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.
- 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
- 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.
To read in detail: Click here