| Shankara Building Products Limited | ||||||
| Ratings reaffirmed at 'CRISIL BBB+ / Stable / CRISIL A2 ' | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL has reaffirmed its ratings on bank facilities and commercial paper of Shankara Building Products Limited (Shankara; a part of the Shankara Buildpro group) at 'CRISIL BBB+/Stable/CRISIL A2'.
The ratings continue to factor in the group's established market position and extensive experience of the promoter in the building material distribution and retailing businesses, the diversified product offerings, longstanding association with vendors, and moderate financial risk profile. These strengths are partially offset by susceptibility to economic cycles and sharp variation in raw material prices.
Revenue had declined to Rs 347 crore in Q1FY21 as compared with Rs 639 crore in Q1FY20 on account of COVID related restrictions. Accordingly group had incurred operating losses in Q1FY21 on account of sharp reduction in gross margin due to lower realisations and under absorption of fixed cost. However, Q2FY21 saw significant recovery in both revenues and Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) margin at Rs 490 crore and 4.11% respectively. Revenues are profitability is further expected to improve in Q3 and Q4 of FY 2021 with improving demand; however overall performance should remain significantly lower than that of FY 2020. |
Analytical Approach For arriving at the ratings, CRISIL has combined the financial and business risk profiles of Shankara Building Products Ltd (Shankara) and its wholly-owned subsidiaries, Taurus Value Steel & Pipes Pvt Ltd (Taurus), Vishal Precision Steel Tubes & Strips Pvt Ltd (Vishal), and Centurywells Roofing India Pvt Ltd (Centurywells). This is because all these entities, collectively referred to as the Shankara Buildpro group, have a common management, and strong operational and financial links. CRISIL has applied parent notch up framework to factor in the support available to the subsidiaries from its parent Shankara.
Please refer Annexure - Details of Consolidation, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths: Established market position and extensive experience of the promoter The group's longstanding presence of over three decades in the building materials industry, its wide network of dealers, 100 retail outlets and the in-house pipe and color-coated roofing sheet processing capacity, will continue to support the business risk profile. The promoter has around three decades of experience in the building materials industry, and is assisted by a competent second line of management.
Healthy relationships with suppliers such as JSW Steel Ltd, TATA Steel Ltd, Sintex Industries Ltd, Uttam Galva Steels Ltd, APL Apollo Tubes Ltd (rated 'CRISIL AA-/Stable/CRISIL A1+'), Kajaria Ceramics Ltd, and Cera Sanitaryware Ltd (rated 'CRISIL AA-/Stable/A1+') enables the group to offer a diverse range of building materials, and provides a competitive edge.
Networth is strong at Rs 491 crore and total outside liabilities to tangible net worth ratio is moderate at 1.36 times as on March 31, 2020. However financial risk profile is constrained by average debt protection metrics with interest coverage of 2.83 times and net cash accruals to adjusted debt ratio of 0.16 times for FY 2020. Interest coverage is expected to moderate to 1.7 times for FY 2021 on account of lower revenues and margin expected; however expected to normalize for FY 2022.
Weakness: Susceptibility of demand to economic cycles The group remains exposed to fluctuation in demand for real estate and home improvement. However it is supported by a wide geographical presence and product profile. Further, as many of the retail showrooms have a limited track record, sustained growth in scale and profitability remains a key monitorable. As with any retail business, operating margin remains modest. Further, exposure to volatility in steel prices had led to a drop in margin to 4.5% in FY 2019, from 6.9% in FY 2018. Margin remain stable in FY 2020 at 4.45%. Given the higher proportion of steel products in the inventory, any sharp variation in steel prices could affect profitability going ahead, and hence, remain a rating sensitivity factor. |
Liquidity– Adequate Liquidity remains adequate, characterized by sufficient cushion in the bank lines and low repayment obligations. Bank limit utilization is moderate at around 68 percent on average drawing power of Rs 330 crore for 12 months ended Sept 2020 (total sanctioned working capital limits are Rs 367.5 crore). Cash accrual are expected to decline to Rs 20 to 25 crore in FY 2021; however expected to recover to Rs 45 to 50 crore in FY 2022. Cash accrual should comfortably cover maturing debt of around Rs 1.5 crore for FY 2021. There is no major capex planned for FY 2021. Company had cash and bank balance of Rs 3.81 crore as on September 2020. The available cushion in bank limit should be adequate to meet the incremental working capital needs over the medium term. |
Outlook Stable CRISIL believes the Shankara Buildpro group will continue to benefit from its established presence in the building material retailing and distribution business. |
Rating Sensitivity factors Upward factors:
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About the Group Incorporated in 1995 as Shankara Pipes India Pvt Ltd, the company was renamed as Shankara Infrastructure Materials Ltd in 2011, and thereafter, as SBPL in 2016. Promoted by Mr Sukumar Srinivas, Shankara operates 100 retail showrooms in southern and western India, where it sells building and home improvement products for many renowned brands. Further, the group operates in-house pipe and colour-coated roofing sheet processing facilities through wholly-owned subsidiaries: Taurus, Vishal, and Centurywells. |
Key Financial Indicators (Consolidated)
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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)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||
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