Rating Rationale
July 08, 2024 | Mumbai
Sharat Industries Limited
Ratings upgraded to 'CRISIL BBB/Stable/CRISIL A3+'
 
Rating Action
Total Bank Loan Facilities RatedRs.103 Crore
Long Term RatingCRISIL BBB/Stable (Upgraded from 'CRISIL BBB-/Stable')
Short Term RatingCRISIL A3+ (Upgraded from 'CRISIL A3')
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 upgraded its ratings on the bank facilities of Sharat Industries Limited (SIL) to ‘CRISIL BBB/Stable/CRISIL A3+’ from ‘CRISIL BBB-/Stable/CRISIL A3.’

 

The rating upgrade reflects sustained improvement in business performance over the years while the financial profile continues to strengthen. SIL grew at a CAGR (compounded annual growth rate) over the 3 years through fiscal 2024. The revenue growth stems from the ability to expand to geographies including the Russian market which also aided profitability in fiscal 2024. While the profitability has been volatile owing to industry dynamics, the increase in scale has resulted in larger accruals over the years.

 

A healthy business performance also supports an improvement in financial profile. With healthy accretions and sustained debt levels, TOL/ANW (Total outside Liabilities to Adjusted Net worth) of 1.14 times as on March 31, 2024. The interest coverage is adequate at more than 2 times, and it is expected to improve over the medium term supported by moderation in debt levels. The extent of the increase in debt for working capital and any major expansion plans will remain key monitorable.

 

The ratings continue to reflect SIL’s established market position in the seafood exports industry and it’s, comfortable financial risk profile. These strengths are partially offset by the susceptibility of operating margin to volatility in input prices and foreign exchange rates and exposure to regulatory changes in export destinations.

Key Rating Drivers & Detailed Description

Strengths:

  • Established market position in the seafood exports industry: SIL enjoys an established market position in the seafood exports industry. The turnover is around Rs. 302 crores in FY24, a 6 percent 3-years CAGR growth with an improved margin of 7.1 percent in FY24 compared to 6.29 percent in FY23. SIL also derives benefits from product diversification, with around 25 percent of the turnover from the sale of feed. Further the company derives benefits from promoter’s long-standing presence of more than two decades in the seafood exports industry, which has aided the company to diversify the customer base and establish healthy relationships. The company has also diversified it’s geography concentration by entering into the Russian market in the last 3 years. CRISIL Ratings believes that SIL shall continue to benefit over the medium term from its established market position in the seafood exports industry.

 

  • Above average financial risk profile: SIL’s financial risk profile is above average as reflected in its net worth of Rs. 84 crores as on March 31, 2024 with a moderate gearing of around 1.14 times. Supported by the absence of major debt funded capital expenditure, the capital structure is expected to improve over the medium term. Debt protection metrics are adequate, as reflected in interest coverage ratio and net cash accrual to total debt ratio of 2.27 times and 0.10 time, respectively, for fiscal 2024 and likely to remain adequate over the medium term.

 

Weaknesses:

  • Susceptibility of operating margin to volatility in input prices and forex rates: The marine export market is marked by uncertainty, though more pronounced in supply than in demand. The supply is affected adversely because of seasonal conditions, lack of quality seeds and feed and rampant diseases. This results in volatility in the raw material prices based on the supply during the year. Also, the company derives significant portion of its revenue from the export market which exposes its operating profitability to fluctuations in the forex rates.

 

  • Regulatory changes in export destinations: Food product imports are subject to high quality standards in developed countries of Europe, U.S.A and Russia. Since the company derives the majority of its export revenues from these destinations, any adverse quality standards set by these countries or customers could affect the business risk profile. Moreover, any major changes in duty structure in the export countries may also have a bearing on the performance of exporters.

Liquidity: Adequate

Bank limit utilization is moderate at around 86 percent for the past twelve months ended June - 24. Annual cash accruals are expected to be around Rs. 14 crore which is sufficient against term debt obligation of Rs.6 crore over the medium term. Current ratio stood at 1.42 times as on March 31, 2024.

Outlook: Stable

CRISIL Ratings believes that SIL will continue to benefit from its established market position.

Rating Sensitivity factors
Upward factors

  • Sustained improvement in scale of operation and sustenance of operating margin at over 7%, leading to higher cash accruals.
  • Improvement in financial risk profile, primarily interest cover ratio.


Downward factors

  • Decline in revenue by 15% or fall in profitability, leading to lower-than-expected net cash accrual.
  • Any large debt funded capital expenditure or working capital stretch, resulting in weakening of financial risk profile.

About the Company

SIL was originally set up in 1990 as a private limited company by Mr S Prasad Reddy; this company was reconstituted as public limited company in 1992. SIL processes and exports shrimp and also manufactures and sells feed for shrimp. SIL is listed on the Bombay Stock Exchange.

Key Financial Indicators

As on/for the period ended March 31

Unit 

2024

2023

Operating income

Rs.Crore

302.16

332.54

Reported profit after tax

Rs.Crore

5.87

6.72

PAT margins

%

1.94

1.97

Adjusted Debt/Adjusted Networth

Times

1.14

1.13

Interest coverage

Times

2.21

2.30

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 Bank Guarantee NA NA NA 1 NA CRISIL A3+
NA Export Bill Purchase -Discounting NA NA NA 5 NA CRISIL BBB/Stable
NA Cash Credit NA NA NA 20 NA CRISIL BBB/Stable
NA Letter of Credit NA NA NA 7 NA CRISIL A3+
NA Packing Credit NA NA NA 58 NA CRISIL BBB/Stable
NA Proposed Long Term Bank Loan Facility NA NA NA 3.3 NA CRISIL BBB/Stable
NA Term Loan NA NA Mar-2025  8.7 NA CRISIL BBB/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 95.0 CRISIL BBB/Stable   -- 17-05-23 CRISIL BBB-/Stable 28-01-22 CRISIL BBB-/Stable 28-05-21 CRISIL BBB-/Stable CRISIL BBB-/Stable / CRISIL A3
      --   -- 03-01-23 CRISIL BBB-/Stable   -- 01-04-21 CRISIL BBB-/Stable / CRISIL A3 --
Non-Fund Based Facilities ST 8.0 CRISIL A3+   -- 17-05-23 CRISIL A3 28-01-22 CRISIL A3 28-05-21 CRISIL A3 CRISIL A3
      --   -- 03-01-23 CRISIL A3   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 1 Axis Bank Limited CRISIL A3+
Cash Credit 20 Axis Bank Limited CRISIL BBB/Stable
Export Bill Purchase -Discounting 5 Axis Bank Limited CRISIL BBB/Stable
Letter of Credit 7 Axis Bank Limited CRISIL A3+
Packing Credit 58 Axis Bank Limited CRISIL BBB/Stable
Proposed Long Term Bank Loan Facility 3.3 Not Applicable CRISIL BBB/Stable
Term Loan 8.7 Axis Bank Limited CRISIL BBB/Stable
Criteria Details
Links to related criteria
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Criteria for rating short term debt

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