Rating Rationale
January 30, 2019 | Mumbai
Sarthak Metals Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.27.25 Crore
Long Term Rating CRISIL BBB/Stable (Reaffirmed)
Short Term Rating CRISIL A3+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its ratings on bank facilities of Sarthak Metals Limited (SML) at 'CRISIL BBB/Stable/CRISIL A3+'. The rating continues to reflect benefits from the extensive experience of SML's promoters and its above-average financial risk profile. These strengths are partially offset by exposure to intense competition and volatility in raw material prices.

Analytical Approach

CRISIL has changed its earlier analytical approach of consolidating SML and Bansal Brothers (BB) due to absence of financial fungibility between both the entities as against our earlier expectation of support between group entities. Thus CRISIL has now taken a standalone approach while arriving at rating of SML.

Key Rating Drivers & Detailed Description
Strengths
*
Extensive experience of the promoters: The five decade-long experience of the SML's promoters, in the steel 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 networth of over Rs 36 crore and gearing of 0.71 times as on March 31, 2018. Debt protection metrics were comfortable, as reflected in interest coverage ratio of 3.46 times and net cash accrual to total debt ratio of 0.24 time for fiscal 2018.

Weaknesses
* Working capital-intensive operations: Operations are moderately working capital intensive, with gross current assets of 113 days as on March 31, 2018, led by inventory of 35 days and receivables of 54 days. Working capital management is aided by internal cash accrual and bank debt. 

* Susceptibility to volatile raw material prices: Sharp fluctuation in raw material prices, will continue to constrain profitability of the SML, and limit the bargaining power with customers and suppliers.

Liquidity

Liquidity is adequate, driven by expected annual cash accrual of around Rs 8-9 crore, sufficient to meet long-term debt obligations of Rs 1-1.5 crore per annum over the medium term. Utilization of fund-based limit of Rs 8 crore averaged a moderately high at 85% in the 12 months through December 2018. Healthy accrual and moderate cushion in bank lines should be sufficient to support working capital and debt servicing over the medium term.

Outlook: Stable

CRISIL believes the SML will continue to benefit from the extensive experience of its promoters. The outlook may be revised to 'Positive' if SML reports significant growth in revenue and profitability, and maintains its capital structure. The outlook may be revised to 'Negative', if increased pressure on topline and profitability, resulting in lower-than-expected cash accrual, weakens financial risk profile.

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, aluminum flipping coil, and industrial gases.

Key Financial Indicators
As on/for the period ended March 31 Unit 2018 2017
Revenue Rs crore 171.7 152.8
Profit After Tax (PAT) Rs crore 4.8 4.0
PAT Margins % 2.8 2.6
Adjusted Debt/Adjusted Networth Times 0.71 0.88
Interest coverage Times 3.33 2.70

Status of non cooperation with previous CRA
SML has not cooperated with ICRA Limited which has classified it as issuer not cooperative vide release dated June 25, 2018. The reason provided by ICRA Ratings is 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 Issue Size (Rs.Cr.) Rating Assigned with Outlook
NA Cash Credit NA NA NA 8 CRISIL BBB/Stable
NA Letter of credit & Bank Guarantee NA NA NA 8.5 CRISIL A3+
NA Proposed Cash Credit Limit NA NA NA 6.75 CRISIL BBB/Stable
NA Rupee Term Loan NA NA Sept-2020 3 CRISIL BBB/Stable
NA Standby Line of Credit NA NA NA 1 CRISIL BBB/Stable
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  18.75  CRISIL BBB/Stable      31-01-18  CRISIL BBB/Stable          Suspended/ Suspended 
Non Fund-based Bank Facilities  LT/ST  8.50  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 8 CRISIL BBB/Stable Cash Credit 8 CRISIL BBB/Stable
Letter of credit & Bank Guarantee 8.5 CRISIL A3+ Letter of credit & Bank Guarantee 8.5 CRISIL A3+
Proposed Cash Credit Limit 6.75 CRISIL BBB/Stable Proposed Working Capital Facility 8 CRISIL BBB/Stable
Rupee Term Loan 3 CRISIL BBB/Stable Rupee Term Loan 1.75 CRISIL BBB/Stable
Standby Line of Credit 1 CRISIL BBB/Stable Standby Line of Credit 1 CRISIL BBB/Stable
Total 27.25 -- Total 27.25 --
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
The Rating Process
Understanding CRISILs Ratings and Rating Scales

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