Rating Rationale
November 18, 2020 | Mumbai
SSP Private Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.116.2 Crore
Long Term Rating CRISIL BBB+/Negative (Reaffirmed)
Short Term Rating CRISIL A2 (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL BBB+/Negative/CRISIL A2' ratings on the bank facilities of SSP Pvt Ltd (SSPL; part of the SSP group).
 
The ratings continue to reflect the promoters' extensive experience and the group's established positon in the engineering and capital goods industry, which continues to support the company's business risk profile. Operating performance will remain stable in fiscal 2021, with revenue of Rs 46.82 crore reported as on June 30, 2020. Revenue is expected to decline due to Covid'19 pandemic to around Rs 150 crore in fiscal 2021 from Rs 172 crore in fiscal 2020 despite continuous orders from existing customers both in the domestic and overseas markets. Orders of Rs 75.28 crore as on October 1, 2020, to be executed by the end of January 2021 will provide revenue visibility over the medium term. Earnings before interest, tax, depreciation and amortisation (EBITDA) margin of 10-11% in fiscal 2021, stable operating margin and timely execution of orders will be key monitorables. These strengths are partially offset by large working capital requirement and susceptibility to downturns in the capital goods industry. Sustenance of working capital cycle remains critical for ratings.

Analytical Approach

For arriving at the ratings, CRISIL has followed a consolidated analytical approach because SSPL acquired all the shares of Prosoya Inc (PIC) in fiscal 2019, making PIC a wholly owned subsidiary of SSPL.

Please refer Annexure - Details of Consolidation, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description
Strengths: 
* Established market position backed by the promoters' experience:
The promoters have been in the engineering and capital goods industry for over three decades. Group has established a strong presence in two product lines: evaporators and dryers. The company's key competence lies in the process of conversion of liquid into concentrated powder. The promoters have set up an in-house research and development centre recognised by the Department for Scientific and Industrial Research of the Ministry of Science and Technology. The company has also set up model plants, which help secure orders. Group will continue to benefit from the promoters' experience and healthy relationships with suppliers and customers, and maintain its strong market position over the medium term.
 
* Comfortable financial risk profile:
The financial risk profile will remain healthy over the medium term, supported by low reliance on external debt and comfortable capital structure. Total outside liabilities to tangible networth ratio weakened to 0.57 time as on March 31, 2020, from 0.46 time a year earlier. Debt protection metrics were strong, with interest coverage and net cash accrual to total debt ratios of 3.51 times and 0.13 time, respectively, in fiscal 2020, against 2.3 times and 0.09 time, respectively, in fiscal 2019.
 
Weaknesses:
* Large working capital requirement:
Operations are working capital intensive, with gross current assets (GCAs) at 375 days as on March 31, 2020 (345 days a year earlier), driven by receivables of 158 days. Receivables were sizeable because of realisation of retention money after a year from the date of installation of plant and fixed deposits kept as margin money. Inventory stood at 180 days as on March 31, 2020 (149 days a year earlier). Credit of 85 days and mobilisation advances relieve some of the pressure on the working capital. Commensurate with increase in scale of operations, working capital requirement may remain at a similar level over the medium term.
 
* Exposure to risks inherent in tender-based business and to downturns in the capital goods industry:
The SSP group provides engineering solutions for evaporators, dryers and complete processing plants. Projects are secured through tenders floated by private entities or cooperatives. The engineering and capital goods industry is cyclical as its performance is linked to the overall economy. Significant dependence on the engineering and capital goods sector is a major source of risk as any decline in off-take could impact revenue and earnings. Group's business risk profile will remain susceptible to cyclicality in the industry over the medium term, whereby investment in new projects is adversely affected.
Liquidity Adequate

Bank limit utilisation was moderate at 45.5% for the 12 months through September 2020. Cash accrual expected to be over Rs 6.0 crore per fiscal will comfortably cover term debt obligation of Rs 0.62 crore over the medium term. Unencumbered cash and bank balance was Rs 5.02 crore as on August 31, 2020 (Rs 5.02 crore as on March 31, 2020). Any large, debt-funded capital expenditure (capex) or further investment in subsidiary affecting credit metrics will remain a key rating sensitivity factor. Current ratio was 1.90 times as on March 31, 2020.

Outlook: Negative

CRISIL believes group's revenue, profitability and cash accrual may remain constrained even after timely execution of orders, leading to a stretched working capital cycle.

Rating Sensitivity factors
Upward factors
* Increase in operating income and operating margin of more than 11%, supported by higher net cash accrual
* Improvement in working capital cycle, with GCAs at less than 350 days, leading to better liquidity
 
Downward factors
* Decline in operating margin to less than 10% or delay in execution of orders, resulting in fall in operating income by more than 12%
* Further stretch in the working capital cycle with GCAs at more than 370 days weakening the liquidity risk profile
* Debt-funded capex leading to significant weakening in the capital structure
About the Company

SSPL was established in 1977 as a partnership firm by Ms Rekha Banerjee and Mr Tapas Chatterjee, and was reconstituted as a private limited company in 1985. The company manufactures evaporators and dryers, and executes semi-turnkey projects, such as complete processing lines or units. It caters to the dairy, food processing, fruit and vegetable processing and chemicals industries and effluent treatment plants. It has one unit each in Chandpur, Haryana; Nagpur, Maharashtra; Noida, Uttar Pradesh; and Sitarganj, Uttarakhand.

PIC is engaged in design, development and manufacture of plant, equipment and machines for dairy alternatives like soya milk, almond milk, oat milk, soya protein isolate etc.

Key Financial Indicators
As on / for the period ended March 31   2020* 2019
Operating income Rs crore 169.12 151.71
Reported profit after tax (PAT) Rs crore 8.39 6.38
PAT margin % 4.95 3.92
Adjusted debt / adjusted networth Times 0.23 0.22
Interest coverage Times 4.27 2.69
*provisional

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
Annexure - Details of Instrument(s)
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs crore) Complexity level Rating assigned with outlook
NA Bank guarantee NA NA NA 33.0 NA CRISIL A2
NA Cash credit NA NA NA 42.0 NA CRISIL BBB+/Negative
NA Letter of credit NA NA NA 2.0 NA CRISIL A2
NA Standby line of credit NA NA NA 3.0 NA CRISIL BBB+/Negative
NA Foreign exchange forward NA NA NA 1.2 NA CRISIL A2
NA Letter of credit &
Bank Guarantee		 NA NA  NA 5.0 NA CRISIL A2
NA Proposed Fund-
Based Bank Limits		 NA NA NA 30.0 NA CRISIL BBB+/Negative
 
Annexure - List of entities consolidated
Names of entities consolidated Extent of consolidation Rationale for consolidation
SSP Pvt Ltd Fully consolidated -
Prosoya Inc Fully consolidated 100% wholly owned subsidiary
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  76.20  CRISIL BBB+/Negative/ CRISIL A2      16-10-19  CRISIL BBB+/Negative/ CRISIL A2  27-07-18  CRISIL BBB+/Negative/ CRISIL A2  08-07-17  CRISIL A-/Stable/ CRISIL A2+  CRISIL A-/Stable/ CRISIL A2+ 
            05-09-19  CRISIL BBB+/Negative/ CRISIL A2           
            05-04-19  CRISIL BBB+/Negative/ CRISIL A2           
Non Fund-based Bank Facilities  LT/ST  40.00  CRISIL A2      16-10-19  CRISIL A2  27-07-18  CRISIL A2  08-07-17  CRISIL A2+  CRISIL A2+ 
            05-09-19  CRISIL A2           
            05-04-19  CRISIL A2           
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee 33 CRISIL A2 Bank Guarantee 48 CRISIL A2
Cash Credit 42 CRISIL BBB+/Negative Cash Credit 60.2 CRISIL BBB+/Negative
Foreign Exchange Forward 1.2 CRISIL A2 Foreign Exchange Forward 1.2 CRISIL A2
Letter of Credit 2 CRISIL A2 Letter of Credit 2 CRISIL A2
Letter of credit & Bank Guarantee 5 CRISIL A2 Standby Line of Credit 3 CRISIL BBB+/Negative
Proposed Fund-Based Bank Limits 30 CRISIL BBB+/Negative Working Capital Demand Loan 1.8 CRISIL BBB+/Negative
Standby Line of Credit 3 CRISIL BBB+/Negative -- 0 --
Total 116.2 -- Total 116.2 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Engineering Sector
CRISILs Bank Loan Ratings
CRISILs Criteria for Consolidation
The Rating Process
Understanding CRISILs Ratings and Rating Scales

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