Rating Rationale
March 19, 2019 | Mumbai
Shahlon Silk Industries Limited
Ratings continues on 'Watch Developing'  
 
Rating Action
Total Bank Loan Facilities Rated Rs.114 Crore
Long Term Rating CRISIL BB+ (Continues on 'Rating Watch with Developing Implications')
Short Term Rating CRISIL A4+ (Continues on 'Rating Watch with Developing Implications')
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL's ratings on the bank facilities of Shahlon Silk Industries Ltd (SSI) remain on 'Rating Watch with Developing Implications'.
 
CRISIL had placed the ratings on watch, on December 31, 2018, owing to Fairdeal Filament Ltd's (FFL; rated 'CRISIL BBB-/CRISIL A3/Watch Developing') announcement of its in-principle approval for the merger with SSI. CRISIL is in discussions with the managements of both FFL and SSI, on the implications of the merger, and will remove the ratings from watch and take a final rating action once it obtains clarity.
 
The ratings reflect SSI's moderate business profile and capital structure. These strengths are partially offset by average debt protection measures, high term debt obligations, working capital intensive operations and limited pricing flexibility.

Analytical Approach

CRISIL has treated 75% of Rs.34 cr unsecured loans from promoters as equity and balance as debt. The loans are subordinated to bank borrowings, and carry lower than market interest rate, along with flexibility in servicing, and will, likely, be retained in the business over the medium term.

Key Rating Drivers & Detailed Description
Strengths:
* Moderate business profile: SSI has a moderate scale of operations with revenue of Rs 316 crore in fiscal 2018. Operating margin has been steady around 8.5% in the last couple of years. The company benefits from the promoters' decade-long experience, healthy relationships with customers, and their funding support.
 
* Moderate capital structure: With networth of Rs 87 crore and gearing of 1.55 times as on March 31, 2018, capital structure is moderate, too.
 
Weaknesses:
* High term debt obligations: Accrual is expected at Rs 14-16 crore in fiscal 2019, and should be just about adequate for debt servicing. Maturing term debt is expected at Rs 12-14 crore annually.
 
* Average debt protection measures: With interest coverage and net cash accrual to total debt ratios of 2.06 times and 0.08 time, respectively, in fiscal 2018, debt protection indicators are average.
 
* Moderate working capital intensity: Gross current assets of around 135-140 days keep working capital under moderate pressure.
 
* Limited pricing flexibility: Intense competition limits pricing power and profitability.
Liquidity

The liquidity is constrained by sizeable term debt. Accrual is expected at Rs 14-16 crore in fiscal 2019, and should be just about adequate for debt servicing. Maturing term debt is expected at Rs 12-14 crore annually. Bank limit utilisation was around 96% of the sanctioned Rs 55 crore limit in the 12 months through October 2018. The liquidity is however supported by unsecured loans from the promoters. Current ratio was moderate at 1.3 times as on March 31, 2018.

About the Company

SSI is part of the Shahlon group that operates in Surat's textile industry. It manufactures synthetic yarn and fabric. Mr Dhirajlal Raichand Shah, Mr Jayantilal Raichand Shah, and Mr Arvind Jayantilal Shah , Nitin Raichand Shah, Richa Goyal, and Rajendra Desai are the promoters and directors in company.

Key Financial Indicators
Particulars Unit 2018 2017
Revenue Rs Cr. 316 292
Profit After Tax (PAT) Rs Cr. 0.6 1.5
PAT Margins % 0.2 0.5
Adjusted debt/adjusted networth Times 1.55 1.6
Interest coverage Times 2.1 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.Cr)
Rating assigned with outlook
NA Mortgage Loan Facility NA NA March 2024 9.67 CRISIL BB+/Watch Developing
NA Letter of Credit Bill Discounting NA NA NA 10 CRISIL A4+/Watch Developing
NA Cash Credit* NA NA NA 55 CRISIL BB+/Watch Developing
NA Letter of Credit# NA NA NA 5 CRISIL A4+/Watch Developing
NA Proposed Long Term Bank Loan Facility NA NA NA 0.58 CRISIL BB+/Watch Developing
NA Working Capital Term Loan NA NA Ma-2024 4.23 CRISIL BB+/Watch Developing
NA Long Term Loan NA NA Mar-2024 29.52 CRISIL BB+/Watch Developing
*PCFC, EPC and FBD of Rs.20 cr under sublimit of CC
#Interchangeable with Bank Guarantee
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  109.00  CRISIL BB+/(Watch) Developing/ CRISIL A4+/(Watch) Developing      31-12-18  CRISIL BB+/Watch Developing/ CRISIL A4+/Watch Developing    --    --  -- 
Non Fund-based Bank Facilities  LT/ST  5.00  CRISIL A4+/(Watch) Developing      31-12-18  CRISIL A4+/Watch Developing    --    --  -- 
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* 55 CRISIL BB+/Watch Developing Cash Credit* 55 CRISIL BB+/Watch Developing
Letter of Credit# 5 CRISIL A4+/Watch Developing Letter of Credit# 5 CRISIL A4+/Watch Developing
Letter of Credit Bill Discounting 10 CRISIL A4+/Watch Developing Letter of Credit Bill Discounting 10 CRISIL A4+/Watch Developing
Long Term Loan 29.52 CRISIL BB+/Watch Developing Long Term Loan 29.52 CRISIL BB+/Watch Developing
Mortgage Loan Facility 9.67 CRISIL BB+/Watch Developing Mortgage Loan Facility 9.67 CRISIL BB+/Watch Developing
Proposed Long Term Bank Loan Facility .58 CRISIL BB+/Watch Developing Proposed Long Term Bank Loan Facility .58 CRISIL BB+/Watch Developing
Working Capital Term Loan 4.23 CRISIL BB+/Watch Developing Working Capital Term Loan 4.23 CRISIL BB+/Watch Developing
Total 114 -- Total 114 --
*PCFC, EPC and FBD of Rs.20 cr under sublimit of CC
#Interchangeable with Bank Guarantee
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

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