| Sahyadri Industries Limited | ||||||
| Rating outlook revised to 'Positive'; Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
CRISIL Ratings has revised its outlook on the long-term bank loan facilities of Sahyadri Industries Ltd (SIL) to ‘Positive’ from ‘Stable’ and reaffirmed the long-term rating at ‘CRISIL BBB+’; short-term rating is reaffirmed at ‘CRISIL A2’.
The outlook revision reflects the expected improvement in the business risk profile, backed by sustained healthy growth in revenue while maintaining a comfortable operating margin. Operating income grew 63% year-on-year in fiscal 2021 supported by growth in realization and higher demand from rural market (which is the key market for SIL) given normal monsoon leading to better crop output and thereby higher disposable rural income. The increase in scale of operation resulted in better fixed cost absorption and hence the operating margin also better at 19.5% in fiscal 2021. Operating performance improvement is expected to continue in current fiscal with company reporting revenue of Rs.409.73 crore and operating margin of 19.8% during the first nine months of fiscal 2022. SIL's growing penetration in southern markets coupled with government’s thrust on rural housing should further help sustain the improvement in operating performance. The continued growth in revenue, healthy operating margin on a sustained basis along with stable working capital cycle will result in stronger financial risk profile.
The ratings reflect the established market position of SIL in the corrugated asbestos-cement (AC) sheets industry, its wide distribution network and strong financial risk profile. These strengths are partially offset by dependence on government’s rural spending, and exposure to intense competition from peers and substitute products, and susceptibility to regulatory threat of ban on manufacture or use of asbestos in end-user markets and in key asbestos-producing nations. |
Analytical Approach Unsecured loans of Rs 38.3 crore (as on March 31, 2021) from the promoters have been treated as debt. |
Key Rating Drivers & Detailed Description Strengths: * Established market position in the corrugated AC sheets industry: SIL has been manufacturing AC sheets since 1981 under the brand names Swastik, Cemply and Ecopro. It is present in Maharashtra, Gujarat, Kerala, Tamil Nadu, Karnataka, Andhra Pradesh, and Telangana (which accounts for majority of the domestic market). SIL has leadership position in the AC sheets market in Maharashtra, with two manufacturing facilities resulting in savings on logistical costs. The proximity of the manufacturing facilities to its markets gives it a competitive advantage.
* Wide distribution network: SIL has a strong distribution network across India, comprising over 3,000 dealers and distributors having strong operational presence in the western and southern markets. Wide distribution network helps the company in establishing its brand presence and also offers revenue visibility from the domestic market. Company’s focus on increasing penetration in the southern market and the consequent addition in new regions will support the operating performance.
* Strong financial risk profile: Networth, robust and estimated to be around Rs 307 crore as on March 31, 2022, will continue to improve over the medium term on the back of healthy accretion to reserve. Despite debt-funded capital expenditure (capex), gearing is likely to remain low at around 0.22 time as on March 31, 2022 and in the range of 0.28-0.30 time over the medium term. Debt protection metrics are healthy: interest coverage and adjusted debt to net cash accrual ratios are estimated to be around 21.8 and 1.2 times, respectively, for fiscal 2022.
Weaknesses: * Dependence on government’s rural spending, and exposure to intense competition from peers and substitute products: Demand for AC roofing is derived from rural spending on household construction, as well as investment in industrial construction. This exposes SIL to fluctuations in rural purchasing power, and change in economic cycles. Moreover, the industry is intensely competitive, marked by presence of other strong players. AC roofing players also face stiff competition from manufacturers of galvanised iron (GI) roofing sheets, which have emerged as a viable alternative for AC roofing. Any sharp decline in the price of GI sheets will significantly impact demand for AC sheets. Furthermore, since cost of procuring the major raw material for AC roofing (asbestos fibre) accounts for over 50% of the total production cost and as the company does not hedge its imports, even a slight variation in rates may impact profitability.
* Exposure to regulatory threat of ban on manufacture or use of asbestos in end-user markets and in key asbestos-producing nations: SIL remains vulnerable to the risk of a ban on mining and use of asbestos in Kazakhstan or Russia (which are the largest exporters of the mineral). The on-going Russia-Ukraine war and Russia being an important exporter of the raw material globally, the raw material prices could see a rise and hence the sustainability of healthy operating margin going ahead will remain a key rating sensitivity. In India too, only white asbestos (known as chrysotile) fibre is used, as blue and brown asbestos have been banned. Furthermore, all forms of asbestos mining is banned in the country. Regulatory changes concerning asbestos mining and usage will remain key rating sensitivity factors. Nevertheless, the company is looking to gradually reduce its dependence on asbestos-based products in the medium term and the same will be a key credit sensitivity. |
Liquidity: Strong Net cash accrual, expected at Rs 78-93 crore per fiscal over the medium term should comfortably cover minimal yearly debt obligation of Rs 0.36-0.37 crore in fiscals 2022 and 2023 and of Rs 13-14 crore thereafter. Bank limit utilization averaged a low 27% for the 12 months ended September 2021 thereby providing adequate cushion in bank lines. Mutual fund investments were Rs 47.7 crore as on Sept 30, 2021. CRISIL Ratings believes SIL has sufficient accruals, unutilised working capital bank limits, and cash and equivalent to finance its incremental working capital needs and capex over the medium term. |
Outlook Positive CRISIL Ratings believes SIL will to benefit from its established market position and wide distribution network supported by healthy rural demand. |
Rating Sensitivity factors Upward factors • Sustained revenue growth of over 12% per fiscal driven by volume growth on the back of successful ramp-up of operations from planned capacity expansion and increasing market penetration in the southern markets, while maintaining operating margin • Improvement in working capital cycle and sustenance of financial risk profile.
Downward factors • Significantly lower than expected revenue or drop in operating margin falls below 16.5% resulting in much lower accruals • Cost or time overrun in planned capacity expansion leading to lower-than-expected revenue offtake • Increase in working capital requirement, larger-than-expected, debt-funded capex or acquisition, or substantial dividend payout weakening the financial risk profile, especially liquidity |
About the Company Incorporated in 1947, SIL is engaged in providing building material products for interior and exterior building systems and roofing solutions. SIL got listed on the stock exchange in fiscal 2007. It operates through five facilities located across four states (Maharashtra, Gujarat, Tamil Nadu and Andhra Pradesh) and sells its products under the brands - Swastik, Cemply and Ecopro through a network comprising over 3,000 distributors. The company also operates nine windmills in Maharashtra and Rajasthan. |
Key Financial Indicators
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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)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||
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This Annexure has been updated on 31-Mar-2022 in line with the lender-wise facility details as on 05-Aug-2021 received from the rated entity.
Criteria Details
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