Rating Rationale
April 02, 2019 | Mumbai
Sahyadri Industries Limited
Ratings upgraded to 'CRISIL BBB/Positive/CRISIL A3+'; short-term rating withdrawn
Rating Action
Total Bank Loan Facilities Rated Rs.114.15 Crore (Reduced from Rs.220 Crore)
Long Term Rating CRISIL BBB/Positive (Upgraded from 'CRISIL BBB-/Positive')
Short Term Rating CRISIL A3+ (Upgraded from 'CRISIL A3'; Rating withdrawn)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has upgraded its ratings on the bank facilities of Sahyadri Industries Limited (SIL) to 'CRISIL BBB/Positive/CRISIL A3+' from 'CRISIL BBB-/Positive/CRISIL A3'. The ratings on the Rs 90.06 crore of term loan and the Rs 15.79 crore of proposed short-term facility have been withdrawn, at the company's request. The long-term loan has been paid in full. The withdrawal is in line with CRISIL's policy on withdrawal of bank loan ratings.
The upgrade reflects improvement in business risk profile, backed by increase in scale of operations and healthy profitability and return on capital employed. Profitability improved over the past few years on account of reduction in raw material prices and streamlining of processes, and cost-saving measures adopted. Increasing scale and healthy profitability have resulted in a stronger financial risk profile. Networth, capital structure and debt protection metrics are healthy. Liquidity has improved, marked by low utilisation of bank lines and repayment of term loans. While revenue is expected to increase, operating margin may moderate to 21-22% on account of increasing marketing expense for new products. However, accrual should remain healthy at Rs 48-50 crore.
The ratings continue to reflect established market position in the corrugated asbestos-cement (AC) sheets industry and above-average financial risk profile. These strengths are partially offset by large working capital requirement, volatility in input prices and foreign exchange (forex) rates, and dependence on monsoon for demand.

Analytical Approach

Unsecured loans of Rs 30 crore have been treated as neither debt nor equity as these are expected to remain in the business over the medium term and are subordinate to bank debt.

Key Rating Drivers & Detailed Description
* Established market position in the corrugated AC sheets industry
SIL has been manufacturing AC sheets since 1981 under the Swastik brand. It is present in Maharashtra, Gujarat, Kerala, Tamil Nadu, Karnataka, Andhra Pradesh, and Telangana (which together accounts for 70% of the domestic market for AC sheets). SIL has leadership position in the AC sheets market in Maharashtra, with two manufacturing facilities resulting in savings on logistical costs. The proximity of the manufacturing facilities to its markets gives it an added competitive advantage.
* Above-average financial risk profile
Networth, expected around Rs 157 crore as on March 31, 2019, should improve over the medium term on the back of healthy accretion and operating margin. Gearing may remain moderate at 0.28 time. Debt protection metrics are above average: interest coverage and total debt to net cash accrual are estimated at 8.7 times and 1.07 time, respectively, for fiscal 2019. Of the promoters' unsecured loans of Rs 40 crore as on December 31, 2018, Rs 30 crore has been treated as neither debt nor equity. The absence of large capital expenditure (capex) over the medium term is likely to keep financial risk profile stable over the medium term.
* Volatility in input prices and forex rates, and dependence on monsoon for demand
The company's products have relatively limited value addition, and face intense competition. Also, the market for AC sheets is largely rural. Therefore, any variation in rainfall or crop yield could lower the demand for AC sheets and hence intensify competition.
Further, players have limited ability to pass on incremental input prices (mainly of cement, fly ash, and asbestos) to customers or command a significant premium for their products; hence, margins in the AC sheets industry are vulnerable to input costs. Asbestos is mainly imported from Kazakhstan, Russia, Canada, Zimbabwe, and South Africa, and rupee depreciation might result in higher input costs. Though the company is able to pass on raw material price increases to customers with a lag, reduced pricing power because of weak demand may affect overall profitability.
* Large working capital requirement
Sizeable gross current assets (GCAs) of 176 days keep working capital under pressure. Inventory and debtors are estimated at 125 and 57 days, respectively, as of March 2019. Other than imported raw materials such as asbestos, year-end inventory also includes finished goods stocked to meet key sales season demand in the first quarter. However, on the supply side, the company receives credit of around 60 days.

Liquidity is adequate with expected accruals of Rs.43-49 crore expected over medium term against nil debt obligation. Term loan has been paid in full. BLU is also low at around 13% for past 12 months ending December 2018 thereby providing cushion in bank lines. Liquidity is further supported by promoters in form of unsecured loan of around Rs.40 crore.

Outlook: Positive

CRISIL believes SIL will continue to benefit over the medium term from its established market position. The rating may be upgraded if the company improves its scale of operation while maintaining its operating margin above 20% and maintaining its working capital cycle, financial risk profile, and liquidity. The outlook may be revised to 'Stable' if weakening cash accrual on account of decline in margin or increase in working capital cycle affects liquidity, or if adverse changes in Central government regulations regarding use of asbestos or any large debt-funded capex or dividend weakens key credit metrics.

About the Company

SIL (formerly, New Sahyadri Industries Ltd) was set by Mr Lalji Bhai Patel in 1994. The company is part of the Swastik group and manufactures AC sheets for roofing purposes, especially in the rural regions. The company also trades in steel doors and sells wind power from its three wind farms with aggregate capacity of 23.2 megawatts. It has five manufacturing facilities, two in Chinchwad and Kedgaon (Maharashtra), and one each in Perundurai (Tamil Nadu), Mahuvej (Gujarat), and Vijayawada (Andhra Pradesh).

Key Financial Indicators
Particulars Unit 2018 2017
Revenue Rs. Cr. 269.7 257.3
Profit After Tax Rs. Cr. 24.4 2.99
PAT margin % 9.1 1.2
Adjusted Debt/Adjusted Net worth Times 0.51 0.79
Interest coverage Times 5.9 2.5

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
ISIN Name of instrument Date of
Rate (%)
Maturity date Issue
(Rs. Cr)
Rating Assigned
with Outlook
NA Cash Credit NA NA NA 114.15 CRISIL BBB/Positive
NA Proposed Short Term
Bank Loan Facility
NA NA NA 15.79 Withdrawn
NA Term Loan NA NA NA 90.06 Withdrawn
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  114.15  CRISIL BBB/Positive      31-01-18  CRISIL BBB-/Positive/ CRISIL A3      26-10-16  CRISIL BB/Stable/ CRISIL A4+  CRISIL BB+/Stable/ CRISIL A4+ 
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
Cash Credit 114.15 CRISIL BBB/Positive Cash Credit 114.15 CRISIL BBB-/Positive
Proposed Short Term Bank Loan Facility 15.79 Withdrawn Proposed Short Term Bank Loan Facility 15.79 CRISIL A3
Term Loan 90.06 Withdrawn Term Loan 90.06 CRISIL BBB-/Positive
Total 220 -- Total 220 --
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
CRISILs Bank Loan Ratings
CRISILs Criteria for rating short term debt
The Rating Process

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