Please note: This advisory should not be construed as a rating reaffirmation.
Rating Advisory
January 25, 2017 | Mumbai
A darsh Bi rmechaO ri gi nal Templ at e123Arka Carbon Fuels Private Limited
Advisory as on January 25, 2017
This rating advisory is provided in relation to the rating of Arka Carbon Fuels Private Limited The key rating sensitivity factors for the rating include:
Prices of imported coal and their viability vis-à-vis domestic coal
Fluctuations in international dry bulk freight rates
Efficient working capital management
Foreign currency exchange rates and related hedging practices
Absence of investments in unrelated businesses
CRISIL Ratings has a policy of keeping its accepted ratings under constant and ongoing monitoring and review. Accordingly, it seeks regular updates from companies on business and financial performance. CRISIL is yet to receive adequate information from Arka Carbon Fuels Private Limited (ACFPL) to enable it to undertake a rating review. CRISIL is taking all possible efforts to get to cooperate with its rating process for enabling it to carry out the rating review.
CRISIL views information availability risk as a key factor in its assessment of credit risk. (Please refer to CRISIL Ratings publication dated April 30, 2012 - 'Information Availability - a key risk factor in credit ratings')
If ACFPL continues to delay the provisioning of information required by CRISIL to undertake a rating review then, in accordance with circular SEBI/HO/MIRSD/MIRSD4/CIR/P/2016/119 dt Nov 1, 2016 issued by Securities and Exchange Board of India, CRISIL will carry out the review based on best available information and issue a press release.
About the Group
The Swastik group, based in Indore (Madhya Pradesh), trades in indigenous and imported coal. The
group also provides logistic services through SGOAC. Established in 1984 by members of the Bindal
family for trading in indigenous coal, the group is now focused on imported coal; it both directly
imports coal from international suppliers and relies on merchant importers in India. The Swastik group
is promoted by Mr. Hitesh Bindal and Mr. Vishnu Bindal.
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July 17, 2015 Mumbai
Arka Carbon Fuels Private Limited
Ratings Reaffirmed Total Bank Loan Facilities Rated Rs.1100 Million
Long Term Rating CRISIL BBB-/Stable (Reaffirmed)
Short Term Rating CRISIL A3 (Reaffirmed)
(Refer to Annexure 1 for Facility-wise details)
CRISIL's ratings on the bank facilities of Arka Carbon Fuels Pvt Ltd (ACFPL; a part of the Swastik group) continue to reflect the Swastik group's diversified customer base, established market position, and promoters' extensive experience in the domestic coal trading market. The ratings also factor in the benefits expected from the healthy demand prospects for imported non- coking coal in India. These rating strengths are partially offset by the group's average financial risk profile, marked by a leveraged capital structure and average debt-protection metrics, its exposure to volatility in coal prices, and its working-capital- intensive operations.
For arriving at the ratings, CRISIL has combined the business and financial risk profiles of ACFPL, Swastik Coal Corporation Pvt Ltd (SCCPL), and Shree Ganpatlal Onkarlal Agarwal & Company (SGOAC), together referred to as the Swastik group. This is because both SCCPL and ACFPL trade in coal, while SGOAC provides logistics services for the two group entities.
Furthermore, the three entities are held and managed by the same promoters and are likely to financially support each other if and when needed.
Outlook: Stable
CRISIL believes that the Swastik group will maintain its business risk profile over the medium term, driven by its diverse customer base, established market position, and high demand for imported non-coking coal. The outlook may be revised to 'Positive' if the group's financial risk profile, primarily its total outside liabilities to tangible net worth (TOLTNW) ratio, improves significantly, most likely through substantial equity infusion, while it maintains its profitability and working capital cycle.
Conversely, the outlook may be revised to 'Negative' if any regulatory change or force majeure event disrupts the Swastik group's supplies, or in case of any unfavourable change in the group's revenue mix, adversely affecting the quality of its debtors.
Update
In 2014-15 (refers to financial year, April 1 to March 31) the Swastik group's revenue, on a provisional basis, grew by 20 per cent year-on-year to about Rs.21 billion backed by healthy demand from customers. Over medium term, the group is expected to achieve revenue growth of 10 to 15 per cent, backed by healthy demand for coal in the domestic market and its promoters' established market relationships. However, the group's operating margins continue to remain low with trading nature of operations.
The Swastik group's customer profile continues to be its major strength; its key customers include the Birla group companies, which contribute about 20 per cent of its total sales. Furthermore, association with the Birla group provides the Swastik group access to large overseas suppliers for bulk purchases. Around 50 per cent of the group's revenue is derived from sale to smaller corporates.
While the Swastik group is an importer and is exposed to foreign exchange (forex)-related risk, it hedges over 60 per cent of its forex exposure.
The group's net cash accruals also increased significantly to Rs.240 million in 2014-15 from Rs.200 million in the earlier year.
The healthy net cash accruals provide the group with sufficient cash for meeting the cash margin requirements for additional non-fund limits required for further growth.
However, the Swastik group's financial profile continues to remain constrained with high TOLTNW ratio at about 5.5 times as on March 31, 2015. Further, high interest outgo along with low operating profitability led to a below average interest coverage of 1.5 times as on March 31, 2015. With continued dependence on bank borrowings and creditors to fund working capital requirements; CRISIL believes that the group will continue to exhibit an average financial risk profile.
July 17, 2015 http://www.crisil.com
About the Group
The Swastik group, based in Indore (Madhya Pradesh), trades in indigenous and imported coal. The group also provides logistic services through SGOAC. Established in 1984 by members of the Bindal family for trading in indigenous coal, the group is now focused on imported coal; it both directly imports coal from international suppliers and relies on merchant importers in India. The Swastik group is promoted by Mr. Hitesh Bindal and Mr. Vishnu Bindal.
ACFPL, on a standalone and provisional basis, reported a profit after tax (PAT) of Rs.54 million on net sales of Rs.5.9 billion for 2014-15, against a PAT of Rs.46 million on net sales of Rs.5.4 billion for 2013-14.
SCCPL, on a standalone and provisional basis, reported a profit after tax (PAT) of Rs.144 million on net sales of Rs.13.8 billion for 2014-15, against a PAT of Rs.116 million on net sales of Rs.11.3 billion for 2013-14.
SGOAC, on a standalone and provisional basis, reported a profit after tax (PAT) of Rs.27 million on net sales of Rs.1.9 billion
for 2014-15, against a PAT of Rs.23 million on net sales of Rs.1.7 billion for 2013-14.
Annexure 1 - Details of various bank facilities
Current facilities Previous facilities
Facility Amount
(Rs.Million) Rating Facility Amount
(Rs.Million) Rating
Cash Credit 90 CRISIL
/Stable BBB- Cash Credit 90 CRISIL
/Stable BBB-
Letter of Credit 1000 CRISIL A3 Letter of Credit 1000 CRISIL A3
Overdraft Facility 10 CRISIL
/Stable BBB- Overdraft Facility 10 CRISIL /Stable BBB-
Total 1100 -- Total 1100 --
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July 17, 2015 http://www.crisil.com
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