Rating Rationale
December 07, 2022 | Mumbai
Samrat Forgings Limited
Long-term rating upgraded to 'CRISIL BB+/Stable'; short-term rating reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.30 Crore
Long Term RatingCRISIL BB+/Stable (Upgraded from 'CRISIL BB/Stable')
Short Term RatingCRISIL A4+ (Reaffirmed)
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has upgraded its rating on the long-term bank facilities of Samrat Forgings Limited (SFL) to 'CRISIL BB+/Stable' from 'CRISIL BB/Stable' and has reaffirmed its 'CRISIL A4+' rating on the short-term bank facilities.

 

The upgrade reflects an improvement in the business risk profile, driven by steady growth in revenue and a stable operating margin. Company recorded a compounded annual growth rate (CAGR) of 14% over the three fiscals through March 2022. Operating margin was estimated at 9.05% in fiscal 2022. Net sales rose by 18% in fiscal 2022 to Rs 139.63 crore, driven by growth in volume and realizations.

 

Revenue is expected to grow by over 20% in fiscal 2023, and by 8-10% per fiscal over the medium term, while the operating margin is likely to sustain at 9-10% going forward, driven by technological upgradation. The established market position of the company, healthy relationships with original equipment manufacturers (OEMs) and strong demand from the tractor segment will further aid growth. SFL caters to leading OEMs such as Mahindra & Mahindra Ltd ('CRISIL AAA/Stable/CRISIL A1+) and Ashok Leyland.

 

The ratings continue to reflect the extensive experience of the promoters in the auto component industry. These strengths are partially offset by the average financial risk profile and large working capital requirement.

Key Rating Drivers & Detailed Description

Strengths:

Extensive experience of the promoters

The three-decade-long experience of the promoter in the auto component industry and his healthy relationships with customers will continue to support the business risk profile. The diversified product offerings and strong procurement network of SFL shall also aid growth.

 

Improved scale of operations

Revenue is estimated at Rs 139.63 crore in fiscal 2022, up from Rs 117.71 crore in fiscal 2021, and will continue to grow, driven by healthy demand from the agricultural equipment segment and faster revival of the auto component industry. Company has recorded a CAGR of over 14% in the three fiscals through March 2022.

 

Weaknesses:

Average financial risk profile

High reliance on external debt constrains the financial risk profile. Net worth was Rs 23.45 crore, while gearing was moderately high at 1.85 times, as on March 31, 2022. Debt protection metrics were also muted, as reflected in interest coverage and net cash accrual to adjusted debt ratios of 2.6 times and 0.15 time, respectively, in fiscal 2022.

 

Large working capital requirement

Gross current assets are estimated above 180 days as on March 31, 2022, driven by inventory of over 135 days and receivables of 48 days. However, payables of around 102 days supported the working capital cycle.

Liquidity: Adequate

Expected cash accrual of Rs 8-11 crore per annum will sufficiently cover yearly debt of Rs 4-6 crore over the medium term. Bank limit utilisation averaged around 94% over the 12 months through October 2022. Current ratio was 1.16 times as on March 31, 2022.

Outlook: Stable

CRISIL Ratings believes SFL will continue to benefit from its diversified clientele, comprising leading OEMs in the automotive, gears, tractor, construction equipment and other industries.

Rating Sensitivity Factors

Upward factors:

  • Growth in revenue to over Rs 200 crore and a steady operating margin, leading to net cash accrual of over Rs 10 crore
  • Improvement in the financial risk profile with gearing under 1.25 times

 

Downward factors:

  • Decline in revenue and operating margin by 20% and to less than 200 basis points, respectively, leading to lower net cash accrual
  • Further stretch in the working capital cycle, weakening the financial risk profile and liquidity

About the Company

Incorporated in 1981, SFL undertakes closed-die forging and machining for components, such as spindles, crank shafts, connecting rods, bull gears and crown wheels. Mr Rakesh Mohan Kumar is the managing director. 

Key Financial Indicators

As on/for the period ended March 31

Unit

2022

2021

Operating income

Rs crore

139.63

117.7

Reported profit after tax (PAT)

Rs crore

3.56

2.25

PAT margin

%

2.55

1.91

Adjusted debt/Adjusted networth

Times

1.85

2

Interest coverage

Times

2.6

2.07

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` 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.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisil.com/complexity-levels. Users may also call the Customer Service Helpdesk with queries on specific instruments.

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

Cash credit

NA

NA

NA

18.5

NA

CRISIL BB+/Stable

NA

Bank guarantee

NA

NA

NA

1.5

NA

CRISIL A4+

NA

Letter of credit

NA

NA

NA

4

NA

CRISIL A4+

NA

Bill discounting

NA

NA

NA

1

NA

CRISIL BB+/Stable

NA

Term loan

NA

NA

Aug-23

0.36

NA

CRISIL BB+/Stable

NA

Proposed term loan

NA

NA

NA

1.64

NA

CRISIL BB+/Stable

NA

Proposed working capital facility

NA

NA

NA

3

NA

CRISIL BB+/Stable

Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 24.5 CRISIL BB+/Stable   -- 28-10-21 CRISIL BB/Stable 28-07-20 CRISIL BB-/Stable 02-04-19 CRISIL BB-/Stable CRISIL B+/Stable
      --   --   --   -- 11-03-19 CRISIL BB-/Stable --
Non-Fund Based Facilities ST 5.5 CRISIL A4+   -- 28-10-21 CRISIL A4+ 28-07-20 CRISIL A4+ 02-04-19 CRISIL A4+ CRISIL A4
      --   --   --   -- 11-03-19 CRISIL A4+ --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Rating
Bank Guarantee 1.5 CRISIL A4+
Bill Discounting 1 CRISIL BB+/Stable
Cash Credit 18.5 CRISIL BB+/Stable
Letter of Credit 4 CRISIL A4+
Proposed Term Loan 1.64 CRISIL BB+/Stable
Proposed Working Capital Facility 3 CRISIL BB+/Stable
Term Loan 0.36 CRISIL BB+/Stable
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Criteria for rating short term debt

Media Relations
Analytical Contacts
Customer Service Helpdesk

Aveek Datta
Media Relations
CRISIL Limited
M: +91 99204 93912
B: +91 22 3342 3000
AVEEK.DATTA@crisil.com

Prakruti Jani
Media Relations
CRISIL Limited
M: +91 98678 68976
B: +91 22 3342 3000
PRAKRUTI.JANI@crisil.com

Rutuja Gaikwad 
Media Relations
CRISIL Limited
B: +91 22 3342 3000
Rutuja.Gaikwad@ext-crisil.com


Nitin Kansal
Director
CRISIL Ratings Limited
D:+91 124 672 2154
nitin.kansal@crisil.com


Rachna Anand
Team Leader
CRISIL Ratings Limited
D:+91 124 672 2141
rachna.anand@crisil.com


Anzar Quadri
Rating Analyst
CRISIL Ratings Limited
B:+91 124 672 2000
Anzar.Quadri@crisil.com
Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
CRISILratingdesk@crisil.com
 
For Analytical queries:
ratingsinvestordesk@crisil.com


 

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper/magazine/agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL Ratings. However, CRISIL Ratings alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites and portals.


About CRISIL Ratings Limited (A subsidiary of CRISIL Limited)

CRISIL Ratings pioneered the concept of credit rating in India in 1987. With a tradition of independence, analytical rigour and innovation, we set the standards in the credit rating business. We rate the entire range of debt instruments, such as bank loans, certificates of deposit, commercial paper, non-convertible/convertible/partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 33,000 large and mid-scale corporates and financial institutions. We have also instituted several innovations in India in the rating business, including ratings for municipal bonds, partially guaranteed instruments and infrastructure investment trusts (InvITs).
 
CRISIL Ratings Limited ('CRISIL Ratings') is a wholly-owned subsidiary of CRISIL Limited ('CRISIL'). CRISIL Ratings Limited is registered in India as a credit rating agency with the Securities and Exchange Board of India ("SEBI").
 
For more information, visit www.crisilratings.com 

 



About CRISIL Limited

CRISIL is a global analytical company providing ratings, research, and risk and policy advisory services. We are India's leading ratings agency. We are also the foremost provider of high-end research to the world's largest banks and leading corporations.

CRISIL is majority owned by S&P Global Inc, a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.


For more information, visit www.crisil.com

Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK


CRISIL PRIVACY NOTICE
 
CRISIL respects your privacy. We may use your contact information, such as your name, address and email id to fulfil your request and service your account and to provide you with additional information from CRISIL. For further information on CRISIL's privacy policy please visit www.crisil.com.



DISCLAIMER

This disclaimer is part of and applies to each credit rating report and/or credit rating rationale ('report') that is provided by CRISIL Ratings Limited ('CRISIL Ratings'). To avoid doubt, the term 'report' includes the information, ratings and other content forming part of the report. The report is intended for the jurisdiction of India only. This report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the report is to be construed as CRISIL Ratings providing or intending to provide any services in jurisdictions where CRISIL Ratings does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this report does not create a client relationship between CRISIL Ratings and the user.

We are not aware that any user intends to rely on the report or of the manner in which a user intends to use the report. In preparing our report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the report is not intended to and does not constitute an investment advice. The report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind to enter into any deal or transaction with the entity to which the report pertains. The report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Ratings are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold or sell any securities/instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL Ratings assumes no obligation to update its opinions following publication in any form or format although CRISIL Ratings may disseminate its opinions and analysis. The rating contained in the report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the report should rely on their own judgment and take their own professional advice before acting on the report in any way. CRISIL Ratings or its associates may have other commercial transactions with the entity to which the report pertains.

Neither CRISIL Ratings nor its affiliates, third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively, 'CRISIL Ratings Parties') guarantee the accuracy, completeness or adequacy of the report, and no CRISIL Ratings Party shall have any liability for any errors, omissions or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the report. EACH CRISIL RATINGS PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Ratings Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. Public ratings and analysis by CRISIL Ratings, as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any), are made available on its website, www.crisilratings.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee - more details about ratings by CRISIL Ratings are available here: www.crisilratings.com.

CRISIL Ratings and its affiliates do not act as a fiduciary. While CRISIL Ratings has obtained information from sources it believes to be reliable, CRISIL Ratings does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and/or relies on in its reports. CRISIL Ratings has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL Ratings has in place a ratings code of conduct and policies for managing conflict of interest. For details please refer to:
https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html.

Rating criteria by CRISIL Ratings are generally available without charge to the public on the CRISIL Ratings public website, www.crisilratings.com. For latest rating information on any instrument of any company rated by CRISIL Ratings, you may contact the CRISIL Ratings desk at crisilratingdesk@crisil.com, or at (0091) 1800 267 1301.

This report should not be reproduced or redistributed to any other person or in any form without prior written consent from CRISIL Ratings.

All rights reserved @ CRISIL Ratings Limited. CRISIL Ratings is a wholly owned subsidiary of CRISIL Limited.

 

 

CRISIL Ratings uses the prefix 'PP-MLD' for the ratings of principal-protected market-linked debentures (PPMLD) with effect from November 1, 2011, to comply with the SEBI circular, "Guidelines for Issue and Listing of Structured Products/Market Linked Debentures". The revision in rating symbols for PPMLDs should not be construed as a change in the rating of the subject instrument. For details on CRISIL Ratings' use of 'PP-MLD' please refer to the notes to Rating scale for Debt Instruments and Structured Finance Instruments at the following link: https://www.crisil.com/en/home/our-businesses/ratings/credit-ratings-scale.html