| Somi Conveyor Beltings Limited | ||||||
| Ratings upgraded to 'CRISIL BBB-/Stable/CRISIL A3'; Rated amount enhanced for Bank Debt | ||||||
| Rating Action | ||||||
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| 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 ratings on the bank facilities of Somi Conveyor Beltings Limited (SCBL) to ‘CRISIL BBB-/Stable/CRISIL A3’ from ‘CRISIL BB+/Stable/CRISIL A4+’
The upgrade reflects continuous growth in scale of operations at a CAGR of 30% for past three fiscals ending fiscal 2024 to achieve Rs 102 crore in fiscal 2024. CRISIL’s believes that the business risk profile of SCBL will continue to grow by estimated 10-15% each fiscal over the medium term. The company has achieved around Rs 35 crore of sales till date and expected to clock over Rs 125-130 crore of revenue in FY25. Operating margins remained around 8.5% in fiscal 2024 due to intense competition and volatility in raw material prices however are now expected to improve to over 9-10% over the medium term on account of the change in product mix where company is now focusing on steel cord beltings which have higher margins, also reflected in margins of 10.4% till September-2024. However, its sustained improvement amid business growth will remain key rating sensitivity factor.
Overall growth in business has aided improvement in financial profile marked by steady growth in networth to over Rs 69.6 crore as on March 31, 2024 expected to grow to Rs 75-76 crore with steady accretion to reserves in fiscal 2025. The interest coverage improved to over 4.8 times as on March 31, 2024 on account of sustenance of operating margins and with expected improvement in profitability shall lead to over 5-6 times of interest cover as on March 31, 2025. The capital structure has also remained healthy on account of low dependence on debt and in the absence of any planned debt funded capex, the financial risk profile is expected to remain healthy over the medium term.
The ratings continue to reflect the extensive experience of the promoters of SCBL in the conveyor belt industry, its well-established customer base and comfortable financial risk profile. These strengths are partially offset by modest scale of operations and working capital intensive operations.
Analytical Approach CRISIL Ratings has evaluated the standalone business and financial risk profiles of SCBL. |
Key Rating Drivers & Detailed Description Strengths: Extensive experience of the promoters and well-established customer base: The promoters’ experience of over four decades in the conveyor belt industry; strong understanding of market dynamics and healthy relationships with suppliers and customers should continue to support the business. SCBL has longstanding relation with reputed players such as NTPC, NLC India, Maharashtra State Power Generation Company, Bharat Heavy Electricals Limited among others enabling them to become prominent vendor for PSUs. This has aided revenue growth by over 9% to Rs 102 crore in fiscal 2024 driven by both volumes and spike in realisations. The strong demand from end user industries such as infra, mining and ports has resulted in healthy order inflow.
Comfortable financial risk profile: The financial risk profile continues to remain comfortable with healthy capital structure and debt protection metrics. Networth is estimated to grow to Rs 75-76 crore as on March 31, 2025 (Rs 69.6 crore as at March 31, 2024), while gearing expected to remain healthy at below 0.2 time in fiscal 2025. Debt protection metrics are comfortable, as seen in interest coverage ratio of 4.8 times in fiscal 2024, which is likely to improve further to over 5-6 times over the medium term. With no expected debt funded capex planned, the financial risk profile is expected to remain healthy over the medium term.
Weaknesses: Modest scale of operations: Though the company witnessed growth in the topline to Rs 102 crore in fiscal 2024 at a CAGR of 30% for past three ending fiscal 2024 and estimated to grow to over Rs 125-130 crore in FY25. However, despite the stated improvement, the group’s scale of operations is expected to remain modest. The demand for conveyor belts remains vulnerable to economic cycles and capex cycles. Also, scalability depends on sustained order inflow. The company has order book of Rs 105 crore which is to be executed in the same fiscal year the company. Additionally, orders amounting to Rs 120 crore are in the pipeline of as well, which will also fuel growth and provide revenue visibility for the medium term. Steady order flow leading to significant improvement in the business risk profile will remain a key rating sensitivity factor.
Working capital intensive operations: Working capital requirement is likely to remain large, as the business mandates sizeable work in process and inventory. Gross current assets (GCAs) have been high at 270 days as on March 31, 2024, driven by high debtors of 151 days due to retention money and higher sales during last quarter of the fiscal year particularly March. The working capital is also intensive due to high inventory of 102 days as on March 31, 2024 which has improved from 135 days as the company runs an advance order book and prudent buying of raw materials leading to higher inventory. GCAs are expected to remain in the range of 240-270 days over the medium term and management’s ability to manage working capital operations amidst business growth marking moderate BLU will remain monitorable. |
Liquidity: Adequate Bank limit utilization is low at around 55 percent for the past twelve months ending June 2024. Cash accruals are expected to be over Rs 7-8 crore, which is sufficient against term debt obligation of Rs 0.5-0.7 crore over the medium term. In addition, it will act as a cushion to the liquidity of the company. Low gearing and moderate net worth support its financial flexibility and provides the financial cushion available in case of any adverse conditions or downturn in the business. |
Outlook: Stable SCBL will continue to benefit from the extensive experience of its promoters and their established relationship with clients. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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About the Company SCBL, incorporated in 2000, manufactures rubber and steel-based conveyor belts used in material handling, transportation, mining, power, cement, fertiliser, and steel industries. The company has a facility each at Sangaria and Tanwara in Jodhpur, Rajasthan. Mr O P Bhansali and his family members are the promoters. |
Key Financial Indicators
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Status of noncooperation with previous CRA SCBL has not cooperated with Credit Analysis & Research Ltd., which has classified it as non-cooperative vide release dated March 28, 2022. The reason provided is non-furnishing of information for monitoring of ratings.
Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
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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Criteria Details
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