Rating Rationale
January 03, 2024 | Mumbai
siyaram recycling industries limited
Rating reaffirmed at 'CRISIL BB/Stable'
 
Rating Action
Total Bank Loan Facilities RatedRs.48 Crore
Long Term RatingCRISIL BB/Stable (Reaffirmed)
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its CRISIL BB/Stable rating on the long-term bank facilities of Siyaram Recycling Industries Limited (SRIL).

 

SRIL has concluded its Initial public offer (IPO) and got listed on Bombay Stock Exchange (BSE) SME on December 21, 2023. The total size of the IPO was Rs 22.96 crore, resulting in an equity inflow into the company through the primary issue of shares. The IPO proceeds are expected to be utilized for working capital requirements.

 

The rating continues to reflect the extensive industry experience of the promoter in the brass industry and diversified client base with long-standing relationship with customers, above average financial profile and moderate scale of operations of the company. These strengths are partially offset by its moderate working capital cycle, susceptibility of operating margins to fluctuations in raw material prices and forex rates and stretched liquidity profile.

 

On October 18, 2023, CRISIL Ratings had assigned its CRISIL BB/Stable rating to the long-term bank facilities of SRIL.

Key Rating Drivers & Detailed Description

Strengths:

  • Extensive industry experience of the promoter and diversified client base with long-standing relationship with customers: The promoter has been associated with the brass industry since 1987 through its group company, Siyaram Metal Udyog Pvt Ltd. This extensive experience has led to the introduction of new products and healthy scale-up of business operations, as reflected by increase in revenue to about Rs 541.40 crore in fiscal 2023 from Rs 424.99 crore in fiscal 2022. The company serves a diversified client base encompassing a wide array of industries such as manufacturers in the sanitary and bathware sector, pipes & plumbing sector and electrical items. In addition, it also sells products to metal dealers and traders. It generally does not enter into long term agreements with its customers, however, it has developed long-standing relationships with these customers some of whom have been with the company for over five years. For instance, companies/entities such as the Supreme Industries Limited, AGI Greenpac (formerly known as HSIL), Prayag Polymers Pvt. Ltd. and Anurag Impex have been its customers for the last five fiscals.

 

  • Above average financial risk profile: SRIL capital structure have been moderate due to lower reliance on external funds yielding gearing of 0.88 times and low total outside liabilities to adj tangible networth (TOL/ANW) of 1.50 times for year ending on March 31, 2023. Company has further raised equity in current fiscal; further strengthening leverage levels. SRIL’s debt protection measures have been at healthy levels due to moderate leverage and profitability. The interest coverage and net cash accrual to total debt (NCATD) ratio are at 3.52 times and 0.16 times for fiscal 2023, like to be sustained over medium term.

 

  • Moderate scale of operations: The scale of operations of the company is healthy as reflected by the revenues. The revenues have shown a CAGR of almost 50% in the past 3 fiscals, ended fiscal 2023. The company has reported about Rs 541.40 crore revenues in fiscal 2023 against Rs 424.99 crore in fiscal 2022. This growth over the past 2 fiscals is supported by growing sales volumes and improving realizations. Almost 50% of these revenues are derived from trading of the brass scrap and the remaining 50% from the manufacturing segment. With over 50-55% of unutilized capacities, the company will be able to improve its scale of operations, and thus revenues, over the medium term.

 

Weaknesses:

  • Moderate working capital cycle: Gross current assets are at 78-223 days over the three fiscals ended March 31, 2023. Its moderate working capital management is reflected in its gross current assets (GCA) of 110 days as on March 31, 2023. It is required to extend moderate credit period, in line with the industry standards, as, the customers are small and medium size player who require credit. Furthermore, to meet its business requirement, it holds large raw material, work in process & finished goods inventory.

 

  • Susceptibility of the operating margin to fluctuation in raw material prices and forex rates: Brass prices remain highly volatile as they depend on demand-supply in the international as well as domestic markets. Further, since a part of revenue comes from the international market, any sharp fluctuation in forex rates affects realizations and accruals. This exposes the operating margin to fluctuations in raw material prices and forex rates, which have deteriorated from 6.3% in fiscal 2022 to 3.4% in fiscal 2023.  Further, the margins of the company are moderate as almost 50-55% of the revenues are derived from trading of the scarp brass.

Liquidity: Stretched

Bank limit utilization continues to remain high at around 99.29 percent for the past twelve months ending November 2023. Cash accruals are expected to be over Rs 9-10 crores, which are sufficient against term debt obligation of Rs 1.6-2 crores over the medium term. In addition, it will act as a cushion to the liquidity of the company.

 

The current ratio is healthy at 1.86 times on March 31, 2023. The promoters are likely to extend support in the form of equity and unsecured loans to meet its working capital requirements and repayment obligations.

Outlook: Stable

CRISIL Ratings believe SRIL will continue to benefit from the extensive experience of its promoter, and established relationships with clients.

Rating Sensitivity factors

Upward factors

  • Sustained improvement in scale of operation and sustenance of operating margin over 3-3.5%, leading to higher cash accruals.
  • Improvement in working capital cycle.
  • Improvement in the liquidity profile of the company and moderation of average bank limit utilization levels to around 80%.

 

Downward factors

  • Decline in scale of operations by over 20% or dip in operating profitability to below 2.5%, leading to decline in net cash accruals.
  • Large debt-funded capital expenditure or substantial increase in its working capital requirements thus weakening its liquidity & financial risk profile.

About the Company

SRIL, formerly known as Siyaram Impex Private Limited, was incorporated in 2008, is promoted by Mr. Ramgopal Maheshwari. The company, based in Jamnagar, Gujarat, manufactures copper alloy (brass) ingots and billets.

Key Financial Indicators

As on/for the period ended March 31

Unit 

2023

2022

Operating income

Rs.Crore

541.40

424.99

Reported profit after tax

Rs.Crore

7.85

4.45

PAT margins

%

1.45

1.07

Adjusted Debt/Adjusted Networth

Times

0.88

0.70

Interest coverage

Times

3.50

9.03

Status of non cooperation with previous CRA

SRIL has not cooperated with Brickwork Ratings India Private Limited (BWR) which has classified it as non-cooperative vide release dated November 09, 2023. The reason provided by BWR is 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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. 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.Cr)

Complexity

Levels

Rating Assigned

with Outlook

NA

Cash credit

NA

NA

NA

46

NA

CRISIL BB/Stable

NA

Term loan

NA

NA

Oct-24

0.7

NA

CRISIL BB/Stable

NA

Term loan

NA

NA

Mar-28

1.3

NA

CRISIL BB/Stable

Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 48.0 CRISIL BB/Stable   -- 18-10-23 CRISIL BB/Stable 24-06-22 Withdrawn (Issuer Not Cooperating)*   -- CRISIL B /Stable(Issuer Not Cooperating)*
      --   --   -- 25-02-22 CRISIL B /Stable(Issuer Not Cooperating)*   -- --
All amounts are in Rs.Cr.
* - Issuer did not cooperate; based on best-available information
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 46 Union Bank of India CRISIL BB/Stable
Term Loan 0.7 Union Bank of India CRISIL BB/Stable
Term Loan 1.3 Union Bank of India CRISIL BB/Stable
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

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