Vms Tmt Limited

CARE BB+ (CE); Stable; ISSUER 10.90 Cash Credit NOT COOPERATING* *Issuer did not cooperate; Based on best available information Annexure - 2: Rating History of last three years Sr.

The company reported largely stable total operating income of Rs.181.33 crore during FY20 as against Rs.179.97 crore during FY19. However, it reported net loss of Rs.2.20 crore along with cash losses during FY20 due to decline in its operating profitability, booking of hedging cost of the LC opened for newly procured ship in Feb. 2020 and on account of prior period items of Rs.3.41 crore which included income tax of earlier years of Rs.2.52 crore.

On purchase of ship, VIL is required to immediately pay entire purchase value of the ship by availing LC limit from the bank whereas its sales happen over a period of time. Accordingly, it is exposed to the volatility in steel prices driven by demand and supply conditions in the global as well as local markets. Accordingly, any adverse price movement on the uncut ship inventory as well as unsold inventory of steel scrap held by the company can impact its profitability.

The business model of VIL largely requires non-fund based facility i.e. Letter of Credit (LC) which is used to purchase the old ships for ship breaking activity. LC is denominated in foreign currency whereas the company’s revenue is denominated in Indian Rupee (INR); hence the company is exposed to forex risk. Earlier, VIL used to estimate its approximate sales value for cut ship for every day and then enter in to a forward contract for an equivalent value of USD

Ship breaking industry is cyclical in nature as supply of old ships for recycling is inversely proportional to freight index. The freight index is a function of global demand of seaborne transport and supply of new vessels which in turn depend on global merchandise trade. Accordingly, there would be better availability of old ships for recycling at the time of recession when freight rates are low which makes it economical to dismantle the ship rather than continue to operate it. In past

The ship-breaking industry in the Alang-Sosiya belt of Gujarat is highly regulated with strict working and safety standards to be maintained by the ship-breakers for their labourers and environmental compliance. Furthermore, the industry is prone to risks related to pollution as it involves dismantling of ships which contain various hazardous substances like lead, asbestos, acid, hazardous paints, etc. that have to be properly disposed-off as per the regulatory guidelines. Any breach

Extensive experience of the promoter in the ship-breaking industry The promoter of VIL is one of the oldest in the ship-breaking industry of Alang, Gujarat and has successfully run the business through various business cycles. VIL’s promoter Mr. Manoj Kumar Jain (Managing Director) is a qualified chartered accountant with more than two decades of experience in the ship-breaking industry as well as ferrous and nonferrous metal trading business.