India Ratings is a 100% owned subsidiary of the Fitch Group.

For more information, visit www.indiaratings.co.in.

DISCLAIMER

ALL CREDIT RATINGS ASSIGNED BY INDIA RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.INDIARATINGS.CO.IN/RATING-DEFINITIONS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE WWW.INDIARATINGS.CO.IN. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. INDIA RATINGS’ 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.

Analyst Names