| Samrat Forgings Limited | ||||||
| Long-term rating upgraded to 'CRISIL BB/Stable'; short-term rating reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed rationale CRISIL Ratings has upgraded its rating on the long-term bank facilities of Samrat Forgings Limited (SFL) to ‘CRISIL BB/Stable’ from 'CRISIL BB-/Stable’, and has reaffirmed its 'CRISIL A4+’ rating on the short-term bank facilities.
The upgrade reflects improvement in the business risk profile driven by steady growth in revenue and stable healthy profitability. Revenue increased at a compound annual growth rate (CAGR) of 13.8% over the three fiscals through 2021, and operating margin improved to an estimated 9.9% in fiscal 2021 from 8.4% in fiscal 2019. Net sales grew by 44% in fiscal 2021 to Rs 117.7 crore despite the Covid-19 pandemic and consequent lockdown in the first quarter of the fiscal. The rise in sales was supported by tractor volume growth of 27%, driven by large government spending on rural schemes and increase in farm incomes, owing to good monsoon.
Revenue is expected to grow more than 25% in fiscal 2022 and by 10-12% per fiscal over the medium term, while the operating margin will be sustained above 10%. The improvement in the business risk profile will be sustained over the medium term backed by the company’s established market positon, healthy relationships with original equipment manufacturers (OEMs) and strong demand from the tractor segment. It caters to leading OEMs such as Mahindra & Mahindra Ltd ('CRISIL AAA/Stable/CRISIL A1+) and Ashok Leyland.
The ratings reflect the extensive experience of the promoters in the auto component industry and improved scale of operations of the company. These strengths are partially offset by average financial risk profile and large working capital requirement. |
Key rating drivers and detailed description Strengths:
The promoter's experience of more than three decades in the auto component industry and healthy relationships with customers, along with the company’s diversified product offerings and strong procurement network will continue to support the business.
Revenue increased to an estimated Rs 117.71 crore in fiscal 2021 against Rs 82.1 crore in fiscal 2020. The revenue is likely to rise further over the medium term driven by healthy demand from the agricultural equipment segment and fast revival of the auto component industry. The company reported CAGR of more than 10% in the three fiscals through 2021.
Weaknesses:
High reliance on external debt constrains the financial risk profile. Networth was Rs 19.8 crore, while gearing was high at 2.13 times, as on March 31, 2021. Debt protection metrics were subdued, reflected in interest coverage and net cash accrual to adjusted debt ratios of 2.1 times and 0.12 time, respectively, in fiscal 2021.
Gross current assets (GCAs) are estimated at more than 208 days as on March 31, 2021, driven by inventory of more than 249 days and receivables of 65 days. However, payables of around 123 days support the working capital cycle. |
Liquidity: Adequate Expected cash accrual of Rs 6-9 crore per annum will sufficiently cover yearly debt obligation of Rs 4-4.6 crore over the medium term. Bank limit utilisation was high at around 95% over the 13 months through May 2021, but is expected to reduce to around 80% over the medium term. |
Outlook: Stable CRISIL Ratings believes SFL will continue to benefit from its diversified clientele, comprising leading OEMs in the automotive, gears, tractor, construction equipment and other industries. |
Rating sensitivity factors Upward factors:
Downward factors:
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About the company Incorporated in 1981, SFL undertakes closed-die forging and machining for components, such as spindles, crank shafts, connecting rods, bull gears and crown wheels. Mr Rakesh Mohan Kumar is the managing director. |
Key financial indicators
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| 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 instruments
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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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Criteria Details
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