| Shalimar Wires Industries Limited | ||||||
| 'CRISIL B+ / Stable / CRISIL A4 ' assigned to Bank Debt | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has assigned its 'CRISIL B+/Stable/CRISIL A4' ratings to the bank facilities of Shalimar Wires Industries Ltd (SWIL).
The ratings reflect its weak financial profile and large working capital requirement. The weakness is partially offset by extensive experience of the promoters in the metal mesh manufacturing industry and stable revenue and profitability. |
Key Rating Drivers & Detailed Description Weaknesses: Weak financial risk profile: Networth is estimated at Rs 32 crore as on March 31, 2021. However, on account of debt-funded capital expenditure and repayment of financial dues (pertaining to reconstruction approved in Board for Industrial and Financial Reconstruction (BIFR)) funded largely from unsecured loans, gearing is estimated at 3.02 times as on March 31, 2021. High interest cost at bank (21%) and unsecured loan (Rs 62 crore as on March 31, 2021; 15%) have led to weak debt protection metrics, as indicated by estimated interest coverage and net cash accrual to adjusted debt ratios of 0.61 time and negative 0.02 time, respectively, in fiscal 2021. The company managed its finance cost though guaranteed emergency credit line (GECL) of Rs 8.16 crore from Kotak Bank. However, the management plans to take on term loan of around Rs 60 crore (repayable in eight years) to pay off its high-cost unsecured loans and improve its debt protection metrics. Timely reduction of debt will remain a key sensitivity factor.
Large working capital requirement: Operations are expected to remain working capital-intensive, as indicated by estimated gross current assets (GCAs) of 206 days as on March 31, 2021, driven by receivables and inventory of around 90 days each (inventory is largely work-in-progress) and supported by creditors of 150-160 days.
Strengths: Extensive experience of the promoter: The five-decade-long experience of the promoters in paper machine products and electric discharge machines (EDM) wires industry, their strong understanding of the market dynamics and healthy relationships with suppliers and customers will continue to support the business risk profile.
Moderate scale of operations and profitability: Revenue has hovered at Rs 100-115 crore over the three fiscals through 2020 and is estimated to have dipped to around Rs 90 crore in fiscal 2021 on account of manufacturing constrains amid the Covid-19 pandemic. The enhanced capacity became operational in fiscal 2022. Scale is expected to improve on account of traction from the kraft paper segment in the paper industry. Operating profitability has been healthy at 9.5-12.7% over the four fiscals through 2021. As the company has sold off its Nasik manufacturing unit (which had lower profitability because of high operating overheads), profitability is expected to improve and remain healthy over the medium term. |
Liquidity: Poor In fiscal 2021, the company is estimated to have generated cash loss of around Rs 2.2 crore against maturing debt of Rs 1.05 crore. The repayment was supported by unsecured loans, GECL and by stretching the working capital cycle. In fiscal 2021 and fiscal 2022, the company paid off its long-term debt (except unsecured loans) from sale of non-core fixed assets. Also, the average cost of debt is expected to reduce as the company replaces high-cost unsecured loan with lower-cost bank term loan.
Cash accrual of Rs 8-8.5 crore per annum should sufficiently cover maturing debt of Rs 1.36 crore in fiscal 2022 and around Rs 6.5 crore thereafter. However, timely reduction of high-cost debt will remain a key rating sensitivity factor. Utilisation of working capital limit of Rs 5 crore averaged 79% over the 12 months through April 2021. Current ratio is estimated at an adequate 1.5 times as on March 31, 2021. |
Outlook: Stable SWIL will continue to benefit from the promoters’ extensive experience and healthy relationships with clients. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company SWIL was incorporated in 1996 as a private limited company and was reconstituted in 2002 as a public limited company. It manufactures metallic fourdrinier wire cloth and dandy rolls for the paper industry. The manufacturing unit is in Uttarpara, West Bengal. Mr S N Khaitan is the promoter of the company, and operations are managed by Mr Sunil Khaitan. |
Key Financial Indicators
(*) CRISIL Adjusted figures |
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | |||
| Facility | Name of Lender | Amount (Rs.Crore) | Rating |
| Cash Credit | Kotak Mahindra Bank Limited | 5 | CRISIL B+/Stable |
| Letter of Credit | Kotak Mahindra Bank Limited | 7 | CRISIL A4 |
| Proposed Cash Credit Limit | Not Applicable | 9.84 | CRISIL B+/Stable |
| Proposed Long Term Bank Loan Facility | Not Applicable | 60 | CRISIL B+/Stable |
| Working Capital Demand Loan | Kotak Mahindra Bank Limited | 8.16 | CRISIL B+/Stable |
This Annexure has been updated on 02-Sep-2021 in line with the lender-wise facility details as on 17-Aug-2021 received from the rated entity.
Criteria Details
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