Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 102.00 Crs. of Lakshmi Green Ship Recyclers LLP (erstwhile Lakshmi Steel Rolling Mills (Unit-II))
ParticularsFacilities** | Amount (Rs.Crs.) | Tenure | Rating# | ||
---|---|---|---|---|---|
Previous | Present | Previous (20 Mar 2020) |
Present | ||
Fund Based | (15.00) | (15.00) | Long Term |
BWR BB (Stable)
Reaffirmation |
BWR BB
/Stable Reaffirmation |
Non Fund Based | 102.00 | 102.00 | Short Term |
BWR A4+
Reaffirmation |
BWR A4 +
Reaffirmation |
(0.00) | (100.00) | ||||
Grand Total | 102.00 | 102.00 | (Rupees One Hundred Two Crores Only) |
BWR has taken a Standalone view of Lakshmi Green Ship Recyclers LLP and essentially relied upon the audited financial results up to FY20, management certified provisional sales for FY21, Projected financials for FY22 and information/clarification provided by the entity's Management.
The rating reaffirmation factors the modest scale of operation backed by the consistent purchase of ships, moderate financial risk profile marked by comfortable leverage and adequate liquidity position. The rating also factors extensive experience of the promoters in the ship breaking business along with financial support and locational advantage of the Alang Bhavnagar-Gujarat. However, the profit margins are vulnerable to volatility in the prices of steel and adverse fluctuations in forex rates and exposure of its revenues to the cyclicality inherent in the ship breaking and metal industry. The firm is exposed to intense competition from a large number of players operating in Bhavnagar, Gujarat as well as international competitors and the regulatory risks due to environmental issues.
BWR believes that Lakshmi Green Ship Recyclers LLP's business risk profile will be maintained over the medium term. The ‘Stable’ outlook indicates a low likelihood of rating change over the medium term.
KEY RATING DRIVERSCredit Strengths:
The Firm is promoted by Mr Anilkumar Jain and the other two directors, who have experience of more than three decades in the ship breaking business. The Firm’s long-standing presence in the industry provides benefits in terms of easy procurement of ships at reasonable prices.
The Firm has achieved a total operating income of Rs. 59.84 Crs in FY20 against an Rs. 106.33 Crs in FY19. As per management certified provisional financials, the Firm has achieved a revenue of Rs. 61.55 Crs as of 31st March 2021. In FY21, the Firm had purchased two mid-sized ships worth Rs. 88.52 Crs against the letter of credit. The scale of operations is relatively modest backed by consistently procured ships in the past years. The financial risk profile of the Company is moderate; marked by a modest tangible net worth of Rs. 17.95 crores and low gearing of 0.01x in absence of long term liabilities as of 31st March 2020. Also, to undertake safe and environmentally sound ship recycling operations in accordance with the International Maritime Organisation’s Hong Kong Convention, which supports the ship procurement capabilities.
Credit Risks:
It takes around four to five months on average to completely dismantle a ship and generate revenue. Hence, the Company has an inventory risk for ships that are under the process of breaking due to the time lag involved between the ship’s purchases and selling of scrap, given the high volatility faced in steel prices. The firm has reported an operating profit margins of 1.06% in FY19 and 0.26% in FY20. Debt protection metrics are weak reflected in ISCR of 0.14x and DSCR of 1.16x in FY20. While the firm hedges such risks by booking forward contracts, it remains exposed to adverse movement in exchange rates. Also, Profit margins are vulnerable due to steel price fluctuations.
The Company faces intense competition from large and small existing players operating at Bhavnagar as well as in neighbouring countries.
Positive: Substantial increase in the operations and profitability, overall improvement in the financial risk profile, infusion of additional funds by the way of unsecured loans and capital.
Negative: Any deterioration in the financial risk profile coupled with a decrease in revenue and profit margins, gearing, withdrawal of the capital etc., will be negative for the ratings.
LIQUIDITY INDICATORS - Adequate
The firm has availed a non-fund based foreign Letter of Credit and stand by line of credit for purchasing the ships for shipbreaking activity ranging from 120 to 300 days and a cash credit limit for other operational requirements. Also, the firm provides an upfront cash margin for the opening of the LC. Liquidity position has remained comfortable with the surplus available in the form of inventory and receivables. The Firm’s working capital cycle is healthy as reflected in short receivable cycles of 8-15 days and inventory holding days of 47 days in FY20 Average cash credit utilization has remained moderate at 66% in the last six months ending on 31Jan2021.
ABOUT THE ENTITY
Lakshmi Green Ship Recyclers LLP (Previously known as Lakshmi Steel Rolling Mills (Unit-II)) was established in 1994 as a partnership firm with its registered office in Bhavnagar. The firm is engaged in the business of ship-breaking activity through allotted plot at Alang Shipyard by Gujarat Maritime Board (GMB). The unit is managed by Mr Anilkumar Jain and Mr. Ankur Jain who are having extensive experience in the ship breaking business.
KEY FINANCIAL INDICATORS (Standalone)Key Parameters | Units |
FY 19-20 (Audited) |
FY 18-19 (Audited) |
---|---|---|---|
Operating Revenue | Rs.Crs. | 59.84 | 106.33 |
EBITDA | Rs.Crs. | 0.15 | 1.13 |
PAT | Rs.Crs. | 0.38 | 0.80 |
Tangible Net Worth | Rs.Crs. | 17.88 | 16.45 |
Total Debt/Tangible Net Worth | Times | 0.01 | 0.01 |
Current Ratio | Times | 25.65 | 1.75 |
Not Applicable
RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)Facilities | Current Rating (2021) | 2020 | 2019 | 2018 | |||||
---|---|---|---|---|---|---|---|---|---|
Type | Tenure | Amount (Rs.Crs.) |
Rating | Date | Rating | Date | Rating | Date | Rating |
Fund Based | LT | NA |
NA
|
20Mar2020 |
BWR BB (Stable)
|
05Feb2019 |
BWR BB (Stable)
|
NA |
NA
|
NA |
NA
|
NA |
NA
|
26Sep2019 |
BWR BB (Stable)
|
NA |
NA
|
||
FB SubLimit | LT | (15.00) |
BWR BB/Stable
|
NA |
NA
|
NA |
NA
|
NA |
NA
|
Non Fund Based | ST | 102.00 |
BWR A4+
|
20Mar2020 |
BWR A4+
|
05Feb2019 |
BWR A4+
|
NA |
NA
|
NA |
NA
|
NA |
NA
|
26Sep2019 |
BWR A4+
|
NA |
NA
|
||
NFB SubLimit | ST | (100.00) |
BWR A4+
|
NA |
NA
|
NA |
NA
|
NA |
NA
|
Grand Total | 102.00 | (Rupees One Hundred Two Crores Only) |
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 CriteriaAnalytical Contacts | |
---|---|
Kunjal Dabhi Rating Analyst Board : +91 79 66174046 / 47 kunjal.r@brickworkratings.com |
Vidya Shankar Principal Director - Ratings Board : +91 80 4040 9940 vidyashankar@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 | Foreign Letter of Credit (FLC)Sanctioned | _ | 88.00 | 88.00 |
Sub-Limit (Cash credit) Sanctioned | (15.00) | |||
Sub-Limit (Stand by Letter of Credit) Sanctioned | (100.00) | |||
2 | Standby line of Credit (SLC)Sanctioned | _ | 12.00 | 12.00 |
3 | Credit Exposure Limit (CEL)Sanctioned | _ | 2.00 | 2.00 |
Total | 0.00 | 102.00 | 102.00 | |
TOTAL (Rupees One Hundred Two Crores Only) |
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