Rating Rationale
October 31, 2020 | Mumbai
Soil and Enviro Industries Private Limited
'CRISIL B+/Stable/CRISIL A4' assigned to bank debt
 
Rating Action
Total Bank Loan Facilities Rated Rs.9.5 Crore
Long Term Rating CRISIL B+/Stable (Assigned)
Short Term Rating CRISIL A4 (Assigned)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has assigned its 'CRISIL B+/Stable/CRISIL A4' ratings to the bank facilities of Soil and Enviro Industries Pvt Ltd (SEIPL).
 
The ratings reflect SEIPL's modest scale of operations, large working capital requirement, weak financial profile and vulnerability of operating margin to fluctuations in foreign exchange (forex) rates. These weaknesses are partially offset by the extensive experience of the promoters in the air pollution equipment industry with well-established customers.

Analytical Approach

Unsecured loans from promoters to the tune of Rs. 2 crore as on 31st March, 2020 is treated as neither debt nor Equity (NDNE) while arriving at the rating since the same is expected to remain in the business over the medium term.

Key Rating Drivers & Detailed Description
Weaknesses:
* Modest scale of operations:
SEIPL's subdued scale is reflected in revenue of Rs 16 crore in fiscal 2020. The business profile is constrained by its modest scale in the intensely competitive industry, which will continue to limit its operating flexibility. Moreover, the pandemic in the current fiscal has also imposed a challenge on the scale of operation of the company
 
* Working capital-intensive operations:
Gross current assets were 393-456 days over the three fiscals ended March 31, 2020. The large working capital requirement arises from high debtor and inventory levels. The company is required to extend long credit period and a part of the debtors is realised after a substantial time period after commissioning is done. Furthermore, on account of business need, it has to hold large work-in-process and inventory.
 
* Weak financial profile:
Gearing was estimated at 1.8 times and total outside liabilities to adjusted networth (TOLANW) ratio was 2.3 times for fiscal 2020.  SEIPL's debt protection measures have also been weak on account of low accrual from operations. The interest coverage and net cash accrual to total debt ratios were around 2 times and 0.08 time, respectively, for fiscal 2020. SEIPL's debt protection measures are expected to remain at similar level over the medium term.
 
* Vulnerability of operating margin to fluctuations in forex rates:
Since majority of the revenue comes from the international market, any sharp fluctuations in forex rates affect realisations and accrual.  This exposes the operating margin to fluctuations in forex rates.
 
Strength:
* Extensive industry experience of the promoters with well-established customers:
The promoters have experience of around two decades in the related industry. This has given them an understanding of the market dynamics and enabled them to establish longstanding relationships with suppliers and customers. The company's customers include well-established players in various industries such as Steel Authority of India Ltd, Exide Industries Ltd, Drinking Water & Sanitation Department, Government of Jharkhand, The West Bengal Power Development Corporation Ltd and Bharat Aluminum Company Ltd (BALCO), among others.
Liquidity Poor

Bank limit utilisation was high at 95.69% for the 12 months through August 2020. Cash accrual was estimated to be tightly matched against debt obligation in fiscal 2020 and is expected to remain so over the medium term. Current ratio was moderate at 1.36 times as on March 31, 2020. The promoters are likely to extend support in the form of equity and unsecured loans to meet the working capital requirement and debt obligation.

Outlook: Stable

CRISIL believes SEIPL will continue to benefit from the extensive experience of its promoters and established relationships with clients.

Rating Sensitivity factors
Upward factors
* Sustained increase in revenue by 20% and stable operating margin, leading to higher cash accrual and cushion of more than Rs 50 lakh between accrual and debt repayment
* Improvement in the working capital cycle
 
Downward factors
* Deterioration in revenue to less than Rs 10 crore, leading to mismatch between accrual and debt repayment
* Substantial increase in working capital requirement, weakening liquidity and the financial profile
About the Company

Incorporated in 2004, SEIPL is located in Kolkata. SEIPL is owned and managed by Mr Atit Kumar Talukdar, Mr Tapa Talukdar and Mr Asit Talukdar. The company is engaged in designing, engineering, fabrication, erection, manufacturing, supply, installation and maintenance of air pollution control equipment and systems and executes projects on turnkey basis.

Key Financial Indicators
Particulars Unit 2019 2018
Revenue Rs crore 12.05 17.71
Profit after tax (PAT) Rs crore -1.39 0.12
PAT margin % -11.52 0.69
Adjusted debt/adjusted networth Times 2.74 1.49
Interest coverage Times -0.36 1.17

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)		 Level of complexity Rating Assigned with Outlook
NA Cash credit NA NA NA 5.50 NA CRISIL B+/Stable
NA Bank guarantee NA NA NA 3.00 NA CRISIL A4
NA Letter of credit NA NA NA 1.00 NA CRISIL A4
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  5.50  CRISIL B+/Stable    --    --    --    --  -- 
Non Fund-based Bank Facilities  LT/ST  4.00  CRISIL A4    --    --    --    --  -- 
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
Letter of Credit 1 CRISIL A4 -- 0 --
Bank Guarantee 3 CRISIL A4 -- 0 --
Cash Credit 5.5 CRISIL B+/Stable -- 0 --
Total 9.5 -- Total 0 --
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

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