Rating Rationale
June 30, 2020 | Mumbai
Sandvik Asia Private Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.207.5 Crore
Long Term Rating CRISIL AA+/Positive (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL AA+/Positive/CRISIL A1+' ratings on the bank facilities of Sandvik Asia Private Limited (SAPL).
 
SAPL's revenue rose an estimated 3% year-on-year in fiscal 2020. In fiscal 2021, SAPL's revenue and operating margin are expected to decline following supply disruptions in the first quarter because of the Covid-19 pandemic, along with reduced demand from end-user industries across all three business divisions, including exports to group entities. While revenue should decline by over 15%, operating margin is expected at 11-12% compared to an estimated 13.5% in fiscal 2020 and 15.8% in fiscal 2019.
 
SAPL had nil debt and healthy liquid surplus as on March 31, 2020. Capital expenditure (capex) is expected to be moderate over the medium term given the sluggish business environment. Consequently, the financial risk profile will remain strong, supported by comfortable networth, negligible or nil debt and healthy liquidity.
 
CRISIL also notes the company's plan to demerge its three business divisions. In the event of a demerger, the credit risk profile of SAPL will remain healthy, supported by its healthy market position, strong financial risk profile and continued operational and financial support from the parent, Sandvik AB (Sandvik; rated 'A-/Stable/A-2' by S&P Global Ratings). However, the extent of operational and financial linkages between the three entities will be a key monitorable.
 
The ratings continue to reflect the strong operational and financial support the company receives from SAPL's parent, Sandvik AB. The ratings also factor in SAPL's established market position, especially in the carbide tool segment, and strong financial risk profile. These strengths are partially offset by susceptibility to cyclicality in end-user industries and modest profitability.

Analytical Approach

For arriving at the ratings, CRISIL has applied its parent notch-up framework to factor in the operational and need-based funding support received by SAPL from Sandvik. This is considering the strategic importance of SAPL to Sandvik, apart from the companies being in the same line of business. Sandvik owns a 75% stake directly in SAPL, with an additional 25% through its subsidiary, Sandvik Finance BV, and shares its name and product lines with the company. Sandvik has, in the past, extended term loans as well as subscribed to preference shares of SAPL.

Key Rating Drivers & Detailed Description
Strengths:
* Strong operational and financial support from Sandvik
The parent's strong operational, need-based funding support should continue. SAPL focuses on selling the Sandvik group's entire output rather than products solely manufactured by the company. Exports to Sandvik's group companies account for almost half the revenue and help mitigate the impact of a slowdown in the domestic industrial goods segment.
 
* Established market position
A diverse end-user industry base-with presence in the infrastructure, oil and gas and mining sectors-and strong clientele support the company's market position. The machining solutions division controls 75-80% of the domestic market for carbide tools. SAPL also enjoys a healthy market share in the mining and construction divisions and the material technology business.
 
* Strong financial risk profile
Financial risk profile is backed by the healthy networth, debt-free status, strong debt protection metrics and comfortable liquidity. Capex is expected to be moderate over the medium term given the sluggish business environment. Need-based funding support from the parent benefits financial flexibility.
 
Weakness:
* Susceptibility to cyclicality in end-user industries
The engineering, mining and construction and automotive industries contribute 70-80% to the total revenue. Demand from these industries depends on economic trends and is inherently linked to the investment cycle. Growth in revenue, therefore, remains susceptible to economic downturns. Besides, margin is susceptible to volatility in input prices and foreign exchange rates, and these factors will remain monitorables.
Liquidity Strong

The rated instrument of SAPL has strong liquidity, driven by the expectation of ongoing, need-based support from the parent, Sandvik. On a standalone basis, too, SAPL's liquidity remains strong, driven by expectations of steady cash accrual over the medium term and healthy cash and equivalents. Bank limit utilisation was negligible over the 12 months through March 2020. SAPL is debt-free. Cash accrual, cash and equivalents and unutilised bank lines are more than sufficient to meet the capex and the incremental working capital requirement.

Outlook: Positive

CRISIL believes SAPL's credit risk profile will continue to benefit from the strong operational, need-based financial support from the parent, healthy market position and strong financial risk profile, even as business performance is expected to be impacted in fiscal 2021 by slowdown resulting from the Covid-19 pandemic. Additionally, the extent of operational and financial linkages between the three businesses following the demerger will be a key monitorable.

Rating Sensitivity factors
Upward factors
* Sustained healthy revenue growth while maintaining operating profitability of over 14-15%
* Sustenance of the strong financial risk profile and healthy surplus liquidity
 
Downward factors
* Downward change in the credit risk profile of the parent by more than one notch
* Steep decline in revenue or profitability impacting the cash generation
* Any large, debt-funded capex or acquisition leading to sharp increase in gearing or material deterioration in liquidity
* Any adverse impact of the proposed demerger on the financial and business risk profile
About the Company

SAPL was incorporated in Pune in 1960. It has three business divisions: Sandvik Machining Solutions (machining tools), Sandvik Mining and Rock Technology (mining and construction equipment and projects) and Sandvik Materials Technology (high-value added materials, including special alloys). A few non-core businesses were divested in fiscal 2018. Key end-user industries include mining, construction, automotive, engineering and capital goods and oil and gas. The company has five units, one each in Mehsana, Gujarat; Hosur, Tamil Nadu; Patancheru, Andhra Pradesh; and Pune and Chiplun, Maharashtra.
 
In fiscal 2019, Sandvik Asia incorporated two wholly owned subsidiaries, namely Sandvik Mining and Rock Technology India Pvt Ltd and Sandvik Materials Technology India Pvt Ltd. Currently, there are no operations in these subsidiaries.

Key Financial Indicators
Particulars Unit 2019 2018
Revenue Rs crore 3208 2817
Profit after tax Rs crore 277 288
PAT margin % 8.2 10.2
Adjusted debt/adjusted networth Times 0.00 0.00
Interest coverage Times 158.39 84.05

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)		 Rating Assigned
with Outlook
NA Cash Credit* NA NA NA 42.70 CRISIL AA+/Positive
NA Letter of credit & Bank Guarantee @ NA NA NA 127.30 CRISIL A1+
NA Packing Credit# NA NA NA 37.50 CRISIL A1+
*Fully interchangeable with short-term loan
#Buyer's credit fully interchangeable with packing credit
@Short-term limit and PCFC limit are interchangeable
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  80.20  CRISIL AA+/Positive/ CRISIL A1+      04-03-19  CRISIL AA+/Positive/ CRISIL A1+  29-10-18  CRISIL AA+/Stable/ CRISIL A1+  11-12-17  CRISIL AA+/Stable/ CRISIL A1+  CRISIL AA-/Stable/ CRISIL A1+ 
                26-04-18  CRISIL AA+/Stable/ CRISIL A1+  02-03-17  CRISIL AA/Positive/ CRISIL A1+   
Non Fund-based Bank Facilities  LT/ST  127.30  CRISIL A1+      04-03-19  CRISIL A1+  29-10-18  CRISIL A1+  11-12-17  CRISIL A1+  CRISIL A1+ 
                26-04-18  CRISIL A1+  02-03-17  CRISIL A1+   
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* 42.7 CRISIL AA+/Positive Cash Credit* 42.7 CRISIL AA+/Positive
Letter of credit & Bank Guarantee@ 127.3 CRISIL A1+ Letter of credit & Bank Guarantee@ 127.3 CRISIL A1+
Packing Credit# 37.5 CRISIL A1+ Packing Credit# 37.5 CRISIL A1+
Total 207.5 -- Total 207.5 --
*Fully interchangeable with short-term loan
#Buyer's credit fully interchangeable with packing credit
@Short-term limit and PCFC limit are interchangeable
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
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support
Mapping global scale ratings onto CRISIL scale

For further information contact:
Media Relations
 Analytical Contacts
 Customer Service Helpdesk
Saman Khan
Media Relations
CRISIL Limited
D: +91 22 3342 3895
B: +91 22 3342 3000
saman.khan@crisil.com

Naireen Ahmed
Media Relations
CRISIL Limited
D: +91 22 3342 1818
B: +91 22 3342 3000
naireen.ahmed@crisil.com

 Anuj Sethi
Senior Director - CRISIL Ratings
CRISIL Limited
B:+91 44 6656 3100
anuj.sethi@crisil.com

Sameer Charania
Director - CRISIL Ratings
CRISIL Limited
D:+91 22 4097 8025
sameer.charania@crisil.com

Ashik Joy
Rating Analyst - CRISIL Ratings
CRISIL Limited
B:+91 22 3342 3000
Ashik.Joy@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. However, CRISIL alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites, portals etc.


About CRISIL Limited

CRISIL is a leading agile and innovative, global analytics company driven by its mission of making markets function better. We are India’s foremost provider of ratings, data, research, analytics and solutions. A strong track record of growth, culture of innovation and global footprint sets us apart. We have delivered independent opinions, actionable insights, and efficient solutions to over 1,00,000 customers.
 
We are 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

About CRISIL Ratings
CRISIL Ratings is part of CRISIL Limited (“CRISIL”). We pioneered the concept of credit rating in India in 1987. CRISIL is registered in India as a credit rating agency with the Securities and Exchange Board of India (“SEBI”). With a tradition of independence, analytical rigour and innovation, CRISIL sets 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 24,500 large and mid-scale corporates and financial institutions. CRISIL has also instituted several innovations in India in the rating business, including rating municipal bonds, partially guaranteed instruments and microfinance institutions. We also pioneered a globally unique rating service for Micro, Small and Medium Enterprises (MSMEs) and significantly extended the accessibility to rating services to a wider market. Over 1,10,000 MSMEs have been rated by us.

CRISIL PRIVACY
 
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 forms part of and applies to each credit rating report and/or credit rating rationale that we provide (each a “Report”). For the avoidance of 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 providing or intending to provide any services in jurisdictions where CRISIL 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 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 or otherwise 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 Rating 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 assumes no obligation to update its opinions following publication in any form or format although CRISIL may disseminate its opinions and analysis. CRISIL 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 or its associates may have other commercial transactions with the company/entity.

Neither CRISIL nor its affiliates, third party providers, as well as their directors, officers, shareholders, employees or agents (collectively, “CRISIL Parties”) guarantee the accuracy, completeness or adequacy of the Report, and no CRISIL 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 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 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. CRISIL’s public ratings and analysis 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 web sites, www.crisil.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee – more details about CRISIL ratings are available here: www.crisilratings.com.

CRISIL and its affiliates do not act as a fiduciary. While CRISIL has obtained information from sources it believes to be reliable, CRISIL does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and / or relies in its Reports. CRISIL keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of the respective activity. As a result, certain business units of CRISIL may have information that is not available to other CRISIL business units. CRISIL has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL has in place a ratings code of conduct and policies for analytical firewalls and for managing conflict of interest. For details please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html

CRISIL’s rating criteria are generally available without charge to the public on the CRISIL public web site, www.crisil.com. For latest rating information on any instrument of any company rated by CRISIL you may contact CRISIL RATING 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 a prior written consent of CRISIL.

All rights reserved @ CRISIL