Rating Rationale
September 07, 2018 | Mumbai
Simmonds Marshall Limited
Rated amount enhanced
 
Rating Action
Total Bank Loan Facilities Rated Rs.65 Crore (Enhanced from Rs.56 Crore)
Long Term Rating CRISIL BBB+/Stable (Reaffirmed)
Short Term Rating CRISIL A2 (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL reaffirmed its ratings on the bank facilities of Simmonds Marshall Ltd (Simmonds Marshall) at 'CRISIL BBB+/Stable/CRISIL A2'.
 
The company's revenue registered a 28% year-on-year growth in fiscal 2018 and 20% in first three months of fiscal 2019 on account of healthy offtake from customers and is likely to grow at a pace of 12-15% annually over the medium term. The faster growth is likely to be supported by increase in capacity in fiscal 2019 and healthy demand outlook. Being a regular supplier for over a decade to large two wheeler OEMs, the company is well positioned to benefit from the expected increase in demand for two wheelers in fiscal 2019. Consequently, operating profitability is expected to sustain at 11-13% with increase in sales leading to better absorption of fixed cost.  Further, consolidation plan of plants at 3 different locations to one location will benefit the operating efficiencies.
 
The financial risk profile is expected to remain comfortable given cash accrual of Rs 13-16- crore per annum and modest capital expenditure. Simmonds Marshall is undertaking debt funded capex in fiscal 2019 and fiscal 2020 to cater to healthy demand of its products funded through debt of Rs 20 crore.  Consequently, gearing is expected to remain at less than 0.6 times over the medium.
 
The ratings continue to reflect the company's established position in the fasteners segment, led by long-standing relationships with customers. The ratings also factor in the company's average financial risk profile, especially gearing, healthy debt protection metrics and steady cash accruals. These rating strengths are partially offset by Simmonds Marshall's modest scale of operations with limited revenue diversity, and working-capital-intensive operations.

Analytical Approach

For arriving at the ratings, CRISIL has combined the business and financial risk profiles of Simmonds Marshall and its 99% subsidiary Stud (India) Ltd, together referred to as the Simmonds Marshall combine.

Key Rating Drivers & Detailed Description
Strengths
* Established position in the fasteners segment, backed by longstanding customer relationships: With presence over five decades in the fasteners business, SML has established its position in the domestic market and has healthy relationships with its customers for the last 10-15 years. Key clients include Honda Motorcycle and Scooters Ltd, Bajaj Auto Ltd (rated CRISIL AAA/FAAA/Stable/CRISIL A1+), Hero MotoCorp Ltd (rated CRISIL AAA/FAA/Stable/CRISIL A1+), and Ashok Leyland Ltd.
 
* Adequate financial risk profile: Financial risk profile is marked by steady cash accruals and comfortable capital structure. Over the medium term, financial risk profile is expected to improve supported by steady accretion to reserves and absence of any debt funded capex plans.
 
Weakness
* Limited revenue diversity: The Company manufactures and supplies nuts and bolts, to major auto OEMs.  Notwithstanding the long track record of operations, and healthy relationships with customers, the scale remains modest, as indicated by top-line of Rs 188 crore in fiscal 2018. Despite longstanding presence net-worth remains small at Rs 60 crore as on March 31, 2018. Furthermore, the client base mainly comprises two-wheeler manufacturers, which makes revenue susceptible to any downside in the concerned segment.
 
* Working capital-intensive operations: Operations are working capital intensive, as reflected in gross current assets of around 181 days as on March 31, 2017, mainly led by large receivables and inventory of around 96 days and 88 days respectively.
Outlook: Stable

CRISIL believes the business risk profile is expected to improve over the medium term, supported by the company's established market position in the fasteners segment. Furthermore, the improvement in the financial risk profile is expected to be sustained backed by steady cash accruals and absence of any debt funded capex plans.
 
Upside scenario
* Substantial increase in scale of operations and sustenance of healthy operating profitability
* Sustaining the improvement in financial risk profile.
 
Downside scenario
* Significantly lower than expected growth and profitability,
* Stretched working capital cycle, or large debt-funded capex, leading to weakening of the financial risk profile.

About the Company

Simmonds Marshall, incorporated in 1960, is promoted by Mr. Shiamak Marshall. It manufactures nuts and bolts for the automotive segment and caters primarily to commercial vehicle and two-wheeler manufacturers. The company's manufacturing unit in Kasarwadi (Maharashtra) has capacity to produce 5,500 tonnes of nuts per annum.
 
In 2011-12, Simmonds Marshall acquired M/s Stud India, which manufactures studs and supplies mainly to heavy commercial vehicle manufacturers. During 2013-14, Simmonds Marshall entered into a joint venture with Francis Kirk and Son Ltd (Francis Kirk; UK) to manufacture fasteners for the UK market; the manufacturing will be undertaken at Simmonds Marshall's Kasarwadi plant and the products will be marketed by Francis Kirk. 
 
For the three months ended June 30, 2018, Simmonds Marshall reported a net profit of Rs.1.16 crores (net profit of Rs.1 crores for the corresponding period of the previous year) on an operating income of Rs.  42vcrores (Rs. 35 crores for the corresponding period of the previous year).

Key Financial Indicators
Particulars Unit 2018 2017
Revenue Rs. Cr. 188 155
Profit After Tax (PAT) Rs. Cr. 10 6
PAT Margins % 5.3 3.8
Adjusted Debt/Adjusted Networth Times 0.4 0.6
Interest coverage Times 6.6 5.7

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 crore)
Rating assigned
with outlook
NA Cash Credit NA NA NA 21.9 CRISIL BBB+/Stable
NA Letter of Credit NA NA NA 15.12 CRISIL A2
NA Bill Discounting NA NA NA 2.7 CRISIL A2
NA Rupee Term Loan NA NA Aug-21 2.73 CRISIL BBB+/Stable
NA Rupee Term Loan NA NA May 21 2.4 CRISIL BBB+/Stable
NA Rupee Term Loan NA NA Jan-22 1.8 CRISIL BBB+/Stable
NA Term Loan* NA NA May-18 3.6 CRISIL BBB+/Stable
NA Proposed Long Term
Bank Loan Facility
NA NA NA 14.75 CRISIL BBB+/Stable
*CRISIL is awaiting independent confirmation of redemption before withdrawing ratings on these instruments
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
Fund-based Bank Facilities  LT/ST  49.88  CRISIL BBB+/Stable/ CRISIL A2      11-07-17  CRISIL BBB+/Stable/ CRISIL A2  25-08-16  CRISIL BBB/Positive/ CRISIL A3+  24-06-15  CRISIL BBB/Positive/ CRISIL A3+  CRISIL BBB/Stable/ CRISIL A3+ 
Non Fund-based Bank Facilities  LT/ST  15.12  CRISIL A2      11-07-17  CRISIL A2  25-08-16  CRISIL A3+  24-06-15  CRISIL A3+  CRISIL A3+ 
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 2.7 CRISIL A2 Bill Discounting 2.7 CRISIL A2
Cash Credit 21.9 CRISIL BBB+/Stable Cash Credit 21.9 CRISIL BBB+/Stable
Letter of Credit 15.12 CRISIL A2 Letter of Credit 15.12 CRISIL A2
Proposed Long Term Bank Loan Facility 14.75 CRISIL BBB+/Stable Proposed Long Term Bank Loan Facility 5.75 CRISIL BBB+/Stable
Rupee Term Loan 6.93 CRISIL BBB+/Stable Rupee Term Loan 6.93 CRISIL BBB+/Stable
Term Loan 3.6 CRISIL BBB+/Stable Term Loan 3.6 CRISIL BBB+/Stable
Total 65 -- Total 56 --
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
Rating Criteria for Auto Component Suppliers
CRISILs Criteria for Consolidation

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