Rating Rationale
September 17, 2018 | Mumbai
Shankara Building Products Limited
 
Rating Action
Total Bank Loan Facilities Rated Rs.384 Crore
Long Term Rating CRISIL A/Stable
Short Term Rating CRISIL A1
 
Rs.60 Crore Commercial Paper CRISIL A1
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL ratings on the bank facilities and commercial paper of Shankara Building Products Ltd (Shankara; part of the Shankara Buildpro group) continue to reflect the Shankara Buildpro group's established presence in the building material distribution and retailing businesses, diversified product offering, geographical diversity, extensive experience of promoter, long association 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 susceptibility of operating profitability to any sharp variation in raw material prices.

CRISIL had earlier upgraded its ratings on the bank facilities and commercial paper of Shankara to 'CRISIL A/Stable/CRISIL A1' from 'CRISIL A-/Stable/CRISIL A2+' vide rating rationale dated 05th September, 2018.

Analytical Approach

For arriving at the ratings, CRISIL has combined the financial and business risk profiles of 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, together referred to as the Shankara Buildpro group, have a common management and strong operational and financial links.

Key Rating Drivers & Detailed Description
Strengths
* Established presence in the building material distribution and retailing business: The group started operations as a distributor of pipes in 1995 and has since diversified into retailing building materials as well. It has a wide network of over 1,700 dealers, 0.69 million square feet (sq ft) of warehouse space, and 132 retail outlets. The group also has an in-house pipe and colour-coated roofing sheet processing capacity of 3.32 lakh tonne per annum.

* Diversified product offering and wide geographical presence: Longstanding relationship with suppliers such as JSW Steel, TATA Steel, Sintex, Uttam Galva, APL Apollo, Kajaria, and CERA has enabled the group to offer a diverse range of building materials. This gives the group a competitive edge.

* Extensive experience of promoter and track record of profitable growth: The group's promoter is a professionally qualified manager with about three decades of experience. He is helped by a competent second line of management.

* Comfortable financial risk profile: Networth was strong at Rs 431 crore and gearing healthy at 0.57 time, as on March 31, 2018. Debt protection metrics were adequate, with interest coverage and net cash accrual to adjusted debt ratios of 3.9 times and 0.57 time, respectively, for fiscal 2018. Retail operations are expected to remain asset light. Surplus generated from operations will be available to open new stores or fund incremental working capital requirement.

Weaknesses
* 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 in the past. However, many of the group's retail showrooms have a short track record and hence, continued growth in scale and profitability in a cyclical business will remain a monitorable over the medium term. 

* Susceptibility of operating margin to volatility in input prices: Operating margin had been modest in the past, as is the case with any retail operation. Though profitability improved to 6.9% in fiscal 2018 from 6.6% in fiscal 2017 because of a higher proportion of value-added products, the same factor has also resulted in a large inventory. Hence, any sharp variation in raw material prices may affect operating margin and will, therefore, be a rating sensitivity factor.
Outlook: Stable

CRISIL believes the Shankara Buildpro group will continue to benefit from its established presence in the building material retailing and distribution business; also, financial risk profile will remain robust over the medium term. The outlook may be revised to 'Positive' in case of a sustained growth in revenue and operating margin while maintaining working capital cycle. The outlook may be revised to 'Negative' if cyclicality in business adversely affects revenue or operating margin, or if debt-funded capital expenditure puts pressure on financial risk profile.

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 132 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. Furthermore, the group operates 14 pipe and colour-coated roofing sheet processing facilities through its 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 0.57 0.59
Interest coverage Times 3.9 3.1
*Consolidated financials

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 Bill Discounting NA NA NA 45 CRISIL A1
NA Cash Credit NA NA NA 10 CRISIL A/Stable
NA Cash Credit & Working Capital demand loan* NA NA NA 255 CRISIL A/Stable
NA Term Loan NA NA Jun-2019 4 CRISIL A/Stable
NA Working Capital Demand Loan^ NA NA NA 70 CRISIL A/Stable
NA Commercial Paper NA NA 7 to 365 days 60 CRISIL A1
*Interchangeable with letter of credit of Rs.20 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.10 crore
^Interchangeable with letter of credit of Rs.30 crore and bank guarantee of Rs.30 crore
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  60.00  CRISIL A1  05-09-18  CRISIL A1  31-07-17  CRISIL A2+    --    --  -- 
Fund-based Bank Facilities  LT/ST  384.00  CRISIL A/Stable/ CRISIL A1  05-09-18  CRISIL A/Stable/ CRISIL A1  31-07-17  CRISIL A-/Stable/ CRISIL A2+    --    --  -- 
            14-07-17  CRISIL A-/Stable/ CRISIL A2+           
            20-06-17  CRISIL A-/Stable           
Non Fund-based Bank Facilities  LT/ST    --    --  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 Bill Discounting 45 CRISIL A/Stable
Cash Credit 10 CRISIL A/Stable Cash Credit 325 CRISIL A/Stable
Cash Credit & Working Capital demand loan* 255 CRISIL A/Stable Cash Management Service 4 CRISIL A1
Term Loan 4 CRISIL A/Stable Foreign Exchange Forward 2 CRISIL A1
Working Capital Demand Loan^ 70 CRISIL A/Stable Term Loan 8 CRISIL A/Stable
Total 384 -- Total 384 --
*Interchangeable with letter of credit of Rs.20 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.10 crore
^Interchangeable with letter of credit of Rs.30 crore and bank guarantee of Rs.30 crore
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
Rating criteria for manufaturing and service sector companies
CRISILs Criteria for Consolidation

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