Key Rating Drivers & Detailed Description

Strengths:

Strong market position in the niche linear bimetals segment: Being one of the few manufacturers of bimetal parts and shunt resistors in India, SBCL faces limited competition. The company caters to a broad spectrum of applications, including switchgears, energy meters, and electrical applications, and automotive and electronic devices. Thus, growth remains correlated with the performance of the electrical, electronics, and automotive industries. Turnover remained moderate in fiscal 2020, at Rs 188.66 crore. Operating income stood at Rs 136.8 crore for the first nine months of fiscal 2021, and is estimated to be above Rs 200 crore for the whole fiscal.

Strong track record of key management: Presence of over three decades in the niche and highly specialised bimetal industry, has enabled the promoters to ensure sustained revenue growth, despite industry downturns.

Comfortable financial risk profile and adequate liquidity: Networth was large at Rs 114.53 crore, as on March 31, 2020 and at Rs 122.05, as on 30 September 2020, driven by steady accretion to reserve while gearing was healthy at 0.22 time. Debt protection metrics were robust, with interest coverage and net cash accrual to total debt ratios of 8.61 times and 0.63 time, respectively, for fiscal 2020.

Weaknesses:

Susceptibility to volatility in raw material prices and forex rates: With metals such as nickel and copper forming around 50% of overall cost, operating margin remains susceptible to volatility in commodity prices. Though metal prices may continue to fluctuate, this risk is mitigated by order-backed processing undertaken by SBCL on highly customised products.

Working capital-intensive operations: Gross current assets stood at 168 days as on March 31, 2020, because of sizeable inventory and large receivables. Raw materials inventory of around 120 days is maintained as procurement is imported, and includes a variety of alloys.

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