Rating Rationale
April 07, 2022 | Mumbai
Swiss Singapore India Private Limited
Rated amount enhanced
 
Rating Action
Total Bank Loan Facilities RatedRs.750 Crore (Enhanced from Rs.500 Crore)
Long Term RatingCRISIL A/Stable (Reaffirmed)
Short Term RatingCRISIL A1 (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL A/Stable/CRISIL A1’ ratings on the bank facilities of Swiss Singapore India Private Limited (SSIPL).

 

Revenue grew over 40% in the first nine months of fiscal 2022 due to sharp increase in the average price of coal, the major traded commodity, as well as higher trading volume of some agricultural commodities. With higher exports of wheat and rice, contribution of coal to revenue declined to ~70% in the first nine months of fiscal 2022 from ~80% in fiscal 2021. While the volume of coal traded by SSIPL was lower during the nine-month period, it is expected to improve gradually to the erstwhile level once prices normalise. Operating margin improved to over 5% in the first nine months of fiscal 2022 from 1.6% in fiscal 2021, due to inventory gain on increasing trend of coal prices, and is expected to remain high in fiscal 2022 and rebound to the erstwhile level of 1.2-1.5% next fiscal onwards. Operating performance is expected to sustain over the medium term, backed by the established market position of the company, prudent risk management policies and strong parent support. The financial risk profile is backed by adequate capital structure and debt protection metrics.

 

The ratings continue to reflect the strong operational and financial linkages SSIPL enjoys with its parent, Swiss Singapore Overseas Enterprises Pte Ltd (SSOE), the company’s established market position in the domestic commodities trading business and adequate financial risk profile. These strengths are partially offset by working capital-intensive operations and exposure to risks inherent in the commodities trading business, including high concentration in coal trading and changes in regulations.

Analytical Approach

  • CRISIL Ratings has treated compulsorily convertible debentures (CCDs) of Rs 60 crore of SSIPL, held by its parent, as part of networth. The CCDs will be converted to equity in October 2023. The company pays interest of 9% on the CCDs.
  • CRISIL Ratings has combined the business and financial risk profiles of SSIPL and its subsidiary, Swiss Singapore Logistics Pvt Ltd (SSLPL), considering their close operational linkages. The merger of SSLPL into SSIPL has been approved on February 22, 2022.
  • CRISIL Ratings has applied its parent notch-up framework to factor in support from SSOE.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

  • Strong operational and financial linkages with parent: SSIPL is a wholly owned subsidiary of SSOE and is a part of the Aditya Birla group. Strong relationship with the parent ensures reliable sourcing and marketing of commodities, and access to critical market intelligence. SSIPL is likely to receive funding support from the parent in case of any exigencies.

 

  • Established market position: The company has a strong foothold in the domestic commodities trading business comprising coal, petrochemical products and agricultural products, and has been in the business for almost a decade, post acquisition of the trading business undertaking of BGH Exim Ltd. Coal remains the most traded commodity, contributing about 70% to revenue in the first nine months of fiscal 2022. The revenue grew 40% to Rs 3,919 crore during the period, driven by the sharp increase in the price of coal and petrochemical products in the international market. SSIPL also increased trading of agricultural commodities such as wheat and rice during the period. Favourable market conditions and inventory gain on higher coal prices drove up the operating margin to over 5% in the first nine months of fiscal 2022 from 1.6% in fiscal 2021.

 

  • Adequate financial risk profile: Adjusted networth is expected to improve sharply to ~Rs. 400 crore as on March 31, 2022, from Rs 225 crore as on March 31, 2021, with healthy profitability and accrual. External debt was nil as on March 31, 2021. With improved networth, total outside liabilities to adjusted networth (TOLANW) ratio is estimated to improve to less than 2.75 times as on March 31, 2022, from over 4 times a year back. It will remain high over 2 times in the near-term owing to large payables (specifically to the parent), even as 75% of commodity purchases being from the parent provides some comfort. Sizeable inventory and receivables result in moderate working capital requirement. SSIPL has extended inter-corporate deposits (ICDs) of Rs 93 crore as on March 31, 2021, to group entities. These are interest-bearing and repayable on demand. Any sizeable increase in ICDs will be a key monitorable.

 

Weaknesses:

  • Working capital-intensive operations: Gross current assets are estimated at ~100 days as on March 31, 2022, because of sizeable inventory of ~80 days. Inventory was high at over 120 days in fiscal 2018. High inventory level is more vulnerable to adverse fluctuations in commodity prices as witnessed in the past. However, the company has corrected the inventory holding period and inventory should remain less than 90 days over the medium term. With around 75% of purchases being from the parent, any increase in working capital requirement will be partially offset by stretch in payables and ensure low reliance on external debt.

 

  • Exposure to inherent risks, including vulnerability to government regulations: The commodity trading business is susceptible to significant risks, primarily due to fluctuations in commodity prices and foreign exchange rates, besides operational risks. SSIPL has back-to-back selling arrangement for a large proportion of its traded cargo, which mitigates the risk to some extent. Furthermore, high concentration in coal trading exposes SSIPL to sharp fluctuations in coal prices, thereby impacting profitability. Government regulations also play a significant role as any change in duty structures or regulations on trade of any commodity could impact revenue and profitability.

Liquidity: Adequate

Cash accrual is estimated at Rs 165-175 crore in fiscal 2022 owing to healthy profitability, and will decline to Rs 50-60 crore per annum on a steady state basis over the medium term. Steady-state cash accrual will be sufficient to fund nominal capital expenditure of Rs 1-2 crore in fiscal 2022 and part-fund incremental working capital requirement. Nil long-term debt supports liquidity. Fund-based limit utilisation was below 20% on average over the 12 months through February 2022. Unencumbered cash and equivalent stood at Rs 29 crore as on March 31, 2021. Also, the parent is likely to provide need-based support during any exigency.

Outlook: Stable

CRISIL Ratings believes SSIPL will continue to benefit from its strong market position in the domestic commodities trading business and support from SSOE.

Rating Sensitivity factors

Upward factors

  • Improvement in business risk profile resulting in sustenance of operating margin above 2%
  • Additional equity infusion by the parent leading to better debt metrics, especially TOLANW ratio
  • Improvement in the credit risk profile of the parent

 

Downward factors

  • Weaker-than-expected business growth or commodity price fluctuations lowering operating margin below 1% on a sustained basis
  • Stretch in the working capital cycle, impacting the TOLANW ratio
  • Material increase in ICD support to group entities
  • Reduced support from the parent or weakening in SSOE’s credit risk profile

About the Company

Established in April 2013, SSIPL is a wholly owned subsidiary of SSOE and trades in various commodities such as coal, iron ore, mill scale, agricultural products, tea and petrochemical products. In June 2013, SSIPL acquired the trading business undertaking of BGH Exim Ltd, the erstwhile Indian trading arm of the Aditya Birla group. In fiscal 2016, the company set up a subsidiary, SSLPL, to undertake clearing and forwarding activities for the group.

About the Group

Incorporated in Singapore in 1978, SSOE is a part of the Aditya Birla group and a leading bulk commodity trading solutions provider to clients across the globe. The company achieved annual turnover of around Rs 36,000 crore in fiscal 2021. Its diversified portfolio comprises petroleum products, coal, sulphur, fertilisers, minerals and metals, agricultural products and tea.

Key Financial Indicators

Particulars

Unit

2021

2020

Revenue

Rs crore

3643

4320

Profit after tax

Rs crore

56

40

PAT margin

%

1.5

0.9

Adjusted debt/adjusted networth

Times

0.00

0.14

Interest coverage

Times

5.77

2.56

 

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

level

Rating assigned

with outlook

NA

Letter of Credit*

NA

NA

NA

220

NA

CRISIL A1
NA Letter of Credit NA NA NA 245 NA CRISIL A1

NA

Cash Credit**

NA

NA

NA

50

NA

CRISIL A/Stable
NA Cash Credit NA NA NA 70 NA CRISIL A/Stable

NA

Overdraft Facility

NA

NA

NA

25

NA

CRISIL A/Stable

NA

Proposed Long Term

Bank Loan Facility

NA

NA

NA

100

NA

CRISIL A/Stable

NA

Proposed Non Fund based limits

NA

NA

NA

40

NA

CRISIL A1

*Interchangeable with bank guarantee up to Rs 60 crore and standby letter of credit up to Rs 130 crore

**Fully interchangeable with letter of credit

Annexure - List of Entities Consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Swiss Singapore Logistics Pvt Ltd

100%

Subsidiary

 

Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 245.0 CRISIL A/Stable   -- 21-09-21 CRISIL A/Stable   --   -- CRISIL A/Stable
      --   -- 07-07-21 CRISIL A/Stable   --   -- --
Non-Fund Based Facilities ST 505.0 CRISIL A1   -- 21-09-21 CRISIL A1 31-08-20 CRISIL A/Stable 17-05-19 CRISIL A1 / CRISIL A/Stable CRISIL A1
      --   -- 07-07-21 CRISIL A1   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit** 10 Axis Bank Limited CRISIL A/Stable
Cash Credit 70 HDFC Bank Limited CRISIL A/Stable
Cash Credit** 40 Axis Bank Limited CRISIL A/Stable
Letter of Credit 100 Axis Bank Limited CRISIL A1
Letter of Credit* 220 HDFC Bank Limited CRISIL A1
Letter of Credit 145 ICICI Bank Limited CRISIL A1
Overdraft Facility 25 ICICI Bank Limited CRISIL A/Stable
Proposed Long Term Bank Loan Facility 100 Not Applicable CRISIL A/Stable
Proposed Non Fund based limits 40 Not Applicable CRISIL A1

*Interchangeable with bank guarantee up to Rs 60 crore and standby letter of credit up to Rs 130 crore

**Fully interchangeable with letter of credit

This Annexure has been updated on 07-Apr-22 in line with the lender-wise facility details as on 03-Sep-21 received from the rated entity.

Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Criteria for rating trading companies
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support
CRISILs Criteria for Consolidation

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