Rating Rationale
January 28, 2022 | Mumbai
Shankara Building Products Limited
Ratings reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.300 Crore
Long Term RatingCRISIL BBB+/Stable (Reaffirmed)
Short Term RatingCRISIL A2 (Reaffirmed)
 
Rs.60 Crore Commercial PaperCRISIL A2 (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its 'CRISIL BBB+/Stable/CRISIL A2' ratings on bank facilities and commercial paper of Shankara Building Products Limited (Shankara; a part of the Shankara Buildpro group).

 

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.

Analytical Approach

For arriving at the ratings, CRISIL Ratings 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 - List of Entities Consolidated, 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, 90 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.

 

  • Diversified product offering and longstanding association with vendors:

Healthy relationships with suppliers such as JSW Steel Ltd, TATA Steel Ltd, Sintex Industries Ltd, Uttam Galva Steels Ltd, APL Apollo Tubes Ltd ,Kajaria Ceramics Ltd, and Cera Sanitaryware Ltd etc enables the group to offer a diverse range of building materials, and provides a competitive edge.

 

  • Moderate financial risk profile:

Networth is strong at Rs 507crore and total outside liabilities to tangible net worth ratio is comfortable at 0.8 times as on March 31, 2021. However financial risk profile is constrained by average debt protection metrics with interest coverage of 2.28 times and net cash accruals to adjusted debt ratio of 0.13 times for fiscal 2021. Financial risk profile is expected to improve over the medium term supported by steady accretion to reserves and gradual reduction in debt levels

 

Weaknesses:

  • Susceptibility of demand to economic cycles:

The group remains exposed to fluctuation in demand for real estate and home improvement. Revenues declined to Rs.2048 crore for fiscal 2021 from Rs.2639 crore for fiscal 2020 on account of lockdown led restrictions to curb the spread of Covid-19 resulting in lower footfalls in its retail stores. Nevertheless, turnover is expected to improve gradually from fiscal 2022 aided by improvement in construction activity resulting in improved demand.

 

  • Exposure to fluctuations in input prices:

As with any retail business, operating margin remains modest. The operating profitability has been volatile in the range of 3.6 to 7 percent over the last four years ended fiscal 2021 on account of fluctuation in steel prices. The operating profitability for fiscal 2022 is expected to remain in the range of 3.5 to 4 percent.

Liquidity: Adequate

Liquidity remains adequate, characterized by sufficient cushion in the bank lines and low repayment obligations. Bank limit utilization is moderate at around 70 percent for the 9 month ended September 2021. Cash accrual of around Rs.40-45 crore is expected to be adequate to meet repayment obligations of around Rs.7-8 crore. There are no debt funded capital expenditure plans over the medium term. Further, the available cushion in bank limit should be adequate to meet the incremental working capital needs over the medium term.

Outlook: Stable

CRISIL Ratings 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:

  • Improvement in net cash accruals to over Rs 70 crore
  • Significant and sustained improvement in working capital cycle marked by gross current assets of less than 90 days resulting in improvement in capital structure and debt protection metrics


 Downward factors:

  • Decline in revenues by more than 35% or operating margin below 2% for FY 2021
  • Increase in working capital requirement, larger-than-expected, debt-funded capex or acquisition, or more-than-expected dividend pay-out, weakening the financial risk profile, particularly liquidity

About the Company

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

As on / for the period ended March 31

 

2021

2020

Operating income

Rs crore

2048

2639

Reported profit after tax

Rs crore

13.84

39.88

PAT margins

%

0.7

1.51

Adjusted Debt/Adjusted Net worth

Times

0.57

0.73

Interest coverage

Times

2.28

2.83

 

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)

ISIN Name of instrument Date of Allotment Coupon Rate (%) Maturity date Issue Size (Rs.Cr) Complexity level Rating Assigned with Outlook
NA Cash Credit NA NA NA 247.5 NA CRISIL BBB+/Stable
NA Letter of Credit Bill Discounting NA NA NA 25 NA CRISIL A2
NA Proposed working capital facility NA NA NA 27.5 NA CRISIL BBB+/Stable
NA Commercial paper NA NA 7 to 365 days 60 Simple CRISIL A2

 

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Centurywells Roofing India Private Limited

100%

Subsidiary with financial and operational fungibilities

Vishal Precision Steel Tubes and Strips Private Limited

100%

Subsidiary with financial and operational fungibilities

Shankara Building Products Limited

100%

Parent

Taurus Value Steel & Pipes Private Limited

1005

Subsidiary with financial and operational fungibilities

 

Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT/ST 300.0 CRISIL BBB+/Stable / CRISIL A2   -- 15-01-21 CRISIL BBB+/Stable / CRISIL A2 03-09-20 CRISIL BBB+/Stable / CRISIL A2 22-07-19 CRISIL A2+ / CRISIL A-/Negative CRISIL A1 / CRISIL A/Stable
      --   --   -- 23-03-20 CRISIL BBB+/Stable / CRISIL A2 23-04-19 CRISIL A1/Watch Developing / CRISIL A/Watch Developing CRISIL A1
      --   --   --   -- 15-02-19 CRISIL A/Negative / CRISIL A1 --
Non-Fund Based Facilities ST   --   -- 15-01-21 CRISIL A2 03-09-20 CRISIL A2 22-07-19 CRISIL A2+ --
      --   --   -- 23-03-20 CRISIL A2 23-04-19 CRISIL A1/Watch Developing --
      --   --   --   -- 15-02-19 CRISIL A1 --
Commercial Paper ST 60.0 CRISIL A2   -- 15-01-21 CRISIL A2 03-09-20 CRISIL A2 22-07-19 CRISIL A2+ CRISIL A1
      --   --   -- 23-03-20 CRISIL A2 23-04-19 CRISIL A1/Watch Developing --
      --   --   --   -- 15-02-19 CRISIL A1 --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Rating
Cash Credit 55 CRISIL BBB+/Stable
Cash Credit 50 CRISIL BBB+/Stable
Cash Credit 40 CRISIL BBB+/Stable
Cash Credit 40 CRISIL BBB+/Stable
Cash Credit 35 CRISIL BBB+/Stable
Cash Credit 27.5 CRISIL BBB+/Stable
Letter of Credit Bill Discounting 25 CRISIL A2
Proposed Working Capital Facility 27.5 CRISIL BBB+/Stable
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
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support
CRISILs Criteria for Consolidation

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