January 04, 2017

R. L. Steels & Energy Limited

Instrument* Rated Amount Rating Action
(in crore)
Long term, Fund based limits – 117.00 [ICRA] D Reaffirmed
Term Loan

Long term, Fund based limits – 85.01 [ICRA] D Reaffirmed

Cash Credit

Short term, Fund based limits 41.99 [ICRA] D Reaffirmed

Short term, Non fund based 56.00 [ICRA] D Reaffirmed

Total 300.00
*Instrument Details are provided in Annexure-1

Rating Action
ICRA has reaffirmed the rating assigned to the Rs. 202.01 crore long term fund based bank facilities of R. L.
Steels & Energy Limited (‘RLSL’, ‘The Company’) to [ICRA]D (pronounced ICRA D). 1 ICRA has also reaffirmed
the rating assigned to the Rs. 97.99 crore short term bank facilities of RLSL to [ICRA]D (pronounced ICRA D).2

Rationale
The rating reaffirmation takes into account irregularities in servicing debt obligations by the company on
account of weak financial profile of the company characterized by revenue de-growth in FY2016, stretched
capital structure and tight liquidity position due to cash losses in the past; though the profitability has improved
since past 2 fiscals due to reduction in the input raw material cost coupled with pass through nature of
business, improvement in capacity utilisation and change in product mix resulting positive yet thin net accruals.
The capacity utilization has remained moderate due to general slowdown in economy and stretched liquidity
profile of the company which is limiting access to the funds. The company has high cost structure due to limited
raw material and power linkages and remains vulnerable to exchange rate movements due to sizeable share of
import purchases. The ratings also constrained by the moderate scale of operations in an intensely competitive
steel industry and inherent cyclicality associated with the steel business.

ICRA however takes note of long standing experience of the promoters in the industry and a diversified client
base. Also the management of RLSL has taken measures to improve cost structure of the company by
implementing productivity enhancement measures which has resulted into improvement in overall performance
of the company in FY2016 despite de-growth. Going Forwards, timely repayment of debt, improving capacity
utilisation combined with focus on reducing cost structure will be the key rating sensitivity factors.

1
For complete rating definition, please refer to ICRA website www.icra.in or any of the ICRA Rating Publications.
2
For complete rating definition, please refer to ICRA website www.icra.in or any of the ICRA Rating Publications.
Key rating drivers

Credit Strengths
 Established client base with well diversified geographic mix
 Long standing experience of management
 Forward integration in form of group company serves as ready client for ~18% of production

Credit Weakness
 Delay in servicing of principal as well as interest obligation
 Financial profile characterized by stretched capital structure and tight liquidity position due to
cash losses in the past; though the position has improved with the company reporting net profits since
past 2 fiscals
 High cost structure due to limited raw material and power linkages; also exposing company to
raw material price and availability fluctuations
 Moderate capacity utilization in past few years due to general slowdown in economy and
stretched liquidity profile limiting access to funds
 Inherent cyclicality associated with the steel business
 Moderate scale of operations in intensely competitive steel industry

Description of key rating drivers highlighted above:

The key rating driver for the reaffirmed rating is the continuation of weak financial profile of the company
resulting in delays in servicing its debt obligation. RLSL has shown an overall decline of 22% in OI of FY16,
both in domestic as well as export market due to decline in domestic demand from key end user industry such
as automobile sector coupled with reduction in export orders on back of depreciation of rupee. The de-growth
in FY16 is also due to decline in sales realization owing to reduction in raw material i.e. steel cost in past fiscal.
The capital structure of the company has remained stretched due to erosion of net worth on account of losses
incurred in past coupled with higher debt levels.

Analytical approach: NA

Links to applicable Criteria

Corporate Credit Rating –A Note on Methodology

About the Company:

RLSL was incorporated in 1985 as the flagship company of the Aurangabad based group promoted by Mr. R L
Gupta. RLSL is engaged in manufacturing alloy steel products in rounds, squares, flats and special profiles,
through Induction Furnace-LD Convertor-Ladle Refining-billet casting-hot rolling route. RLSL has a steel
melting capacity of 1,44,000 MTPA and a rolling mill with capacity of 1,47,000 MTPA at Waluj, Aurangabad.
RLSL caters majorly to the demand of forging and spring industry with considerable export presence. The
group is integrated forward into Akar Tools Limited (hand tools and leaf spring) which consumes close to 18%
of RLSL production

Status of non-cooperation with previous CRA: Not Applicable

Any other information: Not Applicable

 Rating History for last three years:

Table: Rating History

S.No Name of Current Rating Chronology of Rating History for the past 3
Instrument years
Type Rated Month- Month- year Month- year Month- year
amount year & & Rating in & Rating in & Rating in
(Rs. Rating FY2015 FY2014 FY2013
Crores)
January August March -
2017 2015 2014
1 Cash Credit Long 85.01
Term [ICRA]D [ICRA]D [ICRA]C / No -
Outlook
2 Term Loans Long 117.00
Term [ICRA]D [ICRA]D [ICRA]C / No -
Outlook
3 Short term Short 41.99
Fund Based Term [ICRA]D [ICRA]D [ICRA]A4 -
4 Short Term Short 56.00
Non Fund Term [ICRA]D [ICRA]D [ICRA]A4 -
Based
Complexity level of the rated instrument:
ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly
Complex". The classification of instruments according to their complexity levels is available on the website
www.icra.in
Annexure-1
Details of Instrument

Name of the Date of Coupon Maturity Size of the Current Rating and
instrument issuance rate Date issue Outlook
(Rs. Cr)
Cash Credit - - - 85.01 [ICRA]D

Term Loan 1 - - - 18.10 [ICRA]D

Term Loan 2 - - - 6.88 [ICRA]D

Term Loan 3 - - - 11.61 [ICRA]D

Term Loan 4 - - - 14.85 [ICRA]D

Short Term Fund
- - - 41.99 [ICRA]D
Based
WCTL - - - 42.32 [ICRA]D

FITL - - - 23.24 [ICRA]D

Non Fund Based - - - 56.00 [ICRA]D
Name and Contact Details of the Rating Analyst(s):

Mr Subrata Ray Mr.Abhishek Suryawanshi

+91 22 2433 1086 +91 20 6606 9917
subrata@icraindia.com abhishek.suryawanshi@icraindia.com

Mr. Ravi Kabra

+91 20 6606 9914
ravi.kabra@icraindia.com

Name and Contact Details of Relationship Contacts:

Mr. Jayanta Chatterjee

+91 80 4332 6401
jayantac@icraindia.com

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Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public
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For more information, visit www.icra.in

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