November 17, 2023
Swadesh Green Infra Limited: Ratings reaffirmed
Summary of rating action
Previous Rated Amount Current Rated Amount
Instrument* Rating Action
(Rs. crore) (Rs. crore)
Long-term – Fund-based – Cash
27.50 27.50 [ICRA]B+(Stable); reaffirmed
credit
Long-term – Fund-based – Term
0.00 7.00 [ICRA]B+(Stable); reaffirmed
loans
Long-term – Unallocated limits 20.50 13.50 [ICRA]B+(Stable); reaffirmed
Short-term Non-fund-based –
2.00 2.00 [ICRA]A4; reaffirmed
Bank guarantee
Total 50.00 50.00
*Instrument details are provided in Annexure-I
Rationale
The ratings continue to factor in Swadesh Green Infra Limited’s (SGIL) strong relationships with customers and suppliers along
with a diversified customer base that ensures repeat orders in the steel trading industry. Established track record and extensive
experience of the promoters in the steel trading business will continue to support the company’s business growth. Assured
supply of goods from Steel Authority of India Limited (SAIL) as an authorised dealer, owing to long-term association, would
continue to provide comfort to its business and profitability. As per ICRA’s estimates, while the company’s turnover is likely to
grow significantly in FY2024, its margins will remain thin.
The ratings are, however, constrained by SGIL’s weak financial profile, characterised by weak capital structure and debt
coverage metrics, which are unlikely to improve in the near term. The ratings also consider SGIL’s modest scale of operations
and thin profit margins due to limited value addition and the high working capital intensive nature of its operations. The
company’s elongated working capital cycle reflected in high receivables and inventory levels, resulted in stretched liquidity,
which would remain under pressure in the near term given the large repayments due in FY2024 and FY2025. SGIL remains
exposed to intense competition and thin operating margins inherent in the trading business. The company’s operations are
exposed to cyclicality associated with the steel industry and price volatility. While the company’s business is expected to grow
significantly in FY2024, its large debt and high interest cost against a thin profit margin will result in weak debt protection
metrics and stretched liquidity.
The Stable outlook on the rating reflects ICRA’s opinion that SGIL would continue to register steady revenue growth along with
stable profitability, backed by the established track record and extensive experience of its promoters in the steel trading
business. The company’s strong relationships with customers and suppliers provides further support.
Key rating drivers and their description
Credit strengths
Extensive experience of the promoters in the steel trading business – The promoter of the company, Mr. Ravi Gupta, has
been involved in the steel business for more than four decades. Initially, the business was operated under a proprietorship
concern, Lakshmi Agro Industries, which was transferred to Swadesh Green Infra Limited in March 2015 (initially incorporated
as a private limited company). The company is involved in the trading and fabrication of iron and steel as an authorised dealer
of SAIL and deals with multiple products such as hot-rolled (HR) coils, cold-rolled (CR) coils and others, along with providing
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value-added services such as cut-to-length (CTL) and slitting. The promoters have extensive experience and an established
track record in the steel trading business, which support the company’s operations.
Strong relationship with customers and suppliers along with a diversified customer base – Extensive experience of the
promoters in the steel trading industry has enabled the company to develop strong relationships with its customers, which
has reduced the offtake risks to some extent. As a result, the company has developed a good understanding of customers’
requirements, resulting in repeat orders from key clients. The company is an authorised distributor of SAIL, from which it
procures a major part of its products, ensuring uninterrupted supply.
Credit challenges
Working capital intensive nature of operations – The company’s working capital intensity has remained high at around 50%
over the past few years owing to an elongated working capital cycle on the back of high debtor and inventory levels. The debtor
and inventory days stood at 85 and 66 days, respectively, as on March 31, 2023, on account of flexible repayment terms offered
to some of the clients, which delayed further. A nominal portion of the total debtors remain outstanding for more than 180
days, realisation of which remains crucial for the company’s liquidity. While the debtor level is likely to improve to 70-75 days
in the near-to-medium term, driven by stricter payment terms, inventory days would remain at around 60 days as the company
procures in bulk from SAIL.
Weak capital structure and debt coverage indicators – SGIL’s operating income increased significantly to Rs. 155.5 crore in
FY2023 from Rs. 104.7 crore in FY2022. However, low profitability and higher debt resulted in a weak capital structure and
coverage indicators, as reflected in the total debt vis-à-vis the operating margin (TD/OPBDITA) ratio of 9.6 times as on March
31, 2023 (8.4 times as on March 31, 2022) and lower DSCR of 1.1 times in FY2023 (1.1 times in FY2022). The company’s net
worth also remained low at Rs. 15.8 crore as on March 31, 2023. ICRA notes that the company is likely to register a significant
growth in its operating income, which would increase its working capital requirements, debt level, and interest cost.
Consequently, given the thin profit margin and high debt level expected in the near term, the company’s debt protection
metrics would remain under pressure.
Intense competition and thin operating margins inherent in trading business – The steel trading industry is fragmented and
is characterised by intense competition. The company has several organised and unorganised players as its competitors, which
restrict its pricing flexibility. However, the company’s established track record of operations and association with reputed
companies, such as SAIL, for procuring traded goods give it an edge over its peers.
Cyclicality associated with the steel industry is likely to keep cash flows volatile – SGIL operates in a cyclical industry, which
is vulnerable to any adverse change in the demand-supply dynamics in the steel sector and the end-user industry.
Liquidity position: Stretched
SGIL’s liquidity position is stretched with negative cash flow from operations due to low profitability and relatively higher
working capital requirements. The working capital limits have been fully utilised during the past one year, leaving no cushion
for emergency requirements. Accordingly, the company has been utilising the ad-hoc limits and available channel finance
limits, as per the requirement. ICRA notes that the company witnessed an overutilisation in its channel finance facility, though
less than 30 days in June 2023, due to a relatively longer delay in receivables. Further, the company has outstanding term loans
(GECL) to meet the fund requirement (Rs.8.41 crore as on March 31, 2023), repayment of which would be around Rs. 1.28
crore in FY2024. Going forward, while need-based support from the promoters in the form of unsecured loans would continue
to provide some comfort, the liquidity of the company is likely to remain stretched due to an elongated working capital cycle
and less than adequate limits.
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Rating sensitivities
Positive factors – ICRA could upgrade the company’s ratings if there is an increase in revenue and profitability along with an
improvement in liquidity and debt coverage metrics on a sustained basis. Specific credit metrics, which could result in ratings
upgrade include an interest coverage of 2.0 times on a sustained basis.
Negative factors – Pressure on the company’s ratings could arise if there is a significant decline in revenues or a stretch in the
working capital cycle, resulting in further weakening of liquidity. A substantial increase in debt, leading to a deterioration in
the capital structure and debt coverage metrics on a sustained basis, will also be a credit negative.
Analytical approach
Analytical Approach Comments
Applicable rating methodologies Corporate Credit Rating Methodology
Parent/Group support Not applicable
Consolidation/Standalone Standalone
About the company
Swadesh Green Infra Limited (SGIL) was incorporated as a private limited company in March 2015. The company is involved in
trading and fabrication of iron and steel products. Prior to the incorporation of the company, it was known as Lakshmi Agro
Industries, a proprietorship concern of Mr. Ravi Gupta. The business was transferred to SGIL in March 2015 with Mr. Ravi
Gupta as the Chairman.
The company is an authorised dealer of SAIL and deals with multiple products such as HR coils/sheets, CR coils/sheets, and
other related products. SGIL also provides value-added services, which include cut-to-length and slitting. The stocking locations
are fully modernised with overhead cranes along with highly experienced technical manpower to cater to uninterrupted and
timely deliveries. Fully automated machines and precise processes result in high-quality output.
Key financial indicators (audited)
Swadesh Green Infra Limited FY2022 FY2023
Operating income 104.7 155.5
PAT 0.4 2.2
OPBDIT/OI 5.8% 4.1%
PAT/OI 0.3% 1.4%
Total outside liabilities/Tangible net worth (times) 3.8 4.5
Total debt/OPBDIT (times) 8.4 9.6
Interest coverage (times) 1.2 1.2
PAT: Profit after tax; OPBDIT: Operating profit before depreciation, interest, taxes and amortisation; Amount in Rs. crore
Status of non-cooperation with previous CRA:
CRA Status Date of Release
CARE CARE B/Stable/A4; Issuer did not cooperate September 18, 2023
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Any other information: None
Rating history for past three years
Chronology of rating history
Current rating (FY2024)
for the past 3 years
Amount
Instrument Amount outstanding Date & rating in Date & rating in Date & rating in Date & rating
Type rated as on March FY2024 FY2023 FY2022 in FY2021
(Rs. crore) 31, 2023
(Rs. crore) Nov 17, 2023 Dec 27, 2022 - -
Fund based Long-
1 27.50 - [ICRA]B+ (Stable) [ICRA]B+ (Stable) - -
Cash credit term
Fund based Long-
2 7.00 7.00 [ICRA]B+ (Stable) -
Term loans term
Unallocated Long-
3 13.50 - [ICRA]B+ (Stable) [ICRA]B+ (Stable) - -
limits term
Non-fund-
Short-
4 based – Bank 2.00 - [ICRA]A4 [ICRA]A4 - -
term
guarantee
Complexity level of the rated instruments
Instrument Complexity Indicator
Long-term – Fund-based – Cash credit Simple
Long-term – Fund-based – Term loans Simple
Long-term – Unallocated limits Not applicable
Short-term – Non-fund-based – Bank guarantee Very simple
The Complexity Indicator refers to the ease with which the returns associated with the rated instrument could be estimated.
It does not indicate the risk related to the timely payments on the instrument, which is rather indicated by the instrument's
credit rating. It also does not indicate the complexity associated with analysing an entity's financial, business, industry risks or
complexity related to the structural, transactional or legal aspects. Details on the complexity levels of the instruments are
available on ICRA’s website: Click Here
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Annexure I: Instrument details
Instrument Coupon Amount Rated
ISIN Date of Issuance Maturity Current Rating and Outlook
Name Rate (Rs. crore)
NA Cash credit NA 9.90% NA 27.50 [ICRA]B+(Stable)
NA Term loans FY2021 8.55% FY2027 7.00 [ICRA]B+(Stable)
NA Unallocated NA NA NA 13.50 [ICRA]B+(Stable)
NA Bank guarantee NA NA NA 2.00 [ICRA]A4
Source: Company
Please click here to view details of lender-wise facilities rated by ICRA
Annexure II: List of entities considered for consolidated analysis – Not applicable
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ANALYST CONTACTS
Jayanta Roy Priyesh Ruparelia
+91 33 7150 1120 +91 22 6169 3328
[email protected] [email protected]
Manish Pathak Aditya Lade
+91 124 4545397 +91 22 6169 3351
[email protected] [email protected] RELATIONSHIP CONTACT
L. Shivakumar
+91 22 6114 3406
[email protected]
MEDIA AND PUBLIC RELATIONS CONTACT
Ms. Naznin Prodhani
Tel: +91 124 4545 860
[email protected] Helpline for business queries
+91-9354738909 (open Monday to Friday, from 9:30 am to 6 pm)
[email protected]
About ICRA Limited:
ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and financial services
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Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited Company,
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For more information, visit www.icra.in
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