RATING RATIONALE
29Jun2020
Six Sigma Ready Mix Concrete Pvt. Ltd.
Brickwork Ratings assigns the ratings for the Bank Loan Facilities of Rs.11.45 Crs. of Six Sigma Ready Mix Concrete Pvt. Ltd.
Particulars| Facilities** | Amount (Rs.Crs.) | Tenure | Rating# | ||||
|---|---|---|---|---|---|---|---|
| Fund Based | |||||||
| Term Loan Sanctioned | 01.45 | Long Term | BWR | ||||
| Cash Credit Sanctioned | 05.00 | ||||||
| Cash Credit Proposed | 05.00 | ||||||
| Sub Total | 11.45 | ||||||
| Grand Total | 11.45 | (Rupees Eleven Crores and Forty Five lakhs Only) | |||||
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure RATING ACTION / OUTLOOK
BWR believes that Six Sigma Ready Mix Concrete Pvt. Ltd. business risk profile will be maintained over the medium term. The 'Stable' outlook indicates a low likelihood of rating change over the medium term. The rating outlook may be revised to 'Positive' in case the revenues and profit show sustained improvement. The rating outlook may be revised to 'Negative' if the revenues go down and profit margins show lower than expected figures.
KEY RATING DRIVERSBWR has essentially relied upon the audited financial statements of Six Sigma Ready Mix Concrete Pvt. Ltd. of FY17,FY18,FY19 and projected financial statements of FY20,FY21, publicly available information and information / clarifications provided by the entity’s management. The rating draws strength from the experience of the directors for more than a decade in the cement industry , growth in operating income and comfortable operating cycle . However, the rating is constrained by low net worth base , high gearing , susceptibility to risks relating to input cost, realizations and Cyclicality in the cement industry , highly fragmented and competitive business segment , geographical concentration of sales and impact of COVID-19 as the end product finds its application in construction and real estate industry.
Credit Strengths:
-
Experience of directors :
Mr.M.C. Srinivasan is an engineering graduate and has more than two decades of experience as an employee of L&T construction Limited and Ultra RMC Private Limited .The day to day activities of the company are handled by Mr.M.C. Srinivasan.
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Growth in operating income :
The companys revenue from operations has grown substantially by 155.49 % that stood at Rs.22.58 Crs in FY19 audited as compared to revenue of Rs.8.84 Crs in FY18 audited.
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Comfortable operating cycle :
The conversion cycle of the company has improved and stood at 59 days in FY19 (Audited) as well as in FY18 (Audited) as compared to 88 days in FY17 (Audited) due to improvement in inventory holding. The inventory holding period also has improved to 39 days in FY19 (Audited) as well as in FY18 (Audited) as compared to 54 days in FY17 (Audited).
Credit Risks:
-
Low Networth position and High gearing :
Networth of the company was low at Rs. 1.91 Crs against total debt outstanding of Rs.12.37 Crs resulting in high gearing of 6.48 times in FY19 (Audited).
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Susceptibility to risks relating to input cost, realizations and Cyclicality in the cement industry :
The additional capacity in the cement industry tends to be intermittent due to the long gestation period for the establishment of the facility and the large number of players contributing to add capacity during the peak of the cycle. In the past, this has led to unfavorable price cycles for the sector. In addition, profitability remains vulnerable to fluctuations in input prices, including raw materials, power, fuel and freight. The increase in pet coke prices in fiscal year 2019 had an impact on the profitability of several cement players. Realization and profitability are also impacted by demand , supply, financing costs and economic environment.
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Highly fragmented and competitive business segment and geographical concentration of sales :
The market consists of several small to medium-sized firms that compete with each other along with several large enterprises. There are several small sized companies in and around Chennai and Coimbatore area in Tamilnadu, which compete with Six Sigma Ready Mix Concrete Pvt. Ltd. The company is engaged into a fragmented and competitive business segment and the business risk profile of the company is directly affiliated with the construction and real estate industry .
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Impact of Covid -19 :
Coronavirus outbreak and subsequent lockdown and labour shortages will have a bearing on their sales and performance of the company as the end product finds its application in construction and real estate industry.
For arriving at its ratings, BWR has applied its rating methodology as detailed in the Rating Criteria detailed below (hyperlinks provided at the end of this rationale).
RATING SENSITIVITIES
Going forward, the ability of the entity to achieve projected revenue & profitability margins and manage liquidity would be key rating sensitivities:
Positive: The ratings may be upgraded in case revenue, profitability, liquidity and capital structure of the company show significant improvement.
Negative: The rating may be downgraded in case there is a significant deterioration in the business and financial risk profile of the company.
LIQUIDITY INDICATORS -
Liquidity position of the company is average with the current ratio at 1.09 times in FY19 (audited). As observed , the company's cash credit utilization was more than 80% between October 2019 and March 31st ,2020 . As confirmed by the banker the company has availed moratorium for both working capital interest and EMI of term loans.Trade receivables less than six months is Rs.5.26 Crs in FY19 (audited), more than half of the component is yet to be recovered .
ABOUT THE ENTITYSix Sigma Ready Mix Concrete Pvt. Ltd. , incorporated on 14th March, 2016 , is a Tamil Nadu based company promoted by Mr.M.C. Srinivasan .The Company is engaged in the manufacturing of Ready Mix Concrete (RMC) and suppliers of RMC which has its application in construction industry.The company has 4 Ready Mix Concrete (RMC) units in which 3 units are commercial and one unit is captive unit at Poochi Athipedu near Red Hills, Chennai. The company has one CP30 RMC plant and two M1 RMC plants with a capacity of CP30- 40 Cubic Meter per /hr & M1 Plant -60 Cubic Meter per /hr working in two shifts .The company has 36 truck mixers , 11 Tempo, 01 Boom Placer & 11 Concrete Pumps operating for transportation of RMC to the construction site.
KEY FINANCIAL INDICATORS (Standalone)| Key Parameters | Units |
FY 18-19 (Audited) |
FY 17-18 (Audited) |
|---|---|---|---|
| Operating Revenue | Rs.Crs. | 22.58 | 8.84 |
| EBITDA | Rs.Crs. | 2.67 | 1.14 |
| PAT | Rs.Crs. | 0.44 | -0.11 |
| Tangible Net Worth | Rs.Crs. | 1.91 | 1.47 |
| Total Debt/Tangible Net Worth | Times | 6.48 | 3.79 |
| Current Ratio | Times | 1.09 | 1.25 |
NON-COOPERATION WITH PREVIOUS CREDIT RATING AGENCY
| CRA Name | Date | Amount | Rating |
|---|---|---|---|
| CARE | 11 Mar 2020 | 10.00 | CARE B; Stable ISSUER NOT COOPERATING* |
BWR complexity levels are meant for educating investors. The BWR complexity levels are available at www.brickworkratings.com / download / ComplexityLevels.pdf. Investors queries can be sent to info@brickworkratings.com.
Hyperlink/Reference to applicable Criteria| Analytical Contacts | |
|---|---|
|
M Akila Lead Analyst akila.m@brickworkratings.com |
R Varadarajan Associate Director - Ratings Board : +91 044 24663326 varadarajan.r@brickworkratings.com |
| 1-860-425-2742 | media@brickworkratings.com | |
| SL.No. | Type Of Facilities | Long Term(Rs.Crs.) | Short Term(Rs.Crs.) | Total(Rs.Crs.) |
|---|---|---|---|---|
| 1 | Term LoanSanctioned | 1.45 | _ | 1.45 |
| 2 | Cash CreditSanctioned | 5.00 | _ | 5.00 |
| 3 | Cash CreditProposed | 5.00 | _ | 5.00 |
| Total | 11.45 | |||
| TOTAL (Rupees Eleven Crores and Forty Five lakhs Only) | ||||
| Instrument | Issue Date | Amount (Rs.Crs) | Coupon Rate | Maturity Date | ISIN Particulars |
|---|---|---|---|---|---|
| NA | NA | NA | NA | NA | NA |
| Name of Entity | % Ownership | Extent of consolidation | Rationale for consolidation |
|---|---|---|---|
| NA | NA | NA | NA |
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