Rating Rationale
July 21, 2020 | Mumbai
Sahyadri Industries Limited
  Rating Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.114.15 Crore
Long Term Rating CRISIL BBB/Positive (Reaffirmed)
Short Term Rating CRISIL A3+ (Reassigned)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its rating on the long-term bank facilities of Sahyadri Industries Limited (SIL) at 'CRISIL BBB/Positive'. CRISIL has also reassigned its 'CRISIL A3+' rating to the short-term bank facilities.
 
The ratings continue to factor in SIL's established market position in the corrugated asbestos-cement (AC) sheets industry and above-average financial risk profile. These strengths are partially offset by dependence on rural spending, exposure to intense competition and substitute products and regulatory threat of ban on manufacture or use of asbestos in end-user markets and in key asbestos-producing nations
 
The lockdown and other measures taken by various central and state governments towards containment of COVID-19 are not expected to have any major impact on the business risk profile of SIL. The company has resumed operations since April 2020.

Analytical Approach

Unsecured loans (Rs 35 crore as on March 31, 2020) extended by the promoter have been treated as debt because these loans are expected to paid off over medium term.

Key Rating Drivers & Detailed Description
Strengths
* Established market position in the corrugated AC sheets industry
SIL has been manufacturing AC sheets since 1981 under the brands, Swastik and Cemply. The company operates across Maharashtra, Gujarat, Kerala, Tamil Nadu, Karnataka, Andhra Pradesh, and Telangana (which together accounts for 60-70% of the domestic market for AC sheets). SIL is a market leader in Maharashtra, with two manufacturing facilities, resulting in considerable saving on logistical costs. Proximity of the manufacturing facilities to its markets gives the company an added competitive advantage.
 
* Above-average financial risk profile
The financial risk profile may continue to be healthy, supported by sufficient accretion and operating margin. Networth was strong at around Rs 180 crore as on March 31, 2020, with gearing comfortable at 0.32 time. Debt protection metrics were also adequate, with interest coverage and net cash accrual to total debt ratios of 6.70 times and 0.55 time, respectively, for fiscal 2020.
    
Weaknesses
* Dependence on rural spending, and exposure to intense competition from peers and substitute products
Demand for AC roofing is derived from rural spending on household construction, as well as investment in industrial construction. This exposes SIL to fluctuations in rural purchasing power, and change in economic cycles.
 
Moreover, the industry is intensely competitive, marked by presence of other strong players. AC roofing players also face stiff competition from manufacturers of galvanised iron (GI) roofing sheets, which have emerged as a viable alternative for AC roofing. Any sharp decline in the price of GI sheets will significantly impact demand for AC sheets.
 
Furthermore, since cost of procuring the major raw material for AC roofing (asbestos fibre) accounts for over 50% of the total production cost and that company doesn't hedge its imports, even a slight variation in rates may drastically impact profitability like seen in fiscal 2020.
 
* Exposure to regulatory threat of ban on manufacture or use of asbestos in end-user markets and in key asbestos-producing nations
SIL remains vulnerable to the risk of a ban on mining and use of asbestos in Kazakhstan or Russia (which are the largest exporters of the mineral). In India too, only white asbestos (known as chrysotile) fibre is used, as blue and brown asbestos have been banned. Furthermore, all forms of asbestos mining is banned in the country. Regulatory changes concerning asbestos mining and usage will remain key rating sensitivity factors.
Liquidity Adequate

Liquidity is adequate with expected accruals of around Rs 30 crore expected over medium term against nil debt obligation. Bank limit utilization is also low at around 35% for past 12 months ending April 2020 thereby providing cushion in bank lines. Liquidity is further supported by promoters in form of unsecured loan of around Rs 35 crore and liquid investment of over Rs 30 crore as on 31st March 2020. SIL is expected to do capex of Rs 35 crore over medium term; debt funded to tune of Rs 20 crore. CRISIL believes SIL has sufficient accrual, unutilized working capital bank limits, and cash and cash equivalent to finance its incremental working capital needs and capital expenditure over the medium term.

Outlook: Positive

SIL should continue to benefit from its established market position in western regions and normal monsoon expected in current fiscal.

Rating Sensitivity Factors
Upward Factors
* Substantial and sustainable increase in revenue and profitability, resulting in cash accrual of over Rs 35 crore per annum
* Significant improvement in the working capital cycle

Downward Factors
* Steep decline in revenue or profitability, leading to cash accrual below Rs 20 crore
* Sizeable stretch in the working capital cycle, any larger-than-expected, debt-funded capital expenditure (capex) or acquisition, or huge dividend payout.

About the Company

SIL (formerly, New Sahyadri Industries Ltd) was established by Mr Lalji Bhai Patel in 1994. The company is a 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 megawatt. SIL 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 2020 2019
Revenue Rs crore 290.14 296.62
Profit After Tax (PAT) Rs crore 26.57 31.90
PAT Margin % 9.16 10.75
Adjusted debt/adjusted networth Times 0.32 0.29
Interest coverage Times 6.42 8.54

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.Cr)
Complexity level Rating Assigned
with Outlook
NA Bank Guarantee NA NA NA 0.3 NA CRISIL A3+
NA Cash Credit NA NA NA 66.85 NA CRISIL BBB/Positive
NA Letter of Credit NA NA NA 47 NA CRISIL A3+
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  114.15  CRISIL BBB/Positive      02-04-19  CRISIL BBB/Positive  31-01-18  CRISIL BBB-/Positive/ CRISIL A3      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
Bank Guarantee .3 CRISIL A3+ Cash Credit 114.15 CRISIL BBB/Positive
Cash Credit 66.85 CRISIL BBB/Positive Proposed Short Term Bank Loan Facility 15.79 Withdrawn
Letter of Credit 47 CRISIL A3+ Term Loan 90.06 Withdrawn
Total 114.15 -- 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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