| Shreno Limited | ||||
| Ratings Reaffirmed | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
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| This Rating Rationale is published solely to update the bank-wise facility details as provided by the rated entity; other sections are same as the previous Rating Rationale dated January 29, 2021. |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL A/Stable/CRISIL A1’ ratings on the bank facilities and commercial paper of Shreno Limited (Shreno). CRISIL Ratings has also withdrawn its ratings on the Rs.31 crore bank facilities of Shreno Limited on receipt of withdrawal request from client. This is in line with CRISIL’s Ratings policy on withdrawal of bank loan ratings. The ratings continue to reflect the strong parentage of Nirayu Ltd (Nirayu) and its expected financial support, if required, along with Shreno’s moderate business risk profile and moderate track record in the real estate sector. These strengths are partially offset by modest profitability in the glass division and exposure to risks arising from concentration of land bank in Vadodara and Bengaluru and cyclicality inherent in the real estate sector. With the completion of the scheme of arrangement between Shreno, Nirayu and Alembic Ltd (Alembic) in fiscal 2019, Shreno deals primarily in the glass and real estate business, which was transferred from Alembic to Shreno. The Covid-19 pandemic impacted Shreno’s operating performance, with operating income and operating profit at Rs 89 crore and Rs 2 crore, respectively, in fiscal 2020, given moderate sales and high fixed cost of employees and fuel. In fiscal 2021, sales are expected to be lower by about 25% as compared to last fiscal, mainly on account of plant shutdown in the first quarter and gradual sales ramp-up thereafter.In the real estate business, the company has only 1-2 units of its Urban Forest project left to be sold and has no other concluded plans on the commercial or residential side. Gradual sales ramp-up is expected in the glass division, primarily on account of increased focus on trade lines, which provide higher margin and lower fixed cost with headcount reduction. As per the scheme of arrangement, Nirayu has issued 7% non-convertible, redeemable preference shares (redeemable after five years) to Shreno’s shareholders. Additionally, the project management consultancy business and a real estate project within Alembic have been transferred to Shreno, which in turn has issued 7% non-convertible, redeemable preference shares to Alembic’s shareholders, to be redeemed by September 2021. Following approval from the National Company Law Tribunal, the scheme was implemented with effect from November 1, 2018. With this scheme, Nirayu became a 83.87% shareholder in Shreno. Nirayu held 35.63% in Alembic Pharmaceuticals Ltd (Alembic Pharma; rated ‘CRISIL AA+/Stable/CRISIL A1+’) and 62.59% in Alembic Ltd as on December 31, 2020. |
Analytical Approach CRISIL Ratings has applied its parent notch-up framework to factor in support for Shreno from Nirayu. Furthermore, preference share of Rs 278 crore has been treated as equity, as the share is held by the promoter group, has a tenure of five years and is likely to be refinanced. The remaining preference share of Rs 134 crore has been treated as debt, as it is payable to third parties. |
Key Rating Drivers & Detailed Description Strengths: * Strong parentage and expected financial support from Nirayu: Shreno benefits from the strong parentage and need-based support of Nirayu, which has healthy financial flexibility. This arises from an ability to raise additional funds by sale or pledge of investments, mainly in equity shares of Alembic Pharma. As on December 31, 2020, the combined market value of promoters’ holding companies’ shares in Alembic Pharma and Alembic was over Rs 8,500 crore against no debt. Nirayu’s subsidiary, Shreno, serviced its outstanding debt through proceeds from its real estate project. Though Shreno has no plans to launch any real estate project in the near term, the debt requirement of Nirayu, Shreno and other holding companies should remain moderate and be adequately covered by the market value of Shreno’s shareholding in Alembic Pharma and Alembic. Furthermore, Nirayu is expected to provide financial support for upcoming preference share redemption in September 2021.
* Moderate track record in the real estate sector and low execution risk: Shreno has completed two projects, one each in Vadodara and Bengaluru. The company has no plans to launch projects in the near term, given the subdued real estate environment.
Weakness: * Land-bank concentration and susceptibility to cyclicality inherent in the real estate sector: The company has completed one project each in Vadodara and Bengaluru, and future projects should be from these cities as well. Furthermore, the domestic real estate sector is cyclical, and cash inflow is volatile on account of fluctuations in real estate prices and demand. In comparison, cash outflow, relating to completion of projects and debt obligation, is relatively fixed. However, the company had cash surplus of above Rs. 6 crores as on December 31, 2020, as its projects are completed and nearly sold and no new projects are expected to be launched in the near term.
* Modest profitability in the glass division: Performance of the glass division, which turned profitable in fiscal 2018, continues to be constrained by low capacity utilisation and intense competition from the unorganised market. The segment registered revenue was Rs 50 crore in fiscal 2020, with operating losses due to high fixed cost of employees and fuel. Because of subdued demand and plant shutdown for almost one quarter, revenue is expected to decline in fiscal 2021, with modest operating profitability. |
Liquidity : Adequate Shreno has no outstanding debt, and the fund based bank limits of Rs 36 crores is sparingly utilised. The company had liquid surplus above Rs 6 crore as on December 31, 2020, in the absence of any major capital expenditure. Liquidity is further supported by the expectation of need-based financial support from the parent, Nirayu. The company is expected to receive financial support for redemption of preference shares in September 2021. |
Outlook: Stable Shreno will continue to benefit from the support and parentage of Nirayu and its moderate business risk profile in the real estate business. |
Rating Sensitivity factors Upward Factors
Downward Factors
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About the Company Incorporated in 1962, Shreno has presence across diverse sectors, such as real estate and glassware. In the glassware division, the company sells products under the ‘Yera’ brand. |
About the Parent Nirayu held 35.63% in Alembic Pharma and 63.06% in Alembic Ltd (both listed on the Bombay Stock Exchange) as on March 31, 2021. The promoters - Mr Chirayu Amin and his family members - held 69.48% and 70.88% in Alembic Pharma and Alembic Ltd, respectively, as on March 31, 2021. |
Key Financial Indicators
*Operating revenue |
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)
*Interchangeable with non-fund-based limit ^One way interchangeable from fund-based to non-fund-based limit @Not issued in last three years |
| 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^ | Bank of Baroda | 9 | CRISIL A/Stable |
| Cash Credit^ | Bank of Baroda | 6 | Withdrawn |
| Cash Credit* | YES Bank Limited | 6 | CRISIL A/Stable |
| Cash Credit* | YES Bank Limited | 4 | Withdrawn |
| Working Capital Demand Loan | IDFC FIRST Bank Limited | 15 | CRISIL A/Stable |
| Working Capital Demand Loan | IDFC FIRST Bank Limited | 5 | Withdrawn |
| Working Capital Facility | HDFC Bank Limited | 10 | Withdrawn |
| Working Capital Facility | HDFC Bank Limited | 5 | CRISIL A/Stable |
| Working Capital Facility | RBL Bank Limited | 6 | Withdrawn |
| Working Capital Facility | RBL Bank Limited | 5 | CRISIL A/Stable |
This Annexure has been updated on 2-Sep-2021 in line with the lender-wise facility details as on 23-Aug-2021 received from the rated entity.
^One way interchangeable from fund-based to non-fund-based limit
Criteria Details
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