Electrosteel Castings’s NCD downgraded

MUMBAI: Crisil has downgraded Electrosteel Castings Ltd’s non-convertible debentures aggregating Rs 190 crore to ‘AA-/Stable’ from ‘AA/Stable’.

The revision reflects the impact of greater-than-anticipated equity investments by Electrosteel in its associate company, Electrosteel Integrated Ltd.

Electrosteel is expected to invest Rs 500 crore in Electrosteel Integrated over the next two to three years. This, coupled with a capital expenditure plan of over Rs 500 crore over the next three years-- in development of coking coal and iron ore mines, is expected to stress Electrosteel’s consolidated gearing over the medium term.

Crisil’s earlier ratings on Electrosteel’s debt programmes were supported by the company’s large cash and equivalent balances (Rs 150 crore and Rs 350 crore during the past five years).

Utilisation of these cash reserves for its large-sized investment and capex plans will restrict the company’s financial flexibility over the medium term, it said.

The ratings continue to reflect Electrosteel’s leading position in the domestic ductile iron pipe market.

Electrosteel has strong operating capabilities due to its highly integrated operations. The company has its own captive pig iron, coke oven, and sponge iron resources, and a captive power plant. Access to iron ore and coking coal mines, which have been recently allocated to it, will make Electrosteel one of the lowest-cost producers of DI pipes in India. Benefits of backward integration into captive mines are expected to gradually build over time, with full benefits visible after three or more years, a report said.