Rating Rationale
April 23, 2019 | Mumbai
Shankara Building Products Limited
Ratings placed on 'Watch Developing'
Rating Action
Total Bank Loan Facilities Rated Rs.384 Crore
Long Term Rating CRISIL A (Placed on 'Rating Watch with Developing Implications') 
Short Term Rating CRISIL A1 (Placed on 'Rating Watch with Developing Implications')
Rs.60 Crore Commercial Paper CRISIL A1 (Placed on 'Rating Watch with Developing Implications')
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has placed its ratings on the bank facilities and commercial paper of Shankara Building Products Limited (Shankara; part of the Shankara Buildpro group) on 'Rating Watch with Developing Implications'.
The rating action follows announcement by Shankara Buildpro group and APL Apollo Tubes Ltd ('CRISIL AA-/Stable/CRISIL A1+'), that Shankara Buildpro group has agreed to sell the 200,000 MTPA tube manufacturing facility located in Chegunta, near Hyderabad (Telangana), which is currently housed in the group's wholly-owned subsidiary Taurus Value Steel & Pipes Pvt Ltd (Taurus; part of the Shankara Buildpro group) to APL Apollo Tubes Ltd for a consideration of Rs 70 crore.

CRISIL will engage with the management to understand the details of the transaction and progress thereof, along-with the future purchase arrangement between the two groups. CRISIL will resolve the watch once it gets clarity on the impact of this on the business and financial risk profiles, especially liquidity.

The ratings continues to factor in the Shankara Buildpro group's established presence in the building material distribution and retailing businesses, diversified product offering, geographical diversity, extensive experience of the promoter, established relations with vendors and track record of profitable growth. These strengths are partially offset by presence in an industry where demand is linked to economic cycles and exposure to sharp variation in raw material price.

Analytical Approach

For arriving at the ratings, CRISIL has combined the financial and business risk profiles of Shankara Building Products Ltd 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 criteria, for arriving at the ratings of each entity.

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
* Established market position
Benefits from the group's more than three decades of experience, wide network of over 1,500 dealers, 0.69 million square feet (sq. ft.) of warehouse space, and 134 retail outlets and an in-house pipe and colour-coated roofing sheet processing capacity should continue to support the business.
* Diversified product offering and wide geographical presence
Longstanding relationship with suppliers such as JSW Steel Ltd, TATA Steel Ltd, Sintex Industries Ltd, Uttam Galva Steels Ltd, APL Apollo Tubes Ltd, Kajaria Ceramics Limited, and Cera Sanitaryware Ltd ('CRISIL A1+') enables the group to offer a diverse range of building materials. This gives the group a competitive edge.
* Extensive experience of the promoter
The promoter has about three decades of experience and is assisted by a competent second line of management.
* Comfortable financial risk profile
Networth was robust at Rs 431 crore and gearing comfortable at 1 time as on March 31, 2018. Debt protection metrics though have moderated in the nine months of fiscal 2019, with interest coverage of 2.4 times as against CRISIL's expectation of 3.9 times; however, it is likely to improve to above 3 times over the medium term.
* Presence in industry where demand is linked to economic cycles
The group is exposed to variation in demand for real estate and home improvement. Due to its wide geographical presence and product profile, it has been able to maintain steady growth in revenue and profitability. However, many of the group's retail showrooms have a short track record and hence, continued growth in scale and profitability in the cyclical business will remain a key monitorable. 
* Susceptibility to fluctuations in input prices
As with any retail business, operating margin remains modest. Further, exposure to volatility in steel prices has resulted in operating margin dropping to 5.1% in the first nine months of fiscal 2019 from 6.9% in fiscal 2018. Owing to higher proportion of steel products in the inventory holding of the group, any sharp variation in steel prices may affect profitability and will, therefore, be a rating sensitivity factor.

Liquidity is adequate. Cash accrual, expected at over Rs 71 crore over the medium term should comfortably cover minor term debt obligation of Rs 1 crore for fiscal 2020. Bank limit utilization is moderate at around 88 percent on average drawing power of Rs 411 crore for 9 months ended December 2018 (total sanctioned working capital limits are Rs 612 Cr).

About the Group

Incorporated in 1995 as Shankara Pipes India Pvt Ltd, the company's name was changed to Shankara Infrastructure Materials Ltd in 2011 and thereafter to the present one in 2016. Promoted by Mr Sukumar Srinivas, Shankara operates 134 retail showrooms in southern and western India, where it sells building and home improvement products for many renowned brands. The company also owns 0.69 million sq ft of warehouse space spread across 10 states. Further, the group operates in-house pipe and colour-coated roofing sheet processing facilities through it's wholly -owned subsidiaries: Taurus, Vishal, and Centurywells.

Key Financial Indicators
Particulars Unit 2018 2017
Revenue Rs crore 2548.8 2310.2
Profit after tax (PAT) Rs crore 73.8 58.78
PAT margin % 2.9 2.5
Adjusted debt/adjusted networth Times 1.00 0.90
Interest coverage Times 3.9 3.1

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
Rating assigned  with outlook
NA Bill discounting NA NA NA 45 CRISIL A1/Watch Developing
NA Cash credit & working capital demand loan* NA NA NA 315 CRISIL A/Watch Developing
NA Non-fund based limit NA NA NA 24 CRISIL A1/Watch Developing
NA Commercial paper NA NA 7 to 365 days 60 CRISIL A1/Watch Developing
*Interchangeable with letter of credit of Rs.30 crore and bank guarantee of Rs.30 crore
*Interchangeable with letter of credit of Rs.40 crore
*Interchangeable with letter of credit of Rs.30 crore
*Interchangeable with letter of credit of Rs.20 crore
Annexure - List of Entities Consolidated
Names of entities consolidated Extent of consolidation Rationale for consolidation
Shankara Building Products Ltd Full Common management and strong operational and financial link
Taurus Value Steel & Pipes Pvt Ltd Full Common management and strong operational and financial link
Vishal Precision Steel Tubes & Strips Pvt Ltd Full Common management and strong operational and financial link
Centurywells Roofing India Pvt Ltd Full Common management and strong operational and financial link
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
Commercial Paper  ST  60.00  CRISIL A1/Watch Developing  15-02-19  CRISIL A1  17-09-18  CRISIL A1  31-07-17  CRISIL A2+    --  -- 
            05-09-18  CRISIL A1           
Fund-based Bank Facilities  LT/ST  360.00  CRISIL A/Watch Developing/ CRISIL A1/Watch Developing  15-02-19  CRISIL A/Negative/ CRISIL A1  17-09-18  CRISIL A/Stable/ CRISIL A1  31-07-17  CRISIL A-/Stable/ CRISIL A2+    --  -- 
            05-09-18  CRISIL A/Stable/ CRISIL A1  14-07-17  CRISIL A-/Stable/ CRISIL A2+       
                20-06-17  CRISIL A-/Stable       
Non Fund-based Bank Facilities  LT/ST  24.00  CRISIL A1/Watch Developing  15-02-19  CRISIL A1      20-06-17  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
Bill Discounting 45 CRISIL A1/Watch Developing Bill Discounting 45 CRISIL A1
Cash Credit & Working Capital demand loan* 315 CRISIL A/Watch Developing Cash Credit & Working Capital demand loan* 315 CRISIL A/Negative
Non-Fund Based Limit 24 CRISIL A1/Watch Developing Non-Fund Based Limit 24 CRISIL A1
Total 384 -- Total 384 --
*Interchangeable with letter of credit of Rs.30 crore and bank guarantee of Rs.30 crore
*Interchangeable with letter of credit of Rs.40 crore
*Interchangeable with letter of credit of Rs.30 crore
*Interchangeable with letter of credit of Rs.20 crore
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 Criteria for Consolidation

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