RATING RATIONALE

13Nov2024

P Patel Ship Breaking Company

Brickwork Ratings removes the ratings from the Issuer Not Cooperating category, reaffirms the long term and short term ratings for the Bank Loan Facilities of Rs. 90.42 Crs. of P Patel Ship Breaking Company.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (23 Apr 2024)	Present
Fund Based	(13.34)	(13.34)	Long Term	BWR BB-/Stable Continues to be in ISSUER NOT COOPERATING* category/Downgraded	BWR BB - /Negative removal from ISSUER NOT COOPERATING* category/Reaffirmed
Non Fund Based	90.42	90.42	Short Term	BWR A4 Continues to be in ISSUER NOT COOPERATING* category/Reaffirmed	BWR A4 removal from ISSUER NOT COOPERATING* category/Reaffirmed
Grand Total	90.42	90.42	(Rupees Ninety Crores and Forty Two lakhs Only)

#Please refer to BWR website www.brickworkratings.com for definition of the ratings
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure

RATING ACTION / OUTLOOK

Brickwork Ratings (BWR) has taken a Standalone view of P Patel Ship Breaking Company(PPSB) and essentially relied upon the audited financial results up to FY24, projected financial for FY25 and FY26 and information/clarification provided by the entity's Management.

The removal from issuer not cooperating classification for the ratings assigned to P Patel Ship Breaking Company factors in its cooperation in submitting relevant financial data and necessary updates.

The rating factors in the vulnerability of profit margins due to volatility in the prices of steel, forex rates and high dependence on LCs for purchase of ships. Also, the firm is exposed to intense competition from a large number of players operating in domestic as well as international competitors and the regulatory risks due to environmental issues. The firm carries the risk of withdrawal of the capital being a partnership nature of constitution. The rating, however derives comfort from promoters' extensive experience in the ship breaking business along with financial support and locational advantage of the Alang, Bhavnagar-Gujarat.

The outlook is kept as Negative as the Company has been recording decline in sales for the past fiscals and the PAT(Profit After Tax) is positive only because of the non operating income generated through interest earnings received by the Company by way of loans advanced to the related parties. The revenue visibility of the Company for the near to medium term is minimal and on a declining trend as the Company was unable to bid any ships for the past two years due to unfavorable market conditions. Factoring these difficulties, the rating team recommends Negative outlook for the Company. The outlook may be revised to stable, if the Company is able to complete the ship purchase in December 2024 and record a reasonable revenue and improvement in other financial parameters.

KEY RATING DRIVERS

Credit Strengths:

Experienced Management: :
The firm is promoted by Mr. Nanu Patel, who has experience of more than two and a half 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.
Locational Advantage :
The ship breaking yard is located at Alang-Sosiya belt which is one of the world’s largest ship-breaking clusters and constitutes almost 90% of India’s ship-breaking activity. The unique geographical features of the area include a high tidal range, wide continental shelf, adequate slope and a mud free coast. These conditions are ideal for a wide variety of ships to be beached easily during high tide. It accommodates nearly 170 plots spread over around 10 km long stretch along the seacoast of Alang-Sosiya.

Credit Risks:

Profitability susceptible to fluctuations in foreign exchange rates & steel prices: :
It takes around four to five months on an average to completely dismantle a ship and generate revenue. Hence, the firm 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. While the firm hedges such risks by booking forward contracts, it remains exposed to adverse movement in exchange rates. Operating profit margins are thin due to high raw material cost and vulnerable due to steel price fluctuations; further on account of that debt protection metrics are weak.
Intense competition and regulatory issues : :
The firm faces intense competition from large and small existing players operating at Bhavnagar as well as neighboring countries. The industry is regulated by strict pollution control norms because of the hazardous nature of asbestos, lead, and other acids and chemicals contained in ships. Also, this belt is highly regulated with strict working and safety standards to be maintained by the shipbreakers for their labourers and environmental compliance.
Risk of withdrawal of capital : :
Being a partnership nature of constitution, the firm carries inherent risk of partners’ capital being withdrawn at time of personal contingency, and firm being dissolved upon the death/retirement/insolvency of partners. Further, partnership firms have restricted access to external borrowing as credit worthiness of partners would be key factors affecting credit decision for lenders of withdrawal of the capital. However, the promoters supports the firm as and when required.
Decline in scale of operations and financial risk profile: :
PPSB has achieved a total operating income of Rs. 0.52 Crs in FY24. The Company's new ship purchase is expected to be completed by December 2024. All ships are purchased against the letter of credit. However, during the past two years , the Company was not able purchase any ships for recycling which has in turn affected the financial performance of the Company. The financial risk profile of the firm is moderate; marked by a modest capital base of Rs.19.78 crores and Nil gearing due to nil outstanding of ‘LC backed creditors’ as on 31 March 2024, on account of unavailability of ships for recycling.

ANALYTICAL APPROACH - Standalone

For arriving at its ratings, BWR has considered a standalone financials of the company and applied its rating methodology as detailed in the Rating Criteria.

RATING SENSITIVITIES

Positive: Going forward, the ability of the company to achieve profitability on a sustained basis leading to further improvement in the liquidity profile. The outlook of the company can revise to stable if the company continues to report operating profits on a consistent basis for at least next two quarters.

Negative: Significant decline in revenues and profitability leading to deterioration in overall credit metrics and absence of financial support by promoters will be negative for the rating.

LIQUIDITY INDICATORS - Stretched

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 and a cash credit limit for other operational requirements. In the absence of debt obligation as on March 31, 2024, modest cash accrual supports liquidity. Cash and Bank Balance is Rs. 0.26 Crs as on 31st March 2024. PPSB does not have an open LC as of now and the working capital limits of the company also remain unutilised.

ABOUT THE ENTITY

Macro Economic Indicator	Sector	Industry	Basic Industry
Industrials	Capital Goods	Industrial Manufacturing	Ship Building & Allied Services

P Patel Ship Breaking Co. is a partnership firm, established since 1992, carrying the activity of ship breaking and situated at Alang Ship Breaking Yard, Bhavnagar, Gujarat. The plot area is 2385 sq meters and on lease from Gujarat Maritime Board. The firm is managed by Mr. Nanu Patel and five other partners.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 21 - 22 (Audited - Annual)	FY 22 - 23 (Audited - Annual)	FY 23 - 24 (Audited - Annual)
Operating Revenue	Rs.Crs.	71.83	10.25	0.52
EBITDA	Rs.Crs.	5.49	0.93	-0.72
PAT	Rs.Crs.	4.39	0.18	0.14
Tangible Net Worth	Rs.Crs.	21.47	19.30	19.78
Total Debt / Tangible Net Worth	Times	Not Available	Not Available	Not Available
Current Ratio	Times	1.96	58.68	64.76

KEY COVENANTS OF THE FACILITY RATED

The terms of sanction include standard covenants normally stipulated for such facilities.

STATUS OF NON-COOPERATION WITH PREVIOUS CRA

Creadit Rating Agency Status and Reason for Non-Cooparation Date of Press Release
CARE Non receipt of Information 04Sep2024

Creadit Rating Agency	Status and Reason for Non-Cooparation	Date of Press Release
CARE	Non receipt of Information	04Sep2024

ANY OTHER INFORMATION

NIL

RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)

Facilities	Current Rating (2024)			2024 (History)		2023		2022		2021
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating	Date	Rating
FB SubLimit	LT	(13.34)	BWR BB-/Negative (removal from ISSUER NOT COOPERATING* category/Reaffirmed)	23Apr2024	BWR BB-Stable (Continues to be in ISSUER NOT COOPERATING* category/Downgraded)	24Apr2023	BWR BB Stable (ISSUER NOT COOPERATING* /Downgrade)	27Apr2022	BWR BB+Stable (Reaffirmation)	08Jul2021	BWR BB+ Stable (Reaffirmation)
Non Fund Based	ST	90.42	BWR A4 (removal from ISSUER NOT COOPERATING* category/Reaffirmed)	23Apr2024	BWR A4 (Continues to be in ISSUER NOT COOPERATING* category/Reaffirmed)	24Apr2023	BWR A4 (ISSUER NOT COOPERATING* /Downgrade)	27Apr2022	BWR A4+ (Reaffirmation)	08Jul2021	BWR A4+ (Reaffirmation)
Grand Total		90.42	(Rupees Ninety Crores and Forty Two lakhs Only)

Hyperlink/Reference to applicable Criteria

Analytical Contacts
Deepthi Nair V. Rating Analyst deepthinair.v@brickworkratings.com	Suryanarayan N Associate Director - Ratings suryanarayan.n@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

P Patel Ship Breaking Company

ANNEXURE-I

Details of Bank Facilities rated by BWR

SL.No.	Name of the Bank/Lender	Type Of Facilities	Long Term(Rs.Crs.)	Short Term(Rs.Crs.)	Total(Rs.Crs.)	Complexity of the Instrument
1	State Bank Of India (SBI)	Letter of Credit - Sanctioned	_	77.50	77.50	Simple##
	Sub-Limit (Cash Credit) - Sanctioned	(13.34)
2	State Bank Of India (SBI)	Credit Exposure Limit (CEL) - Sanctioned	_	1.42	1.42	Simple##
3	State Bank Of India (SBI)	Standby line of Credit (SLC) - Sanctioned	_	11.50	11.50	Simple##
Total			0.00	90.42	90.42
TOTAL (Rupees Ninety Crores and Forty Two lakhs 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.

ANNEXURE-II

INSTRUMENT DETAILS

Instrument	Issue Date	Amount (Rs.Crs)	Coupon Rate (%)	Maturity Date	ISIN Particulars	Complexity of the Instrument
Nil	Nil	Nil	Nil	Nil	Nil	Nil

ANNEXURE-III

List of entities consolidated

Name of Entity	% Ownership	Extent of consolidation	Rationale for consolidation
Nil	Nil	Nil	Nil

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