ICRA retains High Credit Quality Issuer Rating to Tata Metaliks Limited

ICRA has retained the IrM (pronounced I R double A) Issuer Rating to Tata Metaliks limited (TMl), indicating high credit-quality. The rated entity carries low credit risk. The rating is only an opinion on the general credit worthiness of the rated entity and not specific to any particular debt instrument.

The rating takes into account TML's well established position in the domestic foundry grade pig iron industry in the Eastern region, its diversified market reach with its entry into the Western market subsequent to the recent acquisition of the Redi unit, its operating profile aided by its focus on technology, healthy return on capital employed and moderately comfortable coverage indicators as well as strong management capabilities. The rating is however constrained by the cyclicality inherent in the pig iron business and limited venical integration in TML's existing operations resulting in a low level of value addition which in turn makes its cashflows sensitive to fluctuations in prices of end product as well as key raw materials. ICRA also notes that the sensitivity of profitability and cashflows to raw material price fluctuation has increased after the acquisition of the Redi unit in 2005-06 primarily because of higher specific consumption of raw materials at its Redi unit compared to that at the Kharagpur plant. This, coupled with the high input prices, logistical issues and the extended time taken for stabilisation of operations at Redi resulted in inadequate profitability at Redi. However, TMl's superior level of customer engagement, its proposed foray into down stream value added products by way of a proposed Joint Venture for the manufacture of ductile iron (01) pipes at Kharagpur and a moderate capital structure are credit positives from ICRA's perspective. ICRA will continue to closely monitor the specific initiatives undertaken by the company to stabilise the operations and improve margins at its Redi unit.

Company Profile

TMl is a leading player in the domestic pig iron industry and is currently one of the largest producers of foundry grade pig iron in the country. TMl belongs to the Tata group of companies with Tata Steel owning 46.7% of the equity capital of the company at present, During 2006-07, TML reported a PAT of Rs. 295 million on a turnover of Rs. 7.82 billion.