My Iris reported that ICRA has assigned an LAA rating to the INR 152.5 million fund based limits of Maharashtra Elektrosmelt indicating high credit quality.

The rated instrument carries low credit risk. The outlook on the long term rating is positive, which reflects the proposed merger of MEL with SAIL.

However, ICRA has also assigned an A1+ rating to the INR 10 million fund based limits and to the INR 115 million non funds based limits of MEL indicating highest credit quality in the short term.

Instruments rated in this category carry the lowest credit risk. The ratings reflect the direct operational, managerial and financial support that MEL derives from its parent company SAIL with the former being a 99% subsidiary and primarily operating as a conversion agent for SAIL.

The ratings are however constrained a highly cyclical nature of the ferroalloy industry and by the low bargaining power of MEL against a relatively stronger parent in arriving at the conversion charges.

ICRA said that the lack of a captive power plant, with the company having a highly power intensive nature of operations adversely impacts the current cost structure.

With the conversion charges offered by SAIL being linked to the ferroalloy prices prevailing in the market, any correction in the market prices is expected to impact profitability of MEL.

It said that although the company is faced with a significant customer concentration risk with 90% of its sales being made SAIL, however the counterparty risk is low. SAIL has chalked out an ambitious capacity expansion program which ICRA believes would keep the off take risk for MEL at low levels.

(Sourced from myiris.com)