Infomerics Credit Rating Nepal Has Assigned BBB and A3+ Ratings To The Long Term and Short Term Bank Facilities of Jagdamba Steels (JSPL)

Infomerics Credit Rating Nepal (Infomerics Nepal) has assigned ratings for the Jagdamba Steels Private Limited's (JSPL).  The long term rating of IRN BBB (Triple B) to the long term bank facilities of NPR 5,997.33 Mn and IRN A3+ (A Three Plus) to the short term bank facilities of NPR 28,376.25 Mn has been given by Infomerics Nepal to JSPL.

These rating strengths are constrianed by its poor capacity utilization and high gearing levels as a result of Strong debt service coverage metrics, a disproportionate reliance on bank financing, and a protracted operational cycle and the sensitivity of profitability to changes in the price of raw materials.

Also, the key rating sensitivity will continue to be the company's capacity to control raw material costs in order to increase profitability and changes in gearing.

The ratings given to Jagdamba Steels Private Limited's (JSPL) bank facilities are derived on the company's lengthy history of operation, moderate financial risk profile, and growth in revenue, profitability, and internal accruals in FY21 and H1FY22. The company's other rating strengths include backward integration of the plant, which reduced manufacturing costs, a diversified product portfolio with established brand recognition and applicability to a wide range of industries, market presence across the nation, proximity to the Indian border, which reduced freight costs, generating export sales, government support for production-based industries, and a positive outlook for demand for steel products.

During FY21, the company's operating income rose by 40% year over year (YoY) to Rs. 29557 Mn. The margin for the same in H1FY22 (Provisional) is Rs. 21668 Mn.t, while there has been signifianct increase in the EBITDA Margin from 6% in the FY 20 to 7.7% in FY21 and 13.2% in H1FY22.  

Despite the company's expanding operations, the overall gearing ratio was 3.98 times at the end of FY21. In addition to overall gearing, the company's interest coverage ratios significantly improved in FY21, rising to 7.68 times from 6 times in the same period the previous year.

Key Rating Strength

• Established and long track record of operations with experienced promoters and management team in the steel industry
• Moderate financial profile characterized by growth in revenue, profitability and internal accruals
• Backward integration of the plant resulting savings in manufacturing cost
• Diversified product portfolio having usability to wide range of industries
• Established brand recognition and market presence across the country
• Proximity to Indian border leading to savings in freight cost and generating export sales
• Government support for production based industry and demand outlook of steels products.

Key Rating Weakness

• Low capacity utilization
• High gearing levels with weak coverage indicators
• Elongated operating cycle with high reliance on bank finance for funding
• Volatility in raw material price and exposure to regulatory risk
• Exposure to foreign exchange fluctuation risk
• Intense competition present in the steel industry

About the Company

JSPL is a private limited company that was established in October 1993. It has a facility in Jitpur, Simara-2, Bara, Nepal for the production of different steel products, with a total installed capacity of 2,444,000 MTPA. The company's manufacturing facilities, where a range of products are produced, are divided into Cold Rolled Products, Rolling Mills Products, Wire Products, and Melting Products. Due to its involvement in numerous industries, the Shanker group, of which JSPL is a member, has a significant presence in Nepal.

The company is the greatest steel company in Nepal and has been producing high-quality, environmentally friendly products. It is equipped with pollution control devices and has received the ISO 9001: 2000 certification.

By producing structural steel for the first time in Nepal, this seasoned and largest steel company has made history. The use of this innovation has reduced the imports of structural steel from abroad and given the nation's infrastructure development a whole new dimension and pace.