Rajesh Metal Crafts Private Limited Rs 550 crore short term loans rating Reaffirmed at A2

ICRA Nepal has reaffirmed the short-term rating of [ICRANP] A2(pronounced ICRA NP A two) to the existing short-term limits  of  NPR  5,500  million (including interchangeable  fund-based  and non-fund-based limits) of Rajesh  Metal  Crafts Private  Limited (RMC). The  limits have been  reduced  from  the  originally  rated short-term limits  of  NPR  6,590  million, because of reduced debt requirement of RMC.

The rating reaffirmation continues to draw comfort from RMC’s established track record (operating since 1993),strong market positioning and healthy financial profile. Despite recent moderation, the financial profile of the pipe and sheets manufacturers continues to remain better vis-à-vis their peers in the highly fragmented TMT1 segment, because of the limited  number  of  players  in  the  former(which supports better  bargaining  power and pricing  discipline),and duty protection provided by the Government of Nepal (GoN) to the domestic steel industry(which partly mitigates the threat of cheaper imports). ICRA Nepal notes the relative stabilisation of demand and moderation of operating profit margins of  RMC  in  the  last  12-18  months.  This follows  the  gradual  ebbing  of earthquake-induced  demand and  fresh  industry capacity  creation  in the pipe  segment,thereby  eroding its profit  margins. Nonetheless, the financial  profile  of  RMC continues  to  remain healthy because  of  its strong  capital  base  and  low  debt  level  with no long-term  debt. Amid weakening demand, falling revenue and margins and the Covid-19 induced difficult operating environment, the rating reaffirmation takes comfort from the sizeable unutilised drawing power of RMC in the working capital loan utilisation front.  This  has  been  largely  made  possible  because  of the steady  retention  of  profits  over  the  years  that  reduced  the need for external borrowings. This is expected to ease the near-term liquidity pressure on the company and help it tide over the Covid-19 created business disruptions.

Credit strengths

• Relatively healthy operating profit margin in consolidated steel pipe and sheet segment
• Healthy capitalisation, low gearing levels and promoters’ financial strength increases financial flexibility
• Established track record of the company

Credit Challenges

• Limited product diversification
• Regulatory risk 
• High working capital intensity
• Inherent cyclicality of the industry 
• Forex risk

About the company

Rajesh Metal Craft Private Limited was established in 1993 as a public limited company by Mr. Shrawan K. Agrawal. The company was subsequently converted into a private limited company on July11, 2016. RMC is a family-owned business wherein Mr. Shrawan Agrawal and his two sons (viz Rajesh K. Agrawal & Mr. Vishnu K. Agrawal) hold the entire equity stake.

RMC is a secondary steel producer, which manufactures steel pipes and sheets (galvanised and colour coated)among other products. RMC imports hot rolled coils (HRCs) as primary raw material, processes it into cold rolled coils (CRCs) in its cold-rolling mill and manufactures the finished goods. The HRCs are imported from primary steel producers in India. RMC primarily caters to the domestic market.

RMC has an annual installed capacity of ~212,750 metric tonne,including ~57000 metric tonne capacity each for pipes (black and galvanised), ~57,000 MT of sheets (plain and corrugated), ~55,000 metric tonne of colour sheets and ~18,000 metric  tonne  of  cut-to-length HR/CR sheets.  Pipes  and sheets  account  for  ~88%  of the installed  capacity and  ~87%  of FY2019 sales for RMC. 

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