| Simplex Castings Limited | ||||||
| Long-term rating upgraded to 'Crisil BB/Stable'; Short-term rating 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 upgraded its rating on the long-term bank loan facility of Simplex Castings Ltd (SCL) to ‘Crisil BB/Stable’ from ‘Crisil BB-/Stable’ while reaffirming the short term rating at ‘Crisil A4+’.
The rating upgrade reflects healthy revenue growth marked by estimated revenue of more than Rs.170 crore in FY25 from Rs.122.8 crore in FY24 while profitability improved from 15% to 18% during the same period. The same has happened due to streamlining operations wherein bulk orders for reduced product line have increased also timely commencement of capex has increased sales and profitability. Gearing has reduced to less than 0.7 times in FY25. Further inventory cycle has been reduced, which has led to a reduction in GCA days. This should also provide cushion to liquidity and reduce dependence on external working capital limits, over the medium term.
The ratings reflect the extensive experience of the promoters in the heavy engineering castings business and moderate financial risk profile of the company. These strengths are partially offset by exposure to intense competition, volatility in raw material prices and large working capital requirement. |
Analytical Approach Crisil Ratings has evaluated the standalone business and financial risk profiles of SCL. Unsecured loans of Rs. 23.32 crore as on 31st march 2024 is treated as 75% equity, 25% debt as the unsecured loans are subordinated to all forms of external borrowing and is expected to remain in the business, over the medium term. |
Key Rating Drivers & Detailed Description Strengths: Extensive experience of the promoters SCL has been involved in the heavy engineering castings business for more than five decades. The company is promoted by Mr. Ketan Moolchand Shah and Ms. Sangeeta Ketan Shah. The promoters have more than three decades of experience in the steel – castings and foundry business; their strong understanding of market dynamics and healthy relations with customers and suppliers should continue to support the business. Further, a diversified end-user industry base insulates the business from industry slowdown and thereby boosts steady growth, over the medium term.
Moderate financial risk profile The capital structure should remain supported by limited reliance on external funds. Gearing is estimated at less than 0.7 time and total outside liabilities to adjusted networth ratio of less than 1.2 times as on March 31, 2025. Debt protection metrics should continue to be comfortable due to healthy profitability. The interest coverage ratio is estimated at more than 3.5 times and net cash accrual to total debt ratio at more than 0.4 time for fiscal 2025.
Weaknesses: Exposure to intense competition The steel industry is highly cyclical and fragmented due to low capital requirement and limited value addition. The low entry barrier has led to several players catering to regional demand. The consequent intense competition along with limited product diversity (due to commodity nature of products) may continue to constrain scalability, pricing power and profitability.
Exposure to volatility in raw material prices Since cost of procuring the key raw materials (iron/steel scrap, metalised aluminum, pillow block, mild steel plates) accounts for 60-70% of production cost, even a slight variation in price can drastically impact the operating margin. Further, operations are non-integrated and restricted to the downstream stage of the steel value chain. The margin is also susceptible to changes in market prices according to demand-supply situations.
Large working capital requirement Gross current assets is estimated to be at more than 200 days as on March 31, 2025, driven by high debtor and inventory levels. Long credit period is extended to customers, owing to nature of business. Furthermore, due to operational needs, high work in process & inventory is maintained. Debtor and inventory days is estimated to remain high at more than 65 and 150 days, respectively in FY25. Working capital management is expected to remain intense, over the medium term. |
Liquidity: Adequate Average month-end bank limit utilization is high at around 95 percent for the past twelve months ended February 2025. Cash accrual are expected to be over Rs.19 crore which are sufficient against term debt obligation of less than Rs.2 crore over the medium term. Current ratio is estimated to remain moderate at 1.3 times on March 31, 2025. The promoters are likely to extend support in the form of equity and unsecured loans to meet its working capital requirements and repayment obligations. |
Outlook: Stable CRISIL Ratings believe SCL will continue to benefit from the extensive experience of its promoter, and established relationships with clients. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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About the Company Set up as a partnership firm in 1971, the entity got reconstituted into a private-limited company in 1980 and into a public-limited company in 1993. SCL manufactures heavy engineering castings in grey cast iron, alloy cast iron and stainless steel, which find application in industries such as railways, steel, oil and gas, power and defence. It has three facilities at Bhilai and Rajnandgaon (all in Chhattisgarh), with total installed capacities of 29,600 metric tonne per annum.
SCL is listed on the Bombay Stock Exchange. The company is managed by Mr. Ketan Moolchand Shah (chairman and whole-time director), Ms. Sangeeta Ketan Shah (managing director) and Mr. Sajal Kumar Ghosh (whole-time director). |
Key Financial Indicators
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Status of non cooperation with previous CRA Further, SCL had not cooperated with Acuite Ratings and Research Ltd, which has classified it as non-cooperative vide release dated May 10, 2019. The reason provided by Acuite Ratings and Research Ltd was non-furnishing of information for monitoring of ratings |
Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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* - Issuer did not cooperate; based on best-available information
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||
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Criteria Details
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