| South West Pinnacle Exploration Limited | ||||||
| Rating outlook revised to 'Negative'; ratings reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL has revised its outlook on the long-term bank facilities of South West Pinnacle Exploration Limited (South West Pinnacle) to 'Negative' from 'Stable' while reaffirming the rating at 'CRISIL BBB'. The short term rating has been reaffirmed at 'CRISIL A3+'. |
| Analytical Approach |
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For arriving at the ratings, CRISIL has taken a standalone approach to the business and financial risk profiles of South West Pinnacle. |
| Key Rating Drivers & Detailed Description |
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Strengths: * Strong technical expertise in drilling and exploration, and diversified customer profile: The company has over 12 years of experience in drilling and exploration of coal, minerals, coal-bed methane, oil and gas, and aquifer mapping. It has also expanded into the seismic domain during fiscal 2020, winning a contract worth Rs 73 crore from Oil India ltd. It currently has 33 operational rigs with capacity to drill between 300-2,500 metres. The client base is diversified across segments and geographies and includes both public and private sector players, such as Atomic Minerals Directorate for Exploration, Oil India ltd., Central Mine Planning and Design Institute, Central Ground Water Board, ONGC Energy Centre Trust, Odisha Lift Irrigation Corporation Ltd, Reliance Industries Ltd ('CRISIL AAA/Stable/CRISIL A1+), Geological Survey of India, and Hindalco Industries Ltd ('CRISIL AA/Positive/CRISIL A1+'). This minimises risk of exposure to any one particular industry. Furthermore, the company is able to operate under multiple segments with the same resources, without incurring any additional capital expenditure (capex). * Healthy financial risk profile: Networth had improved after the company got listed on the National Stock Exchange's platform for small and medium enterprises (NSE-SME platform) in February 2018. Gearing was healthy at 0.39 time as on March 31, 2019, while debt protection metrics were strong, with interest coverage and net cash accrual to total debt ratios of 6.1 times and 0.5 time, respectively, as on March 31, 2019. The capital structure should remain healthy with gearing to remain below 0.5 time, going forward, aided by expected cash accrual of Rs 20-25 crore in fiscal 2020, and absence of any major capex towards purchase of rigs. Weaknesses: * Working capital-intensive operations: The bulk of the ancillary equipment that is part of the rigs, has to be kept as inventory at all times at the site, on account of the nature of operations. There were also delays in execution of orders because of unfavourable monsoon and external challenges leading to higher working capital as on December 31, 2019. Therefore, debtors increased to 175 days as on December 31, 2019, from 132 days as on March 31, 2019, while inventory rose to 305 days as on December 31, 2019, as against 224 days as on March 31, 2019. There has been a reduction in debtors and working capital requirement subsequently in February owing to realisation of payments by clients. CRISIL will continue to monitor company's working capital cycle and any delay in the execution of orders leading to a stretch in working capital cycle will remain a key rating sensitivity factor. * Volatility in orders and revenue growth because of the tender-based nature of business, and small scale of operations: The company has to bid for tenders floated by public sector entities while contracts from private sector entities are mostly by invitation. Delay in awarding contracts, insufficient number of bidders, or lack of private sector contracts, can adversely affect order inflow and revenue growth. The company has been able to venture into new capabilities such as the seismic domain, which should help improve its order pipeline over the medium term. Timely execution of the company's existing order book of Rs 276 crore as of December 31, 2019, as well as build-up of further orders will remain a key monitorable. |
| Liquidity Adequate |
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The company had cash and cash equivalent of Rs 8 crore as on March 31, 2019. Bank limit of Rs 25 crore were utilised at 78% on an average for the 12 months through January 2019. Long-term debt was Rs 22 crore as on February 25, 2020 of which Rs. 13 crore is payable over the next 12 months. The cash accrual, expected at Rs 20-25 crore per year, should be sufficient to cover any repayment obligation, moderate capex plans, and incremental working capital requirement, going forward. |
| Outlook: Negative |
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CRISIL believes South West Pinnacle's business risk profile may weaken with lower-than-expected execution impacting revenue and profitability with high working capital requirement. The company will, however, maintain its financial risk profile over the medium term driven by low debt and moderate capex plans. |
| Rating Sensitivity factors |
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Upward Factors: * Substantial build-up of orders and healthy revenue growth along with improved operating margin * Net cash accrual sustaining at more than Rs 28 crore * Significant reduction in receivables and inventory, days leading to rationalisation of working capital Downward Factors: * Muted revenue along with operating margin sustaining below 20% * Further rise in inventory or receivables days, thus, adversely impacting working capital * Significant debt-funded capex impacting the financial risk profile |
| About the Company |
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Incorporated in November 2006, by the promoter, Mr Vikas Jain and his co-promoter, Mr Piyush Jain, South West Pinnacle undertakes drilling and exploration of coal, minerals, and coal-bed methane. The company has expanded into aquifer (water) mapping programmes for state and central government agencies besides 3D and 2D seismic data acquisition and processing doing for renowned oil and Gas companies of the country. It also provides consultancy for geological field services, mobile field services, and other allied services. The company has 33 operational rigs with capacity to drill between 300-2,500 metres. The company was listed on the NSE-SME growth platform on February 19, 2018, and was renamed as South West Pinnacle Exploration Ltd from South West Pinnacle Exploration Pvt Ltd. |
| Key Financial Indicators (CRISIL Adjusted) | ||||||||||||||||||||||||
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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) | |||||||||||||||||||||||||||||||||||
#Interchangeable with letter of credit up to Rs 3 crore |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||
#Interchangeable with letter of credit up to Rs 3 crore. | ||||||||||||||||||||||||||||||||||||||||||
| For further information contact: | ||||||
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