CARE revises rating of shah alloys to BB
CARE revises rating of shah alloys to BB
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Leading credit rating agency, CARE revised the rating assigned to the outstanding NCD issue of Shah Alloys (SAL) for an amount of Rs 1 billion to BB with credit watch. The instruments with this rating are considered to offer inadequate safety for timely servicing of debt obligations. Such instruments carry high credit risk. The credit watch is on account of reports of certain delays on debt obligations. Shares of the company declined Rs 0.75, or 1.21%, to settle at Rs 61.2. The total volume of shares traded was 99,644 at the BSE. (Friday)
>CARE will take a further view on the rating once more details are available. The revision in rating takes into account SAL`s weakened business and financial profile as reflected by decline in profit margins due to sharp fluctuation in raw material prices.
SAL is into manufacturing of wide range of stainless steel (SS) products viz. flats, rounds, black/bright bars, slabs, plates, bille ts, hot rolled coil (HRC) and cold rolled coil (CRC). It has also gone into backward integration through its group company, SAL Steel (SSL), which is into manufacturing of sponge iron and ferro alloys.
During FY07, operating profit decreased due to decrease in margins. PBILDT margin decreased due to increase in raw material costs viz. nickel (105%), ferro alloys (from 11% to 25% for different alloys) and scrap & sponge iron (11%). SAL was not able to fully pass on the increase in RM prices to the customers. Interest coverage decreased significantly from 2.33 times in FY06 to 1.78 times for FY07 due to increased cost of borrowings. Increase in PAT and GDR issue resulted into improved overall gearing as on Mar. 31, 2007. As on Mar. 31, 2007, current ratio and quick ratio were on the lower side at 0.97 times and 0.54 times respectively on account of higher amount of sundry creditors.
During Q1, FY08, in spite of increase in total income, PBILDT margin had decl ined as compared with the corresponding period in the previous year mainly on account of sharp increase in raw material costs (mainly nickel). Cost of raw material as a percentage of net sales had increased from 77% to 88% during the period. The increase in raw material cost could not be passed on to the customer mainly on account of a fixed rate contract for export commitments. Decline in PBILDT resulted into net loss and cash loss for the first quarter of FY08. As a result, interest coverage also turned negative.
