Rating Rationale
January 06, 2021 | Mumbai
Seshaasai Business Forms Private Limited
Rated amount enhanced
 
Rating Action
Total Bank Loan Facilities RatedRs.215.68 Crore (Enhanced from Rs.165.68 Crore)
Long Term RatingCRISIL BBB+/Stable (Reaffirmed)
Short Term RatingCRISIL A2 (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL has reaffirmed its 'CRISIL BBB+/Stable/CRISIL A2' ratings on the bank facilities of Seshaasai Business Forms Pvt Ltd (SBFPL; part of the Seshaasai group).

 

The ratings continue to reflect the group's strong business risk profile because of long track record, established market position backed by pan-India presence, healthy relationships of more than a decade with reputed clients and sustained healthy profitability. The ratings also factor in healthy financial risk profile on account of comfortable networth, low gearing and adequate debt protection metrics. These strengths are partially offset by large working capital requirement, resulting in high utilisation of working capital bank lines.

Analytical Approach

For arriving at its ratings, CRISIL has combined the business and financial risk profiles of SBFPL and Seshaasai E-Forms Pvt Ltd (SEFPL). The two companies, together referred to as the Seshaasai group, have significant operating and business linkages, and common management.

 

Unsecured loans of Rs 9.5 crore as on March 31, 2020, in SBFPL, have been treated as neither debt nor equity because of track record of unsecured loans being maintained in the business and expectation that it will remain in the business over the medium term. Preference shares of Rs 2.45 crore in SBFPL have been treated as debt as it is redeemable with a coupon rate of 9% per annum.

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:

  • Long track record and extensive experience of the promoters: The group is promoted by Mr Pragnyat Lalwani and Mr Gautam Jain, who have experience of more than two decades in the security data printing business. The group has held its market position in its key sector, banking, financial services and insurance (BFSI), for a long time. It has diversifying its product offerings and expanded into other sectors such as telecom, information technology (IT) and e-commerce. Over the years, the group has developed new products to cater to its customers. Over the past two fiscals, the company has scaled up its new-age business of SMART cards and tag solutions. Revenue grew from Rs 43 crore in fiscal 2018 to Rs 103 crore in fiscal 2020 from this business segment and it is expected to be a key revenue driver for the group over the medium term.

 

  • Established market position in the BFSI segment with diversified clientele: The group has an established market position in the secure print solutions and print management services business with strong customer base in the BFSI segment. The large product portfolio has led to diversified clientele and ensured a regular flow of repeat orders. Around 80-85% of the revenue comes from repeat business, leading to revenue visibility over the medium term.

 

  • The group has diversified its customer base across the BFSI, telecom, IT, retail and e-commerce sectors, and its clientele includes almost all the major players in these segments. There has been a steady improvement in revenue and operating margin that has been healthy and stable. The group generated revenue of around Rs 471 crore and operating margin of 14.4% in fiscal 2020. Revenue is expected to dip to around Rs 412 crore at earnings before interest, tax, depreciation and amortisation (EBITDA) margin of 13-13.5% in fiscal 2021 because of the Covid-19 pandemic.

 

  • The top customers of the group include reputed companies such as ICICI Bank Ltd, State Bank of India, HDFC Bank Ltd, Axis Bank Ltd, Bank of Baroda, HDFC Life, SBI General Insurance Company Ltd, ICICI Lombard General Insurance Company Ltd and many others. The group also caters to brands such as Payback, Amazon, Flipkart and Jio Mart for loyalty, gift cards, wallet, co-branded cards and merchant onboarding kits.

 

  • Competitive advantage with pan-India presence and ability to cater to ad hoc orders: The group offers the entire range of security data printing services, and has operations in 12 locations across the country. Sufficient in-house capacity and diversity in geographical reach facilitate operations. Its ability to cater to ad hoc orders and offer a wide range of printing services has led to above-average operating margin of over 14% in the three fiscals through 2020. The group can cater to large requirements leading to benefits of economies of scale for its customers, and hence, has remained competitive in the unorganised and fragmented market. Also, it faces limited competition because of stringent security approvals and high compliance cost for key security printing products.

 

  • Healthy financial risk profile: The financial risk profile is supported by healthy networth of around Rs 151 crore as on March 31, 2020. Gearing and total outside liabilities to tangible networth ratio were comfortable at 0.96 time and 1.76 times, respectively, as on March 31, 2020. Debt protection metrics were adequate, as indicated by interest coverage and net cash accrual to adjusted debt ratios of 3.7 times and 0.27 time, respectively, in fiscal 2020. The financial risk profile is expected to remain stable over the medium term, backed by increasing cash accrual and no large, debt-funded capital expenditure (capex).

 

Weakness:

  • Large working capital requirement: The operations are working capital intensive, as indicated by gross current assets of 196 days as on March 31, 2020, on account of sizeable inventory and receivables. Debtors stood at 83 days while inventory stood at 70 days as on March 31, 2020. The group has to maintain substantial inventory to cater to regular as well as ad hoc orders, and offers credit of 2-3 months to its customers. Therefore, it has to rely on external debt to fund working capital requirement.

Liquidity adequate

The group generated cash accrual of Rs 39 crore, against debt obligation of Rs 11 crore in fiscal 2020. The cash accrual is expected to dip to around Rs 30 crore in the current year because of the pandemic, however it will still be sufficient against debt obligation of around Rs 10 crore. Cash accrual is expected to rebound in fiscal 2022 while debt obligation will remain at Rs 10-12 crore. The bank limit was highly utilised at 95.95% on average over the 12 months through November 2020. The current ratio of the group stood at 1.29 times as on March 31, 2020. The group had availed moratorium as per the directives of the Reserve Bank of India.

Outlook Stable

CRISIL believes the Seshaasai group will continue to benefit from the extensive experience of its promoters, its established market position, diversified customers, strong and stable operating margin and healthy financial risk profile.

Rating Sensitivity factors

Upward factors

  • Significant and sustainable revenue growth while maintaining its profitability
  • Improvement in working capital cycle leading to improvement in working capital lines at 80% level along improvement in capital structure

 

Downward factors

  • Sustained revenue de-growth and decline in operating profitability
  • Sizeable, debt-funded capex weakening the capital structure and debt protection metrics
  • Unfavourable government regulations

About the Group

The Mumbai-based Seshaasai group has manufacturing facilities in 12 locations across India.

 

SBFPL was set up in 1993 by Mr Pragnyat Lalwani and Mr Gautam Jain. The company offers various technology-based solutions and products such as cheque books, insurance policy statements, loyalty cards and vouchers, and daily mailers to a large set of clients in the BFSI, retail and telecom sectors.

 

SEFPL was incorporated in 2003, and is engaged in a similar business and has the same promoters. It was formed to undertake security cheque printing activities, largely catering to South India.

Key Financial Indicators

SBF-Standalone

 

As on / for the period ended March 31

 

2020

2019

Operating income

Rs crore

367.92

344.36

Reported profit after tax (PAT)

Rs crore

17.15

13.79

PAT margin

%

4.7

4

Adjusted debt/adjusted networth

Times

1.22

1.40

Interest coverage

Times

3.3

3.2

 

SEF-Standalone

 

As on / for the period ended March 31

 

2020

2019

Operating income

Rs crore

122

110

Reported profit after tax (PAT)

Rs crore

8

6

PAT margin

%

6.3

5.3

Adjusted debt/adjusted networth

Times

0.64

0.79

Interest coverage

Times

5.47

5.42

 

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

Cash credit

NA

NA

NA

75

NA

CRISIL BBB+/Stable

NA

Letter of credit and bank guarantee

NA

NA

NA

70

NA

CRISIL A2

NA

Long-term loan

NA

NA

Mar-29

22.3

NA

CRISIL BBB+/Stable

NA

Long-term loan

NA

NA

Mar-23

4.07

NA

CRISIL BBB+/Stable

NA

Long-term loan

NA

NA

Mar-26

16.91

NA

CRISIL BBB+/Stable

NA

Long-term loan

NA

NA

Mar-29

18.35

NA

CRISIL BBB+/Stable

NA

Proposed Term Loan

NA

NA

NA

9.05

NA

CRISIL BBB+/Stable

 

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Seshaasai Business Forms Private Limited

Full

The companies have significant operational and business linkages, and common management.

Seshaasai E-Forms Private Limited

Full

 

Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 145.68 CRISIL BBB+/Stable   -- 23-12-20 CRISIL BBB+/Stable 03-09-19 CRISIL BBB+/Stable 15-05-18 CRISIL BBB+/Stable CRISIL BBB+/Stable
      --   --   -- 30-08-19 CRISIL BBB+/Stable   -- --
Non-Fund Based Facilities ST 70.0 CRISIL A2   -- 23-12-20 CRISIL A2 03-09-19 CRISIL A2 15-05-18 CRISIL A2 CRISIL A2
      --   --   -- 30-08-19 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
Cash Credit 75 CRISIL BBB+/Stable Cash Credit 71.64 CRISIL BBB+/Stable
Letter of credit & Bank Guarantee 70 CRISIL A2 Letter of credit & Bank Guarantee 40 CRISIL A2
Long Term Loan 61.63 CRISIL BBB+/Stable Long Term Loan 54.04 CRISIL BBB+/Stable
Proposed Term Loan 9.05 CRISIL BBB+/Stable - - -
Total 215.68 - Total 165.68 -
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 Approach to Recognising Default
CRISILs Criteria for Consolidation
The Rating Process
Understanding CRISILs Ratings and Rating Scales
CRISILs Bank Loan Ratings
Criteria for rating entities belonging to homogenous groups

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