MONNET ISPAT & ENERGY LTD (MIEL)

Ratings
Facilities/Instruments

Amount
(Rs. crore)

Ratings1

Remarks

Long term Bank Facilities

5,140.98
(enhanced from
3,668.98)

CARE A+
[Single A Plus]

Revised from CARE AA[Double A Minus]

Short-term Bank Facilities

(Working capital limits)

200
(enhanced from
147.50)

CARE A1+
[A One Plus]

Reaffirmed

Short-term Bank Facilities

(Short-term loans)

200

CARE A1
[A One]

Revised from CARE A1+

[A One Plus]

Total Bank Facilities

5,540.98

Non Convertible Debentures-I

300

CARE A+
[Single A Plus]

Revised from CARE AA[Double A Minus]

Non Convertible Debentures-II

500

CARE A+
[Single A Plus]

Revised from CARE AA[Double A Minus]

Proposed Non Convertible Debentures-III

250

CARE A+
[Single A Plus]

Revised from CARE AA[Double A Minus]

400
(enhanced from 250)

CARE A1+
[A One Plus]

Reaffirmed

Short-term CP/NCD Programme-I*

*Carved out of fund based working capital limits

Rating Rationale
The revision in ratings of Monnet Ispat & Energy Ltd (MIEL) takes into account the moderation in the companys credit risk
profile characterized by weakening of its capital structure as well as debt coverage indicators. The revision in ratings also factors
in the time over-run and slower than envisaged ramping up of operation of steel project. The ratings continue to factor in the
experience of the promoters and management of MIEL, the companys consistent track record of profitable operations and its
semi integrated operations backed by captive coal mine as well as power plant. The ratings also consider the companys
diversified product profile and its moderate liquidity position. The ratings continue to remain constrained by MIELs exposure to
raw material price volatilities, the companys exposure towards subsidiaries, the risks associated with the residual project
execution and effective ramping-up of operations and cyclicality inherent in the steel industry.
Going forward, the timely and effective ramping-up of the operations of steel project, the impact of the MIELs commitments
towards subsidiaries on its credit profile and the companys ability to improve its leverage profile would be the key rating
sensitivities.
Background
MIEL, the flagship company of the Monnet Group, was promoted by Mr. Sandeep Jajodia in 1990. The company commenced
operations in 1994, with a sponge iron plant based on the technology provided by Jindal Steel and Power Ltd. It is currently
involved in manufacturing of sponge iron, mild steel, structural steel, ferro alloys and power generation with installed capacities
of 8,00,000 MT, 5,00,000 MT, 58,400 MT and 230 MW respectively as on March 31, 2013. This apart, the company has
completed 1.5 MTPA steel project with 0.45 MTPA bar mill and 1.0 MTPA plate/steckel mill. The company sources a part of
its coal requirements from its captive Milupara mine which has an extraction capacity of 1.0 million tonnes per annum (MTPA).
The majority of companys steel products are sold through traders.

Complete definitions of the ratings assigned are available at www.careratings.com and in other CARE publications.

Credit Risk Assessment

Deterioration in capital structure as well as debt coverage indicators
MIELs overall gearing increased from 1.59x as on March 31, 2012 to 2.16x as on March 31, 2013 due to term debts availed for
steel project, additional facilities installed at Raigarh plant and increase in working capital borrowings necessitated by completion
of steel project. The higher debt levels resulted in weakening of debt coverage indicators as reflected by total debt to gross cash
accruals of 16.89x as on March 31, 2013 as compared with 10.90x as March 31, 2012. The same stood high as the companys
steel project is yet to generate cash accruals whereas the debt for the steel project has already been availed.
However, the companys interest coverage stood comfortable at 4.45x during FY13 (refers to the period from April 1 to Sept
30), though the same moderated from 6.06x in FY12. Going forward, the ability to deleverage its balance sheet would be
important from a credit perspective.
Significant exposures towards subsidiaries
MIELs aggregate investments in its subsidiaries stood at Rs.604 crore whereas the companys loans and advances to the
subsidiaries remained at Rs.380 crore as on March 31, 2013. The companys key subsidiaries include Monnet Power Company
Ltd (MPCL), Monnet Global Ltd (MGL), Monnet Daniels Coal Washery Pvt Ltd. MIEL has provided corporate guarantees for
the credit facilities of Rs.242 crore as on March 31, 2013 availed by MGL. MPCL is currently implementing a 1,050 MW coal
based power project at a total cost of Rs.5,092 crore to be funded by a debt of Rs.3,819 crore and equity of Rs.1,273 crore. Out
of the total project equity of Rs.1,273 crore, MIEL has an equity commitment of Rs.648 crore, out of which Rs.630 crore has
already been invested upto Sept 30, 2013.
MPCL has incurred a total cost of Rs.4,121 crore on the said project upto Sept 30, 2013 funded by equity of Rs.905 crore,
subordinate debt of Rs.245 crore and debt/project creditors of Rs.2,971 crore. After a delay of 2 years, the unit 1 of the power
project is expected to get commissioned by Sept 2014 followed by the commissioning of second unit in November 2014. The
delay was largely on account of late receipt of environmental clearance and delay in land acquisition. MPCLs power project is
backed by captive coal mine for which environmental and forest clearances have been received.
Apart from the time over-run, the said project has met with an estimated cost over-run of Rs.1,528 crore. In view of the cost
over-run, MIEL would also be required to contribute additional equity of nearly Rs.150 crore over and above its existing equity
commitment of Rs.648 crore. However, the company is in discussion with a private equity investor (which already holds 12.75%
stake in MPCL) to invest additional equity in MPCL, which may ease MIELs investments commitments in MPCL going forward.
Experienced promoters and management
The companys day-to-day operations are managed by Mr. Sandeep Jajodia, Chairman and Managing Director. He started his
career in 1982 and possesses a rich experience in diversified activities including international trade, manufacturing and trading.
Mr. C.P. Baid, Deputy Managing Director of MIEL is a mechanical engineer and a MBA in project management. During his
earlier stints, he has worked with leading energy and metals companies. The other directors of the company also have
considerable experience in the industry.
Semi integrated operations
MIEL is one of the Indias leading coal based sponge iron producers with an installed capacity of 0.8 MTPA. The company has
integrated operations backed by captive coal mine, captive power plant and its own ferro alloys manufacturing facilities. Its
Milupara coal mine with estimated reserves of 86 Million Tonnes (MTs) is one of the largest underground coal mines in India in
private sector with extraction capacity of nearly 1.0 MTPA. MIEL also has 230 MW captive power plant, the surplus power from
which is sold on merchant basis. However, the company is dependent on third party suppliers for its iron ore requirements and
part of coal requirements (including entire coking coal/coke required for recently completed steel project) which is sourced
from the open market exposing it to vagaries of commodities price cycle.
Diversified product mix
MIEL manufactures a wide variety of products viz sponge iron, structural steel products and ferro alloys at its manufacturing
facilities situated in Chattisgarh. The company also sells surplus power from its 230 MW captive power plant on merchant basis.
The availability of product mix equips the company to strategically focus on relatively profitable products. It has further
diversified its product portfolio with the completion of 0.45 MTPA bar mill and 1.0 MTPA plate/steckel mill. The company
shall be eventually utilizing its existing sponge iron production captively once the operations of the steel plant are fully rampedup.

Track record of consistently profitable operations

MIEL has a track record of consistent profitable operations over the years. The companys total operating income and PBILDT
has grown at a CAGR of 10.60% and 4.32% respectively between FY10 to FY13. The companys total operating income
increased by 4.01% from Rs.1,947 crore in FY12 to Rs.2,025 crore in FY13 primarily attributable to 6.35% increase in sponge
iron sales volumes partially off-set by lower realizations of sponge iron as well as power. Despite a marginal moderation of 69
bps, MIELs PBLIDT margin stood healthy at 26.90% during FY13. The said moderation was largely on account of lower
contribution from power segment on account of lower realization of power coupled with 22.74% decline in power sale volumes
as it resorted to lower power generation (generation was there largely from waste heat recovery boilers) due to subdued power
tariffs. The companys power generation in FY13 was also impacted on account of reduction in the line loading capacity by the
load dispatch centre resulting in power transmission constraints.
The companys PAT declined by 13.34% from Rs.289 crore in FY12 to Rs.250 crore in FY13 due to higher interest cost on
account of higher interest rates and increase in working capital borrowings and capitalization of 80 MW power plant in March
2012. During H1FY14 (provisional) (refers to the period from April 1 to Sept 30), the company reported a PBILDT and PAT of
Rs.239 crore and Rs.113 crore respectively on a total operating income of Rs.986 crore as against a PBILDT and PAT of Rs.275
crore and Rs.140 crore respectively on a total operating income of Rs.1,076 crore in H1FY12.
Moderate liquidity profile
MIELs average inventory holding period increased from 122 days as on March 31, 2012 to 171 days as on March 31, 2013 as it
held more raw material inventory in view of the completion of the steel project. The same led to increase in operating cycle
though the same is expected to moderate going forward with the ramping-up of the operations of steel plant. Furthermore, the
companys average utilization of fund based working capital limits for the 12 months ended November 2013 stood moderate at
77.92%. The companys liquidity position also derives some comfort from free cash balances of Rs.87cr as on Sept 30, 2013.
Risks related to residual project execution and ramping up of operations
MIEL has recently announced the completion of its 1.5 million tonnes per annum steel project except for pellet plant and coke
oven, which the company expects to complete by the end of FY14. However, the said plant has not started generating significant
sales volumes in view of initial stabilization issues coupled with subdued market scenario. The said project was earlier scheduled
to get completed by October 2012 except for coke oven and pellet plant.
Therefore, the company continues to remain exposed to the risks related to residual project execution and effective ramping up
of the operations thereafter. However, the companys long track record in steel industry mitigates such risks to some extent.
Prospects
The steel industry demand growth is foreseen as muted in the short term as concerns over economic slowdown are
expected to prevail for a while. However in the long term, the demand for the steel products is expected to remain firm on the
back of Government of Indias continued thrust on infrastructure and the long-term growth prospects of the country. The same
augurs well for the steel manufacturers like MIEL.
Financial performance (Standalone)
Y.E. Mar.31,
Working Results
Net Sales
Income from Operations
PBILDT
Interest
Depreciation
PBT
PAT (After def Tax)
Gross Cash Accruals

2011
(12m, A)

2012
(12m, A)

1,569
1,592
473
44
74
362
281
364

1,884
1,947
537
89
74
378
289
372

Rs.crore
2013
(12m, A)
1,948
2,025
545
122
89
338
250
355

Y.E. Mar.31,
Financial Position
Equity Share capital
Net Worth
Total capital employed
Key Ratios
Growth (%)
Growth in Total Operating Income
Growth in PAT (After def Tax)
Profitability (%)
PBILDT / Total OI
APAT / Total OI
ROCE
RONW
Solvency(times)
Debt Equity Ratio
Overall Gearing
Overall Gearing (including acceptances)
Interest coverage (Times)
Term Debt/GCA
Total Debt/GCA
Liquidity (times)
Current ratio
Quick ratio
Avg. Collection Period (days)
Avg. Inventory (days)
Avg. Creditors (days)
Op. cycle (days)

2011
(12m, A)

2012
(12m, A)

2013
(12m, A)

64
2,271
4,903

64
2,550
6,607

64
2,785
8,780

6.39
4.48

22.31
2.74

3.97
-13.34

29.69
17.66
9.88
13.68

27.59
14.83
8.09
11.98

26.90
12.36
5.99
9.38

0.73
1.16
1.16
10.81
4.57
7.23

1.22
1.59
1.59
6.06
10.12
10.90

1.66
2.15
2.16
4.45
13.20
16.89

1.44
1.16
34
96
44
86

1.62
1.24
32
122
28
126

1.00
0.67
35
171
23
184

Analyst Contact
Name: Sudhir Kumar
Tel # 011- 45333232
Email: sudhir.kumar@careratings.com
(This follows our rationale for entity published on 06 January 2014)
DISCLAIMER
CAREs ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or
hold any security. CARE has based its ratings on information obtained from sources believed by it to be accurate and reliable. CARE does not, however,
guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of
such information. Most entities whose bank facilities/ instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank
facilities/instruments.

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