Rating Rationale
April 01, 2020 | Mumbai
Sintercom India Limited
Rating outlook revised to 'Negative'; ratings reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.26 Crore
Long Term Rating CRISIL BBB-/Negative (Outlook revised from 'Stable' and rating reaffirmed)
Short Term Rating CRISIL A3 (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has revised its outlook on the long-term bank facilities of Sintercom India Limited (SIL) to 'Negative' from 'Stable', while reaffirming the rating at 'CRISIL BBB-'. The short-term rating has been reaffirmed at 'CRISIL A3'.
 
The rating action follows measures taken by the Government of India (GoI) and state governments towards containment of the Novel Coronavirus (Covid-19) which are likely to impact company's operating performance in fiscal 2021. SIL's operations remain temporarily shut from March 23, 2020 in line with GoI's directive. Further the new dispatches for BSVI compliant vehicles are likely to be postponed. Thus the performance is likely to be significantly impacted in Q1-2020. Further while most of the government measures are applicable till April 15, 2020, continuation of these measures remains contingent upon the directive from the Central government and extent of spread of Covid-19.

The ability of business to revert back to operational stability post restoration of normalcy will also be a key monitorable.
 
SIL's performance in fiscal 2020 was estimated to remain subdued vis-a-vis fiscal 2019, due to demand slowdown in automotive segments. Though its financial risk profile remains moderate because of healthy capital structure, the liquidity has partly constrained by high utilisation of working capital bank lines.

The ratings continue to reflect SIL's established presence in a niche sintering technology segment, promoters' experience, technologically advanced plant, increasing approved product basket, and moderate financial risk profile. These strengths are partially offset by working capital-intensive operations and segment and client concentration in revenue profile.

Key Rating Drivers & Detailed Description
Strengths:
* Established presence in niche segment and promoters' experience
The company has been manufacturing automotive components through the sintering technology for more than a decade and is among the few organised manufacturers of its kind in the domestic market. It caters to the large automotive players in the passenger car and two-wheeler segments.
 
* Technologically advanced plant and increasing approved product basket
Manufacturing automotive components through the sintering technology is a niche segment. The company benefits from its tie-up with the MIBA Sinter group, which is among the world leaders in this technology. SIL has invested more than Rs 100 crore in setting up its advanced technology plant. Over the years, it has increased its approved product list to around 60, with another 20 being under various stages of development. The advantages of using sintered technology products and company's increasing product basket should help scale up the business over medium term.
 
* Moderate financial risk profile
Networth was moderate and gearing estimated healthy at Rs 73 crore and sub-1 time, respectively, as on March 31, 2020. Networth and capital structure received a fillip through IPO (initial public offering) and preferential share allotment towards the end of fiscal 2018. Debt protection metrics are adequate, with estimated interest coverage and net cash accrual to total debt ratios of 3 times and 0.4 time, respectively, for fiscal 2020.
 
Weaknesses:
* Working capital-intensive operations:
Gross current assets have been estimated over 200 days on average because of high credit to customers, leading to receivables of around 100 days. Inventory is around 60 days. Efficient management of working capital requirements remains critical.
 
* Segment and client concentration in revenue
Entire revenue comes from the automotive industry. Moreover, top five customers account for more than 90% of overall turnover. These factors expose SIL to any sharp slowdown in end-user industry or performance of its key clients. As evident currently, the slowdown in automobile industry and regulatory changes have impacted company's topline and earnings. The revenue and profits are expected to be adversely impacted in fiscal 2020.
Liquidity Stretched

Liquidity is stretched marked by high utilisation of bank lines. The company is expected to generate cash accruals of Rs.7-8 crore annually against a repayment obligation of Rs.4.3 crore over the medium term. The operations are working capital intensive thus, resulting in highly utilised bank lines averaging to 96% for the past 12 months ended Jan-20. Nonetheless healthy networth add cushion to financial flexibility and ability to raise additional debt. 

Outlook: Negative

CRISIL believes the SIL's business risk profile will be constrained in the near term on account of the Covid-19 outbreak and muted demand in auto industry.

Rating Sensitivity factors
Upward factors
* Improvement in operating performance resulting in cash accruals of over Rs.10 crore
* Sustained improvement in working capital management

Downward factors
* Sustained downward impact on performance due to COVID-19 outbreak
* Operating margin of less than 15%
* Further stretch in working capital cycle thus, resulting in bank limits being utilized above 95% on a consistent basis
About the Company

SIL (previously, Maxtech Sintered Products Pvt Ltd), set up in 2007, manufactures automotive components using the sintering (powder metal) technology. The company was initially set up as a joint venture between BRN Industries Ltd (promoted by Mr J Raval and Mr H Banga) and Maxtech Manufacturing Inc (MMI). In June 2010, BRN Industries Ltd acquired MMI's entire stake in SIL. In February 2011, the MIBA group bought 26% in the company, which was renamed Sintercom India Pvt Ltd. Manufacturing plant is in Malval in Pune. In February 2018, the company came out with an IPO and got listed on the SME platform of the National Stock Exchange.

Key Financial Indicators
As on / for the period ended March 31   2019 2018
Operating income Rs crore 82.9 74.6
Reported profit after tax Rs crore 5.5 5.5
PAT margins % 6.6 7.3
Adjusted debt/adjusted networth Times 0.34 0.47
Interest coverage Times 4.3 3.1

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 9 CRISIL BBB-/Negative
NA Letter of Credit NA NA NA 4 CRISIL A3
NA Proposed Long Term
Bank Loan Facility
NA NA NA 0.5 CRISIL BBB-/Negative
NA Term Loan NA NA Jun-22 12.5 CRISIL BBB-/Negative
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  22.00  CRISIL BBB-/Negative      26-11-19  CRISIL BBB-/Stable          Suspended/ Suspended 
            31-01-19  CRISIL BBB/Stable           
Non Fund-based Bank Facilities  LT/ST  4.00  CRISIL A3      26-11-19  CRISIL A3          Suspended 
            31-01-19  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
Cash Credit 9 CRISIL BBB-/Negative Cash Credit 9 CRISIL BBB-/Stable
Letter of Credit 4 CRISIL A3 Letter of Credit 4 CRISIL A3
Proposed Long Term Bank Loan Facility .5 CRISIL BBB-/Negative Proposed Long Term Bank Loan Facility .5 CRISIL BBB-/Stable
Term Loan 12.5 CRISIL BBB-/Negative Term Loan 12.5 CRISIL BBB-/Stable
Total 26 -- Total 26 --
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 Bank Loan Ratings
CRISILs Criteria for rating short term debt

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