| Simmonds Marshall Limited | ||||||
| Rating outlook revised to 'Negative'; Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has revised its outlook on the long term bank facilities of Simmonds Marshall Limited (SML) to ‘Negative’ from ‘Stable’ while reaffirming the rating at ‘CRISIL BBB-‘. The short term rating has been reaffirmed ‘CRISIL A3’.
The revision in the Outlook takes into account modest liquidity position and debt coverage indicators in view of high debt repayment obligations going ahead. The action also considers weaker than expected performance of the company during fiscal 2023. Timely promoter support would also be critical in the event of moderation in performance impacting accruals. The company reported an operating margin of 7.1% on revenues of Rs. 188 crores during fiscal 2023. While the volumes from CV segment witnessed increase, volume growth from two-wheeler segment which is the largest segment for SML remained subdued. The profitability of the company during fiscal 2023 remained lower than earlier estimates largely on account of weak performance during third quarter which remained impacted on account of reduction in volumes from two-wheeler segment and plant shutdown at one of its key customers leading to under absorption of fixed overheads. This apart higher provisioning on account of employee related expenses also impacted the profitability in the said quarter.
Capital structure stood moderate with gearing of 1.6x times in fiscal 2023, while TOL/TNW continues to remain high at 4.4x as on Mar.31, 2023. Net worth of the company had declined sharply over the last couple of years owing to sequential losses incurred by the company since fiscal 2020 thereby impacting the leverage ratios and financial risk profile.
Liquidity is modest as the bank limit utilization continues to remain high at 85-90% on an average. While the promoters have supported by way of funds infusion in the past, timely support coming in, in the event of weaker than expected performance would remain monitorable.
The ratings continue to reflect the established market position of SML in the nuts-and-bolts segment and strong customer relationships with major automotive original equipment manufacturers (OEMs). These strengths are partially offset by sub-par financial risk profile, modest scale of operations with limited revenue diversity, and large working capital requirement. Going forward, timely funding support from the promoter as and when required will remain a key monitorable |
Analytical Approach For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of Simmonds Marshall and its 99% subsidiary, Stud (India) Ltd (SIL), together referred to as Simmonds Marshall.
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 position in the fasteners segment, backed by longstanding customer relationships With presence of over five decades in the fasteners business, the company has established its position in the domestic market. It has healthy relationships with customers for the last 10-15 years. Contribution to revenue from two-wheelers is highest at around 47%, followed by commercial vehicles at around 24% and tractors at 3%.
Key OEM clients include Honda Motorcycle and Scooters Limited, Bajaj Auto Limited (rated ‘CRISIL AAA/Stable/CRISIL A1+’), Hero Moto Corp Limited (rated ‘CRISIL AAA/Stable/CRISIL A1+’), Ashok Leyland Limited and TVS Motor Company Limited. However, demand from OEMs, and recovery in economic activity will remain key rating factors.
Weaknesses: Limited revenue diversity and volatile operating margin The company manufactures nuts and bolts for major automobile OEMs. Notwithstanding the long track record of operations, scale remains modest, as reflected in estimated topline of around ~Rs 188 crore in fiscal 2023. Also, networth was small estimated at around Rs 30 crore as on March 31, 2023. Furthermore, the client base mainly comprises two-wheeler manufacturers, which exposes revenue to any downside in the concerned segment. SML is reducing it's overall share in the 2W segment and foraying into commercial vehicle front, as can be seen from increase in overall CV share from 17% in fiscal 2022 to 24% in fiscal 2023.
Operating margin remained volatile over the past five years, on account of variation in material costs (35-45% of sales), high employee expenses (25-30% of sales) and higher inventory cost. The company has the ability to pass on prices although the same is with a lag due to limited bargaining power with OEMs. Ability of the company to improve its margins to pre 2019 levels will remain crucial.
Sub-par financial risk profile Debt protection metrics continue to remain sub-par owing to high repayment obligations. Interest coverage ratio stood at 1.5x times in fiscal 2023 as compared to 1.3x in fiscal 2022. Gearing remained modest at 1.6x times in FY23. Funding support from the promoter will benefit the financial risk profile. The promoter has been consistently infusing funds in the form of equity in the past and unsecured loans from the promoter stands at Rs ~9 crore as on March 31, 2023. Interest rate on these unsecured loans is at 8%. The promoter is expected to provide further support to SML, in case of exigencies.
Working capital-intensive operations: Gross current assets remained high at 173 days as on March 31, 2023 although an improvement from 187 days a year ago, with inventory of around 129 days and receivables of around 49 days. Slight Reduction in high-cost inventory, timely realisation of receivables and stretching of dues to payables helped support working capital. |
Liquidity: Adequate Bank limits utilization stood high at ~87% during the 12 months ended December 2022. Given high repayment obligation going ahead, the debt coverage indicators remain modest. While unutilized bank limit provides some cushion, timely support from promoters in the event of moderation in performance will remain crucial. |
Outlook: Negative CRISIL Ratings believes SML’s financial risk profile will remain constrained over the medium term in view of subdued debt coverage indicators and modest capital structure. |
Rating Sensitivity Factors Upward Factors:
Downward Factors:
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About the Company SML, incorporated in 1960 and promoted by Mr. Shiamak Marshall, manufactures Industrial fasteners for the automotive segment and caters primarily to commercial vehicle and two-wheeler manufacturers. The company’s manufacturing unit in Kasarwadi, Maharashtra, has the capacity to produce 5,500 ton per annum of nuts.
In 2012, SML acquired SIL that manufactures studs for heavy commercial vehicle manufacturers. In 2014, the company entered into a joint venture with Francis Kirk and Son Ltd (Francis Kirk; UK) to manufacture fasteners for the UK market; with manufacturing undertaken at the Kasarwadi plant and products marketed by Francis Kirk. |
Key Financial Indicators
CRISIL Ratings adjusted numbers |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
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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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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