Rating Rationale
August 10, 2021 | Mumbai
Sudhakar Plastic Private Limited
Ratings upgraded to 'CRISIL A- / Stable / CRISIL A2+ '
 
Rating Action
Total Bank Loan Facilities RatedRs.24.85 Crore
Long Term RatingCRISIL A-/Stable (Upgraded from 'CRISIL BBB+ / Stable')
Short Term RatingCRISIL A2+ (Upgraded from 'CRISIL A2 ')
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed rationale

CRISIL Ratings has upgraded its ratings on the bank facilities of Sudhakar Plastic Pvt Ltd (SPPL; part of the Sudhakar group) to ‘CRISIL A-/Stable/CRISIL A2+’ from 'CRISIL BBB+/Stable/CRISIL A2’.

 

The ratings upgrade reflects the continued strong business performance of Sudhakar group in fiscal 2021, despite Covid-19 induced disruptions and expectation of steady improvement over the medium term, supported by healthy revenue growth and prudent working capital management.  Revenue rose by 19% to over Rs 1000 crore, while the operating margin expanded to over 17% in fiscal 2021 (from under 11% in 2020) led by better realisations and healthy demand. Over the medium term, revenue should grow 10-15% per annum, while the operating margin may moderate to 12-14%.

 

The upgrade also factors in the enhanced financial risk profile of the Sudhakar group, marked by a healthy networth, robust capital structure and debt protection metrics. Unsecured loans extended by the promoter on a regular basis lowers dependence on external debt. Absence of debt-funded capital expenditure (capex), healthy cash accrual and efficient working capital management should also support the financial risk profile.

 

The ratings also reflect the group's established market position in the polyvinyl chloride (PVC) pipes segment in Andhra Pradesh and Telangana, the extensive experience of its promoter, and strong financial risk profile. These strengths are partially offset by geographic concentration in revenue, susceptibility to volatility in raw material prices, and exposure to intense competition.

Analytical approach

CRISIL Ratings has combined the business and financial risk profiles of Sudhakar Irrigation Systems Pvt Ltd (SISPL), SPPL, Sudhakar Polymers Pvt Ltd (SPL), and Sudhakar PVC Products Pvt Ltd (SPVCPL). All the companies, collectively referred to as the Sudhakar group, are in the same business, and have common promoter and fungible cash flow.

 

CRISIL Ratings has treated 75% of the unsecured loans of Rs 156.6 crore, extended by the promoter and his relatives as on March 31, 2021, as equity and 25% as debt as the loans are subordinated to bank debt and will be retained in the business over the medium term. Moreover, interest on unsecured loans are likely to be ploughed back into the business.

 

Please refer Annexure - Details of Consolidation, which captures the list of entities considered and their analytical treatment of consolidation.

Key rating drivers and detailed description

Strengths:

  • Established regional market position and the extensive experience of the promoter: Track record of over four decades in the PVC pipes and fittings business, along with established regional presence, strong brand recall, and the promoter’s extensive experience will continue to support the group’s business.

 

  • Strong financial risk profile: Networth and gearing were healthy at Rs 438 crore and 0.26 time, respectively, as on March 31, 2021. Total outside liabilities to tangible networth ratio was also comfortable at 0.42 time. Debt protection metrics were also robust, as reflected in interest coverage and net cash accrual to total debt ratios of 7.2 times and 1.01 times, respectively, in fiscal 2021.

 

Weaknesses:

  • Geographical concentration in revenue: Majority of the revenue is derived from Andhra Pradesh and Telangana. Hence, the group remains exposed to geopolitical and climate-related risks and to the risk of any economic slowdown in the two states.

 

  • Susceptibility to volatility in raw material prices and exposure to intense competition: Profitability remains susceptible to volatility in the price of key raw material, PVC resin, which is linked to petrochemical prices. PVC resin accounts for 85% of the total cost. Moreover, intense competition from large players continues to constrain the business risk profile.

Liquidity: Adequate

Cash accrual, expected at Rs 90-100 crore each in fiscals 2022 and 2023, should comfortably cover annual debt obligation of Rs 9-17 crore and the surplus will support liquidity. The group had also prepaid a portion of its term debt in fiscal 2021 (in SISPL and SPVCPL). Bank limits were utilised 60%, on average, in the 12 months through April 2021. Further, need-based fund support from the promoter in the form of interest-bearing unsecured loans is expected to continue. The group also enjoys moderate financial flexibility as the interest on unsecured loans and dividends can be deferred in case of stress.

Outlook Stable

CRISIL Ratings believes the Sudhakar group will maintain its healthy financial risk profile in the absence of any major debt-funded capex.

Rating sensitivity factors

Upward factors

  • Healthy revenue growth of 30-35% along with sustenance of operating margin at 13-14% and prudent working capital management, resulting in sizeable net cash accrual
  • Diversification of product profile and moderation in geographical concentration risk

 

Downward factors

  • Decline in revenue by 25-30% and operating margin to 9-10% lowers net cash accrual significantly
  • Any large, debt-funded capex, stretch in working capital cycle or larger-than-expected dividend or cash outflow, weakening the capital structure

About the group

The Sudhakar group manufactures PVC pipes and fittings and high-density polyethylene (HDPE) and low-density polyethylene (LDPE) pipes and tanks. The group was established by Mr Meela Satyanarayana.

 

SISPL, incorporated in 1997, manufactures PVC, chlorinated PVC pipes, and rotomoulded tanks and garden pipes. SPPL, incorporated in 1992, manufactures PVC and HDPE/LDPE pipes. Incorporated in 1995, SPL manufactures PVC pipes and fittings.

 

Established in 1972 as a partnership firm and reconstituted as a private limited company in 2010, SPVCPL manufactures PVC pipes, HDPE pipes, and rotomoulded tanks and garden pipes. The company started manufacturing cables in February 2017.

Key financial indicators

Particulars - Consolidated

Unit

2021*

2020

Revenue

Rs crore

1002.8

844.6

PAT

Rs crore

85.4

29.2

PAT margin

%

8.52

3.46

Adjusted debt/Adjusted networth

Times

0.26

0.3

Interest coverage

Times

7.22

3.8

*Provisional

Status of non-cooperation with previous CRA:

SPPL has not cooperated with ICRA Ltd which has classified it as non-cooperative vide release dated October 7, 2020. The reason provided by ICRA Ltd was non-furnishing of information for monitoring of ratings.

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)

Complexity levels

Rating assigned with outlook

NA

Bank guarantee

NA

NA

NA

5.50

NA

CRISIL A2+

NA

Cash credit

NA

NA

NA

8.00

NA

CRISIL A-/Stable

NA

Inland/Import Letter of credit

NA

NA

NA

10.00

NA

CRISIL A2+

NA

Long-term loan

NA

NA

Jun-22

0.67

NA

CRISIL A-/Stable

NA

Proposed long-term bank loan facility

NA

NA

NA

0.68

NA

CRISIL A-/Stable

 

Annexure – List of entities consolidated

Names of entities consolidated

Extent of consolidation

Rationale for consolidation

Sudhakar Plastic Pvt Ltd

Full

Same line of business with common promoters and fungible cash flow

Sudhakar Polymers Pvt Ltd

Full

Same line of business with common promoters and fungible cash flow

Sudhakar PVC Products Pvt Ltd

Full

Same line of business with common promoters and fungible cash flow

Sudhakar Irrigation Systems Pvt Ltd

Full

Same line of business with common promoters and fungible cash flow

 

Annexure - Rating History for last 3 Years
  Current 2021 (History) 2020  2019  2018  Start of 2018
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 9.35 CRISIL A-/Stable   -- 23-07-20 CRISIL BBB+/Stable   -- 29-11-18 CRISIL BBB+/Positive / CRISIL A2 CRISIL BBB+/Stable / CRISIL A2
      --   -- 08-01-20 CRISIL BBB+/Positive / CRISIL A2   --   -- --
Non-Fund Based Facilities ST 15.5 CRISIL A2+   -- 23-07-20 CRISIL A2   -- 29-11-18 CRISIL A2 CRISIL A2
      --   -- 08-01-20 CRISIL A2   --   -- --
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
Bank Guarantee 5.5 CRISIL A2+ Bank Guarantee 5.5 CRISIL A2
Cash Credit 8 CRISIL A-/Stable Cash Credit 8 CRISIL BBB+/Stable
Inland/Import Letter of Credit 10 CRISIL A2+ Inland/Import Letter of Credit 10 CRISIL A2
Long Term Loan 0.67 CRISIL A-/Stable Long Term Loan 1.35 CRISIL BBB+/Stable
Proposed Long Term Bank Loan Facility 0.68 CRISIL A-/Stable - - -
Total 24.85 - Total 24.85 -
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Criteria for rating short term debt
CRISILs Criteria for Consolidation
Criteria for rating entities belonging to homogenous groups

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