Rating Rationale
July 21, 2020 | Mumbai
Sintercom India Limited
Ratings downgraded to 'CRISIL BB+/Negative/CRISIL A4+'
 
Rating Action
Total Bank Loan Facilities Rated Rs.26 Crore
Long Term Rating CRISIL BB+/Negative (Downgraded from 'CRISIL BBB-/Negative')
Short Term Rating CRISIL A4+ (Downgraded from 'CRISIL A3')
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has downgraded its ratings on the bank facilities of Sintercom India Limited (SIL) to 'CRISIL BB+/Negative/CRISIL A4+' from 'CRISIL BBB-/Negative/CRISIL A3'.
 
The downgrade reflects a weaker operating performance in fiscal 2020 given the demand slowdown in the automobile (auto) industry. Revival in performance is expected to be muted because of the Covid-19 pandemic and continued demand slowdown.
 
Revenue declined by 35% in fiscal 2020 vis-a-vis the previous fiscal, due to demand slowdown, lower sale of diesel cars by a key customer and delayed offtake for BS-VI products. The fall in revenue, along with steady fixed cost, led to a drop in the operating profitability margin to 13.5% from the historic level of 22%. Cash accrual also declined to Rs 3.5 crore in fiscal 2020 from Rs 12 crore in the past.
 
As demand remains subdued, impacted by the pandemic and various containment measures taken by the government, operating performance may remain subdued. Further, the weaker performance and limited cash inflows have constrained liquidity, leading to highly utilised bank lines.

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

Key Rating Drivers & Detailed Description
Strengths:
* Established presence in a niche segment and experience of the promoters
The company has been manufacturing auto components through 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 auto players in the passenger car and two-wheeler segments. Further, the experience of the promoters should help increase presence in the non-passenger vehicle segment.
 
* Increasing approved product basket
Manufacturing auto 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 the increasing product basket should help scale-up the business over medium term.
 
* Moderate financial risk profile
The adjusted networth was moderate at Rs 73.64 crore as on March 31, 2020.  The gearing was comfortable at below 1 time as on this date, and is expected to remain at a similar level in the absence of debt-funded capital expenditure (capex). Debt protection metrics, however, were subdued as indicated by interest coverage and net cash accrual to total debt ratios of 1.9 times and 0.13 time, respectively, for fiscal 2020.
 
Weaknesses:
* Working capital-intensive operations:
Gross current assets are estimated at over 200 days on an average as high credit to customers leads to receivables of around 100 days. Inventory is around 60 days. Efficient management of working capital requirement remains critical.
 
* Segment and client concentration in revenue
The entire revenue comes from the auto industry. Moreover, the top five customers account for more than 90% of overall turnover. These factors expose the company to any sharp slowdown in the end-user industry or weakening in the performance of key clients. As evident currently, the slowdown in the auto industry and implementation of regulatory measures have impacted the topline and earnings.
Liquidity Stretched

Average utilisation of the bank lines is high while cash accrual has declined. Cash accrual is expected at Rs 4 crore, against repayment obligation of Rs 2.5-4.0 crore, per fiscal over the medium term. Working capital-intensive operations have resulted in highly utilised bank lines, averaging 96% during the 12 months through June 2020. Need-based fund infusion by the director during exigency and the pandemic should support liquidity.

Outlook: Negative

CRISIL believes the business risk profile will be constrained in the near term on account of the pandemic and muted demand in the auto industry.

Rating Sensitivity factors
Upward factors
* Improvement in the operating performance, resulting in cash accrual of over Rs 10 crore per fiscal
* Sustained improvement in working capital management, resulting in better liquidity

Downward factors
* Sustained impact on the performance due to the pandemic
* Operating margin of less than 12%
* A further stretch in the working capital cycle, resulting in weakening of liquidity
About the Company

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

Key Financial Indicators
Particulars Unit 2020 2019
Revenue Rs Crore 53.6 82.9
Profit after tax (PAT) Rs Crore -2.9 5.5
PAT margin % -5.3 6.6
Adjusted debt/adjusted networth Times 0.32 0.34
Interest coverage Times 1.9 4.3

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
Annexure - Details of Instrument(s)
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size
(Rs crore)		 Complexity
level		 Rating assigned
with outlook
NA Cash Credit NA NA NA 9 NA CRISIL BB+/Negative
NA Letter of Credit NA NA NA 4 NA CRISIL A4+
NA Proposed Long Term
Bank Loan Facility		 NA NA NA 0.5 NA CRISIL BB+/Negative
NA Term Loan NA NA Jun-22 12.5 NA CRISIL BB+/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 BB+/Negative  01-04-20  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 A4+  01-04-20  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 BB+/Negative Cash Credit 9 CRISIL BBB-/Negative
Letter of Credit 4 CRISIL A4+ Letter of Credit 4 CRISIL A3
Proposed Long Term Bank Loan Facility .5 CRISIL BB+/Negative Proposed Long Term Bank Loan Facility .5 CRISIL BBB-/Negative
Term Loan 12.5 CRISIL BB+/Negative Term Loan 12.5 CRISIL BBB-/Negative
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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