Rationale

The rating action factors in IMFA's improved performance in the first half of FY2021, which is likely to sustain in the second half as well, leading to a healthy profitability, net cash accruals and debt coverage indicators of the company in FY2021. During H1 FY2021, IMFA's operating profit margin improved by 10- percent point to reach 18.0% on the back of higher sales volume, input cost savings primarily met coke and other cost rationalisation measures undertaken by the company. The interest coverage and Net Debt/OPBDITA also remained comfortable at 5.6 times and 1.8 times (annualised) respectively in H1FY2021. With ferro chrome (FeCr) prices expected to remain firm coupled with better sales volumes, ICRA expects IMFA's operating profitability to remain healthy in H2 FY2021 as well. Healthy profitability and cash accruals have resulted in a build-up of a sizeable unencumbered cash and liquid investment portfolio of ~Rs. 123 crores as of end September 2020, which imparts financial flexibility to the company. The ratings continue to favourably factor in the experience of the promoters in the ferro-alloy industry and the established track record of the company as one of the largest exporters of ferro-chrome from India. The ratings also consider IMFA's competitive cost structure, on a global scale, on account of the integrated nature of operations with captive chrome ore mines and captive power plants. The rating is, however, tempered by IMFA's exposure to the inherent cyclicality of the ferro-chrome industry. Prices of ferro chrome, which is primarily used as an input for producing stainless steel, had witnessed considerable volatility in the past, thus impacting the profitability and cash flows of the company. In addition, surplus power generating capacity and non-return yielding investments in Utkal Coal Limited (UCL), which was developing the Utkal C block before it was de-allocated, continue to be a drag on the company's returns on capital employed (RoCE). ICRA notes that receipt of compensation for the expenses incurred for the same coal block has been further delayed, thus consequently led to delay in deleveraging, than earlier envisaged. However, considerable improvement in FeCr prices is expected to keep the profitability and debt coverage indicators at comfortable levels, going forward. ICRA thus expects the company's cash flows, supported by liquid investments, to remain comfortable relative to its debt service obligations.