Rating Rationale
June 14, 2021 | Mumbai
Service Master Clean Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.162.5 Crore
Long Term RatingCRISIL A/Stable (Reaffirmed)
Short Term RatingCRISIL A1 (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ratings on the bank facilities of Service Master Clean Limited (SMCL) at ‘CRISIL A/Stable/CRISIL A1’.

 

The ratings continue to reflect the strong operational and financial support SMCL receives from its parent - Security and Intelligence Services (India) Ltd (SIS India) - and technical assistance received from Services Master Clean (SMC; US-based industry leader) and established market position. These strengths are partially offset by the intense competition and moderate debt protection metrics.

Analytical Approach

CRISIL has applied its parent notch-up framework to factor in the extent of support available to SMCL from SIS India. This is because SMCL remains critical to SIS India's operations in the facility management space.

Key Rating Drivers & Detailed Description

Strengths:

  • Strong operational support of the parent SIS and technical support from SMC: With the acquisition of SMCL by SIS India, the former benefits from the support of a stronger parent. The SIS group has an established presence in manned guarding, cash management, and consulting services. Further, SMCL also has been receiving technical support from SMC while using its brand in the domestic market.

 

  • Established market position: SIS group is the 2nd largest facility management service provider in India. Backed by more than a decade's presence in the industry, SMCL’s revenue rose at a compound annual growth rate of 37% during the four fiscals to Rs 370 crore in fiscal 2020 from Rs 144 crore in fiscal 2017. In fiscal 2021, revenue declined by 22% to Rs 286 crore, on account of impact of first wave of Covid-19 on businesses of its customers in sectors like Railways, education, hotels and restaurants, etc. In fiscal 2022, however, company has achieved Rs 30 crore of monthly revenue for months of April and May, 2021 despite the impact of localised lockdowns in various states owing to second wave of Covid-19. CRISIL Ratings, thus, believes that SMCL would be able to achieve a healthy growth of over 30-40% in fiscal 2022.

 

Weakness:

  • Exposure to intense competition: Intense competition may continue to constrain scalability, pricing power, and profitability.

 

  • Moderate debt protection metrics of SMCL: SMCL’s debt protection metrics have been impacted in fiscal 2021 largely because of the impact on profitability on account of an extraordinary write-off undertaken. Interest coverage was weak at 0.2 times for fiscal 2021 (against 2.0 times for fiscal 2020) and net cash accrual to adjusted debt (NCAAD) of -0.06 times for fiscal 2021 (against 0.15 times for fiscal 2020). Adjusted for write-off, interest coverage and NCAAD were at 1.4 and 0.08 times, respectively, for fiscal 2021. With moderate dependence on debt to be continued over the medium term, debt protection metrics are expected to remain moderate.

Liquidity: Strong

SMCL took an extraordinary write-off worth Rs 12 crore approximately, which was the reason behind deterioration in operating margin from 5.6% in fiscal 2020 to 0.8% in fiscal 2021. Since the provisions had already been taken historically, hence the write-off did not impact the cash flows of the company. But the stretch in working capital cycle witnessed, largely from Government entities, impacted the liquidity profile of the company as is witnessed by average bank limit utilization increasing to 94% for last 12 months ending April, 2021 which earlier had always been less than 90%. Liquidity profile at standalone level was, however, supported by available cash which was outstanding at Rs 4.05 crore as on March 31, 2021 (compared to Rs 20.7 crore as on March 31, 2020).

 

SMCL’s cash accrual generation (adjusted for write-off) was at Rs 6.5 crore in fiscal 2021 against debt repayment obligations of Rs 3.2 crore. In fiscal 2022, net cash accruals - estimated around Rs 9.5 crore - should be sufficient against debt repayment obligations of around Rs 3 crore. Unsecured loans of Rs 23.92 crore outstanding from SIS India as on March 31, 2021, support liquidity.

Outlook: Stable

CRISIL Ratings believes SMCL will continue to benefit from the operational and financial support of SIS India and technical support of SMC.

Rating Sensitivity Factors

Upward factors:

  • Improvement in credit risk profile of SIS India
  • Improvement in debt protection indicators with interest coverage improving to beyond 2.5 times

 

Downward factors:

  • Deterioration in credit risk profile of SIS India
  • Significant deterioration in revenue or profitability impacting cash accrual generation by 25%
  • Any large, debt-funded capital expenditure weakening the financial risk profile

About the Company

SMCL was set up in 2009 as a wholly owned subsidiary of SIS India (59% equity held directly and 41% through SIS Group International Holdings Pty Ltd). It provides cleaning services through technical collaboration with SMC. SIS India will use SMC's brand and technical expertise until 2029 against payment of royalty and license fees. Under a non-compete clause, SMC cannot enter the Indian market directly or indirectly until 2029, and SIS will operate its cleaning business only under the SMC brand.

About the Group

SIS India was set up as a proprietorship concern by Mr Ravindra Kishore Sinha in 1974, reconstituted as a private limited company in 1985, and converted into a public limited company in 1993. The company provides security services, mainly manned guarding. It is the second largest player in India, after G4S Security Services India Pvt Ltd. It has grown through organic and inorganic routes and is present in Australia (through SIS MSS Security Holdings Pty Ltd after the acquisition of Chubbs Security in July 2008) and India.

Key Financial Indicators

As on/for the period ended March 31

Unit

2021

2020

Operating income

Rs.Crore

285.5

370.5

Reported profit after tax (PAT)

Rs.Crore

-10.4

11.2

PAT margin

%

-3.7

3.0

Adjusted debt/adjusted networth

Times

0.7

0.8

Interest coverage

Times

0.2

2.0

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.Crore)

Complexity Level

Rating assigned with outlook

NA

Cash Credit

NA

NA

NA

75

NA

CRISIL A/Stable

NA

Term Loan

NA

NA

Apr-2024

17

NA

CRISIL A/Stable

NA

Bank Guarantee

NA

NA

NA

70.5

NA

CRISIL A1
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 92.0 CRISIL A/Stable   -- 30-09-20 CRISIL A/Stable 05-08-19 CRISIL A-/Stable 06-11-18 CRISIL A-/Stable CRISIL A-/Stable
      --   -- 23-01-20 CRISIL A-/Stable 03-01-19 CRISIL A-/Stable   -- --
Non-Fund Based Facilities ST 70.5 CRISIL A1   -- 30-09-20 CRISIL A1 05-08-19 CRISIL A2+   -- --
      --   -- 23-01-20 CRISIL A2+ 03-01-19 CRISIL A2+   -- --
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 70.5 CRISIL A1 Bank Guarantee 70.5 CRISIL A1
Cash Credit 75 CRISIL A/Stable Cash Credit 75 CRISIL A/Stable
Term Loan 17 CRISIL A/Stable Term Loan 17 CRISIL A/Stable
Total 162.5 - Total 162.5 -
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
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support
The Rating Process
Understanding CRISILs Ratings and Rating Scales
CRISILs Bank Loan Ratings

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