Rating Rationale
May 31, 2021 | Mumbai
Sarthak Metals Limited
Rating reaffirmed at 'CRISIL BBB / Stable'
 
Rating Action
Total Bank Loan Facilities RatedRs.27.25 Crore
Long Term RatingCRISIL BBB/Stable (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL BBB/Stable’ rating on bank facilities of Sarthak Metals Limited (SML).

 

The rating continues to reflect benefits from the extensive experience of SML's promoters and above average financial risk profile. These strengths are partially offset by working capital intensive operation, susceptibility to volatility in raw material prices and exposure to cyclicality in the steel industry coupled with moderate scale.

Key Rating Drivers & Detailed Description

Strengths

  • Extensive experience of the promoters: The five decade-long experience of the SML's promoters, in the industry, and the established customer base and procurement network, will continue to support the business risk profile.

 

  • Above-average financial risk profile: Financial risk profile is marked by moderate net worth of over Rs 46 crore and comfortable leverage levels with total outside liabilities to adjusted networth of 0.81 times as on March 31, 2020. Networth is likely to improve to Rs 60 crore over the medium term with sustained leverage levels. Debt protection metrics are adequate, as reflected in interest coverage ratio and net cash accrual to total debt ratio of 3.2 times and 0.3 time, respectively, for fiscal 2020 and likely to remain over 4 times and 0.4 times respectively over the medium term; sustaining overall financial risk profile

 

Weaknesses

  • Working capital-intensive operations: Operations are moderately working capital intensive, with gross current assets of over 127 days as on March 31, 2020, led by receivables and inventory days of around 60 and 45 days, respectively. Operations are continue to remain moderately working capital intensive with gross current assets of around 110-120 days over medium term

 

  • Susceptibility to volatility in raw material prices: Sharp fluctuation in raw material prices, will continue to constrain profitability of the SML as seen operating margins ranging from 5.4-7.2% over the past five years through fiscal 2020

 

  • Exposure to cyclicality in the steel industry and moderte scale of operations: Most of SML’s revenues comes from steel industry which is vulnerable to downturns in demand, leading to decline in realizations and profitability. Scale of operations has been moderate at Rs 214.5 crore in fiscal 2020 and estimated to be susatined in fiscal 2021. Although the scale of operations is expected to improve over the medium term, it is likely to remain moderate over the medium term

Liquidity: Adequate

Liquidity is adequate with expected cash accrual of around Rs.7.5-9.5 crore per annum sufficient to meet repayment obligation of Rs.0.8-0.9 crore over medium term. Bank limit utilization is moderately high at 91.4% for the 12 months through April 2021; however SML has sufficient headroom to increase working capital limits as indicated by comfortable current ratio of over 1.82 times. CRISIL believes that cash accruals would be sufficient to meet repayments, incremental working capital needs & moderate capex requirement.

Outlook: Stable

CRISIL Ratings believes the SML will continue to benefit from the extensive experience of its promoters

Rating Sensitivity Factors

Upward factor

  • Increase in net cash accrual to above Rs 12 crore, driven by improvement in revenue and operating margin
  • Improvement in working capital cycle resulting in improvement in financial risk profile, including liquidity.

 

Downward factor

  • Decline in accrual to below Rs 5 crore, on account of drop in revenue or operating margin
  • Stretch in the working capital cycle, any major debt-funded capex or acquisition, or substantial dividend payout, weakening financial risk profile, including liquidity.

About the Company

SML was set up in 1995, by the promoters, Mr Manoj Bansal, Mr Anoop Bansal and Mr Kishor Bansal. The company manufactures metallurgical cored wires and aluminum flipping coil.

Key Financial Indicators

As on / for the period ended March 31

 

2020

2019

Operating income

Rs crore

214.5

189.6

Profit after tax

Rs crore

4.62

5.76

PAT margins

%

2.2

3.0

Adjusted Debt/Adjusted Net worth

Times

0.51

0.86

Interest coverage

Times

3.23

3.39

 

Status of non cooperation with previous CRA:

SML has not cooperated with ICRA Limited (ICRA) which has published its ratings as issuer not co-operating on December 30, 2020. The reason provided by ICRA was non-furnishing of information for monitoring of ratings

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 Allotment

Coupon Rate (%)

Maturity Date

Complexity Levels

Issue Size (Rs. Cr.)

Rating Assigned with Outlook

NA

Cash Credit

NA

NA

NA

NA

24.5

CRISIL BBB/Stable

NA

Rupee Term Loan

NA

NA

Sep-22

NA

2.75

CRISIL BBB/Stable

 

Annexure - Rating History for last 3 Years
  Current 2021 (History) 2020  2019  2018  Start of 2018
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 27.25 CRISIL BBB/Stable   -- 10-02-20 CRISIL BBB/Stable 30-01-19 CRISIL BBB/Stable 31-01-18 CRISIL BBB/Stable Suspended
Non-Fund Based Facilities ST   --   --   -- 30-01-19 CRISIL A3+ 31-01-18 CRISIL A3+ Suspended
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 24.5 CRISIL BBB/Stable Cash Credit 24.5 CRISIL BBB/Stable
Rupee Term Loan 2.75 CRISIL BBB/Stable Rupee Term Loan 2.75 CRISIL BBB/Stable
Total 27.25 - Total 27.25 -
Criteria Details
Links to related criteria
CRISILs Bank Loan Ratings
Understanding CRISILs Ratings and Rating Scales
The Rating Process

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

Rahul Subrato Kumar Guha
Director
CRISIL Ratings Limited
D:+91 22 4097 8320
rahul.guha@crisil.com


Jumana Badshah
Associate Director
CRISIL Ratings Limited
D:+91 22 3342 8324
Jumana.Badshah@crisil.com


Athul Unnikrishnan Sreelatha
Manager
CRISIL Ratings Limited
D:+91 33 4011 8222
Athul.Sreelatha@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, portals etc.


About CRISIL Ratings 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 rating 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.crisil.com/ratings 




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 forms part of and applies to each credit rating report and/or credit rating rationale (each a "Report") that is provided by CRISIL Ratings Limited  (hereinafter referred to as "CRISIL Ratings") . 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 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 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 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. Rating by CRISIL Ratings 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 company/entity.

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. CRISIL Rating'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 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 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 analytical firewalls and for managing conflict of interest. For details please refer to: http://www.crisil.com/ratings/highlightedpolicy.html

Rating criteria by CRISIL Ratings are generally available without charge to the public on the CRISIL Ratings public web site, www.crisil.com. For latest rating information on any instrument of any company rated by CRISIL Ratings 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 Ratings.

All rights reserved @ CRISIL Ratings Limited. CRISIL Ratings Limited 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 Ratiings' use of 'PP-MLD' please refer to the notes to Rating scale for Debt Instruments and Structured Finance Instruments at the following link: www.crisil.com/ratings/credit-rating-scale.html