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February 28, 2008 |
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SUNVIK STEELS: CRISIL Assigns BB Ratings on Bank Facilities CRISIL has assigned these ratings to Sunvik Steels Pvt Ltd.'s bank facilities: * INR130 Million Cash Credit Limit BB/Stable * INR870 Million Term Loan BB/Stable * INR80 Million LC & Bank Guarantee P4 CRISIL's ratings on Sunvik Steels' debt programme reflect the steel company's weak financial risk profile and small size of operations. The ratings also factor in Sunvik's moderate operating efficiency. Sunvik has a weak financial risk profile marked by low net worth, high gearing, and moderate debt protection measures. CRISIL estimates that, as on March 31, 2008, Sunvik's net worth will be around INR110 million; the gearing is expected to be high at around 3.5 times on the same date, though it has improved from a peak of 11 times as on March 31, 2006. The company has a large capital expenditure (capex) plan of INR930 million over the next two years, which will be largely debt funded. The expansion will also involve substantial increment in working capital. Therefore, CRISIL expects Sunvik's capital structure to remain weak over the medium term. Time and cost overruns on the expansion project could weaken the financial risk profile further. The debt protection measures for the year ending March 31, 2008, are expected to be moderate: the interest coverage and net cash accrual to total debt ratios are expected to be at 3 times and 0.18 times respectively. The company is a small player in the domestic steel industry, with a market share of less than 1%. As a result, the company faces disadvantages in terms of raw material sourcing and establishing a marketing network. Sunvik has moderate operating efficiency, primarily because of its proximity to iron ore mines. The company incurs low freight costs, as its plant is situated at a distance of 100 km from Chitradurga Mines, its chief source of iron ore. The operating efficiency is partially offset by the lack of backward integration, as the company has no captive mine. The operating efficiency is likely to remain moderate over the medium term. Outlook: Stable CRISIL expects Sunvik's capital structure to remain highly leveraged over the medium term because a substantial portion of the planned INR930-million capex is likely to be debt funded. The company will continue to be a small player in the domestic steel industry. The outlook may be revised to 'Positive' if there is a significant improvement in the capital structure and if the proposed projects are completed within the stipulated time and budget. Conversely, the outlook may be revised to 'Negative' if there are cost overruns or delays. Lower-than- expected profitability may also lend a negative bias to the outlook. About Sunvik Steels Sunvik Steels Pvt. Ltd. was incorporated in 2003 by Vivek Kejriwal, Mahendra Kachchara, and Sandeep Shishodia. The company manufactures sponge iron, steel ingots, and thermo- mechanically treated bars. |
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