April 06, 2020

Jeevaka Industries Pvt. Ltd.: Ratings reaffirmed

Summary of rating action

Previous Rated Amount Current Rated Amount
Instrument Rating Action
(Rs. crore) (Rs. crore)
Fund Based - Cash Credit 40.00 40.00 [ICRA]BBB (Stable); reaffirmed
Non Fund Based – Bank
6.00 6.00 [ICRA]A3+; reaffirmed
Guarantee
Non Fund Based – Letter of
40.00 40.00 [ICRA]A3+; reaffirmed
Credit
Long Term – Unallocated 19.00 19.00 [ICRA]BBB (Stable); reaffirmed
Total 105.00 105.00
*Instrument details are provided in Annexure-1

Rationale
The ratings consider the consolidated operational and financial profile of Jeevaka Industries Pvt. Ltd. (JIPL) and
Dhanlaxmi Iron Industries Pvt. Ltd. (DIIPL) given the close business and managerial linkages between JIPL and DIIPL.

The ratings reaffirmation positively factors in strong growth in consolidated revenues to Rs. 808.42 crore in FY2019 from
Rs. 629.41 crore in FY2018 owing to increased sales volume and realization of structural steels, TMT bars and billets. The
consolidated revenue however declined to Rs. 555.76 crore in 9MFY2020 and is expected to be lower at ~Rs. 680-685
crore for FY2020 owing to decline in steel realisations. The ratings also factor in comfortable financial risk profile as
characterised by gearing at 0.63 times, Total outside liability/Tangible net worth at 0.98 times as on December 31, 2019,
moderate interest coverage at 3.43 times and Debt /OPBDIT at 2.37 times in 9MFY2020; and semi-integrated steel plant
with presence in manufacturing of sponge iron, Mild Steel (MS) billets, and value-added products like TMT bars, angles
and channels. However, the ratings are constrained by moderate operating profitability margins at 5.12% in 9MFY2020;
and moderate working capital intensity at 20% in 9MFY2020 owing to low creditor days. The ratings also consider intense
competition in the fragmented and commoditised steel industry, which limits its pricing flexibility and the vulnerability of
the cashflows to the inherent cyclicality in the steel industry as witnessed in FY2020. Further, the ratings are also
constrained by exposure of profitability margins to increase in power cost owing to dependence on grid power for
majority of power requirements; and moderate geographical concentration risk with the companies’ end-user market
majorly restricted to Telangana, Andhra Pradesh, Karnataka, Tamil Nadu, Chhattisgarh, Gujarat and Kerala. Also, any
prolonged lockdown due to covid-19 would adversely impact the companies’ revenue and profitability margins and
would be a key rating monitorable in the near term.

Credit strengths
Semi-integrated plant with capacity to manufacture sponge iron, MS billets, TMT bars, angles and channels: JIPL has
manufacturing facilities for sponge iron, which along with MS scrap serves as a feedstock for manufacturing of MS billets.
The manufactured MS billets are used to produce structural steel products in JIPL and TMT bars in DIIPL. In addition to
internal consumption of billets, the company also sells them to other steel manufacturers including DIIPL. JIPL has
capacity to manufacture 1,08,000 MTPA sponge iron, 1,80,000 MTPA billets, and 90,000 MTPA structural steels while
DIIPL has manufacturing capacity of 1,50,000 MTPA TMT bars. Further, the DIIPL and JIPL sell under ‘DIIL’ brand in
Andhra Pradesh and Telangana markets and established brand presence supported the company revenues over the
years.

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Improved scale of operation: The consolidated revenues increased to Rs. 808.42 crore in FY2019 from Rs. 629.41 crore
in FY2018 on the back of increased sales volume and realisation. However, the revenues declined to Rs. 555.76 crore in
9MFY2020 and expected to be at around Rs. 680-685 crore for FY2020 primarily owing to decline in steel realisations.

Comfortable financial risk profile: The financial risk profile is comfortable with consolidated gearing at 0.63 times, Total
outside liability/Tangible Net worth at 0.98 times as on December 31, 2019. Further, the gearing adjusted for unsecured
loans is low at 0.23 times as on December 31, 2019. The consolidated debt profile comprises Rs. 51.87 crore interest
bearing unsecured loans, Rs. 3.36 crore vehicle loan and Rs. 34.50 crore working capital borrowing as on December 31,
2019. The coverage indicators are moderate with interest coverage of 3.43 times, and Debt/OPBDIT at 2.37 times in
9MFY2020.

Credit challenges
Moderate profitability margins: The consolidated operating profitability margin has remained moderate at around 3-5%
in the past five years except in FY2019 wherein it was higher at 10.22% in FY2019 owing to benefits arising from higher
steel realisations. The operating profitability margins remained moderate at 5.12% in 9MFY2020 owing to decline in steel
realisations.

Exposure to cyclicality inherent in the steel industry: The domestic steel industry is cyclical in nature and is likely to
impact the cash flows of the steel players, including JIPL and DIIPL. The company’s operations are vulnerable to any
adverse change in the demand-supply dynamics in the real estate sector as observed in FY2020.

Intense competition in the steel business: The steel manufacturing businesses is characterised by intense competition
across the value chain due to low product differentiation, and consequent intense competition, which limits the pricing
flexibility of the players, including JIPL and DIIPL.

Susceptibility of margins to fluctuations in raw material prices and power tariffs: The steel production is raw material
and power intensive with raw materials accounting for over 70% of its operating income over the last four fiscals. In
addition, absence of captive power plant exposes company’s profitability to variation in power tariff.

Liquidity position: Adequate

The liquidity position is adequate with average monthly utilisation of JIIPL’s fund-based working capital limits at 60.35%
during the past 12-month period ending in February 2020. The companies on consolidated level are expected to incur
capex of around Rs. 6-8 crore towards maintenance and has limited annual debt repayment obligation of less than Rs.
1.00 crore in FY2021. Against this, the net cash accruals are expected to be above Rs. 20 crore over the near term
supporting the JIPL’s and DIIPL’s liquidity position.

Rating sensitivities
Positive triggers – ICRA could upgrade JIPL’s and DIIPL’s rating if the companies demonstrates healthy growth in
consolidated revenues and profitability margins on sustained basis. Specific credit metric that could lead to an upgrade
of rating include interest coverage of more than 4.0 times on sustained basis.

Negative triggers – Negative pressure on JIPL’s and DIIPL’s rating could arise if there is decline in revenues or profitability
on sustained basis. Higher capex than expected or increased working capital cycle or prolonged impact of covid adversely
impacting the companies’ financial performance and liquidity position may put negative pressure on its rating. The
companies inability to maintain interest coverage of above 3.00 times on sustained basis shall trigger a downward
revision in ratings.

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Analytical approach:
Analytical Approach Comments
Corporate Credit Rating Methodology
Applicable Rating Methodologies
Rating Methodology for Entities in the Ferrous Metals Industry
Parent/Group Support Not Applicable
For arriving at the ratings, ICRA has consolidated the financials of JIPL and
Consolidation / Standalone Dhanlaxmi Iron Industries Pvt. Ltd. given the close business and managerial
linkages among them.

About the company:

Jeevaka Industries Pvt. Ltd. (JIPL) was incorporated in the year 1996 and is promoted by Mr. Anil Agarwal and his family
members. The company is engaged in the manufacturing of sponge iron, billets and structural steels like angels and
channels under the brand name of “DIIL”. The company has installed capacity of 108,000 tons sponge iron, 1,80,000 tons
billets and 90,000 tons structural steels. The sponge iron manufacturing facility is located at Nashtipur village while
billets and structural steels manufacturing facility is located at Chegunta. The company gets its entire power requirement
from Telangana Southern Power Distribution Company Ltd. (TSSPDCL) and Indian Electricity Exchange (IEX).

Dhanlaxmi Iron Industries Private Limited (DIIPL) was incorporated in the year 1999 and is promoted by Mr. Premchand
Gupta and his family members. The company is engaged in the manufacturing of TMT bars under the brand name of
“DIIL”. DIIPL has installed capacity for manufacturing of 1,50,000 tons of TMT bars per annum at its manufacturing
facility located in Bonthapally, Telangana. The power requirement is procured from Telangana Southern Power
Distribution Company Limited.

Key financial indicators (Consolidated)

FY2018 FY2019 9MFY2020*
Operating Income (Rs. crore) 629.41 808.42 555.76
PAT (Rs. crore) 10.25 43.40 12.40
RoCE (%) 15.69% 36.12% 14.28%

Total Debt/TNW (times) 1.25 0.78 0.63

Total Debt/OPBDIT (times) 3.53 1.22 2.37
Interest coverage (times) 2.61 7.14 3.43
*provisional numbers

Status of non-cooperation with previous CRA: Not Applicable

Any other information: None

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Rating history for last three years:
Current Rating (FY2020) Rating History for the Past 3 Years
Rating FY2019 FY2018 FY2017
Instrument Amount Amount
Type March 06,
Rated Outstanding April 06, 2020 NA NA
2019
Long [ICRA]BBB [ICRA]BBB
NA Cash Credit 40.00 - NA NA
Term (Stable) (Stable)
Bank Short
NA 6.00 - [ICRA]A3+ [ICRA]A3+ NA NA
Guarantee Term
Letter of Short
NA 40.00 - [ICRA]A3+ [ICRA]A3+ NA NA
Credit Term
Long [ICRA]BBB [ICRA]BBB
NA Unallocated 19.00 - NA NA
Term (Stable) (Stable)

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

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Annexure-1: Instrument Details
Date of Amount
Coupon Maturity Rated
ISIN No Instrument Name Issuance / Current Rating and Outlook
Rate Date
Sanction (Rs. crore)

NA Cash Credit - 9.90% - 40.00 [ICRA]BBB (Stable)

NA Bank Guarantee - - 6.00 [ICRA]A3+
NA Letter of Credit - - 40.00 [ICRA]A3+
NA Unallocated - - 19.00 [ICRA]BBB (Stable)
Source: Jeevaka Industries Private limited

Annexure-2: List of entities considered for consolidated analysis

Company Name Ownership Consolidation Approach
Jeevaka Industries Private Limited - Full Consolidation
Dhanlaxmi Iron Industries Private Limited - Full Consolidation

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ANALYST CONTACTS
K. Ravichandran Srinivasan R
+91 44 4596 4301 +91 44 4596 4315
ravichandran@icraindia.com r.srinivasan@icraindia.com

Vinay Kumar G Tejal Shree

+91 40 4067 6533 +91 40 4067 6523
vinay.g@icraindia.com tejal.shree@icraindia.com

RELATIONSHIP CONTACT
Jayanta Chatterjee
+91 80 4332 6401
jayantac@icraindia.com

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Ms. Naznin Prodhani
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communications@icraindia.com

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+91-9354738909 (open Monday to Friday, from 9:30 am to 6 pm)

info@icraindia.com

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

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