Salasar Techno Engineering Ltd.

Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 453.83 Crs. of Salasar Techno Engineering Ltd.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (08 Jul 2020)	Present
Fund Based	165.00	263.83	Long Term	BWR A- (Stable) Reaffirmation	BWR A - /Stable Reaffirmation
Non Fund Based	160.00	190.00	Short Term	BWR A2+ Reaffirmation	BWR A2 + Reaffirmation
Grand Total	325.00	453.83	(Rupees Four Hundred Fifty Three Crores and Eighty Three 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) reaffirms the long-term rating at BWR A- and short-term rating at BWR A2+ for the bank loan facilities of Salasar Techno Engineering Ltd (STEL or the company).

The rating reaffirmation factors in the company’s experienced promoters and established market position, low leverage levels with comfortable debt protection metrics and current ratio, good order book, low counterparty risk backed by a strong customer base and exposure to resilient sectors such as telecom and electrification, and low capital requirement for capacity expansion. However, the ratings are constrained by the exposure to volatility in raw material prices, working-capital-intensive nature of business, project execution risk and tender-based nature of business and competition, besides the customer and supplier concentration risk.

The outlook is Stable as the company has been able to sustain growth in FY21 despite the Covid-19 impact in QFY21. The company’s good order book position (as explained in credit strength) provides revenue visibility in the short to medium term.

KEY RATING DRIVERS

Credit Strengths:

Experienced promoters and established market position :
Key Promoter Directors Mr. Alok Kumar, Mr. Shashank Agarwal and Mr. Shalabh Agarwal have more than three decades of industry experience. Being in the industry for such a long period, the promoters have seen multiple business cycles and are well-connected with their long-term suppliers and buyers as well. The board has four qualified and independent directors too.
Low leverage levels with comfortable debt protection metrics and current ratio :
The company’s leverage (analysed debt/net worth) is comfortable at 1.28x in FY21 (1.42x in FY20). It is, however, expected to increase marginally in FY22 with the availment of proposed loan limits; still the analysed gearing would be comfortable (analysed debt includes non-fund-based limits at 80% utilisation). The company has comfortable debt protection metrics, as indicated by the interest service coverage ratio (ISCR) being comfortable at 3.19x in FY21 (2.50x in FY20) and debt service coverage ratio (DSCR) at 2.91x in FY21 (2.29x in FY20). The company has maintained a comfortable current ratio at 1.64x in FY21 (1.47x in FY20).
Moderate order book :
From the EPC segment, the company had a good order book, having confirmed orders of Rs 216.71 Crs, along with orders having an LOI (letter of intent)of Rs. 333.56 Crs and the LOI awaited on orders of Rs 101.19 Crs from the transmission and railways segments as on 30 June 2021; besides this, the company has orders of road over bridge (ROB)/pre-engineered building (PEB) of Rs 70.22 Crs, and telecom orders are received on a rolling basis on a site-to-site basis, and the company always has Rs 25 Crs- Rs 30 Crs orders in hand on a monthly basis for the telecom tower structure.
Low counterparty risk, backed by strong customer base and exposure to resilient sectors :
In the telecom infra and EPC business, the majority of the sales is to well-known names, including Reliance Jio Ltd., Indus Tower Ltd., ATC, Indian Railways and electricity boards, which carries low credit default risk. The majority of the orders in the EPC segment are backed by government-funded programmes, providing payment assurance. The Covid-19-induced lockdown has impacted almost all sectors, except a few, including the telecom sector, where the impact was on the lower side. Furthermore, electrification being a part of infrastructure, enjoys special focus from the Government of India (GoI). Hence, regular order inflows from both the sectors is expected in the near future.
Low capital requirement for capacity expansion :
Owing to the nature of the business, the company does not require large debt-funded capex. While considering any expansion, a large portion of the investment goes to land acquisition. STEL keeps buying land regularly in the vicinity of existing plants.The current proposed expansion with a proposed capex cost of Rs 50 Crs will increase the installed capacity by 96,000 MT P.A.

Credit Risks:

Exposure to volatility in raw material prices :
STEL is exposed to volatility in raw material (iron and zinc) prices. The prices of these raw materials are highly volatile and can lead to volatility in the profitability margins. The risk of being exposed to volatility in prices is partially mitigated by the company’s long-standing relations and understanding with clients on the price front and price escalation clauses that work on both sides; in case raw material prices decline, the company passes on the benefit to customers, and in case the prices move upward, the company gets compensated for the same. Additionally, the majority of the orders in the telecom sector are of a short duration; hence, volatility in raw material prices can be incorporated in the new purchase order, preventing the company from large price movements.
Working-capital-intensive nature of business :
The company’s operations are working-capital-intensive in nature, as indicated by the elongated conversion cycle of 200 days in FY21 (197 days in FY20) mainly due to the high receivable period of 145 days in FY21 (155 days in FY20). The receivables are high due to retention money, besides receivables from government entities usually takes more than 120 days in the case of a project of a long duration.
Project execution risk, tender-based business and competition :
STEL had around Rs. 600 Crs. of unexecuted projects as on 30 June 2021. The timely execution of the projects is a key monitorable for the company. The project completion period may stretch and stress receivables due to the number of risks associated with engineering, procurement and construction (EPC) projects, such as environment clearance, political issues and approval from authorities, which could lead to a delay in the execution of projects. For EPC orders, the company has to participate in the tenders to procure orders. New business is, therefore, dependent on the success achieved in the tenders, which is affected due to intense competition from peers in bidding.
Concentration risk :
The top five customers and suppliers constitute more than 60% of the sales and purchase. Any unfavourable change in the customers and suppliers policy may impact the company’s topline.

RATING SENSITIVITIES

Upward: The outlook may be revised to Positive or the rating may be upgraded if there is a substantial improvement in the scale of operations and the company achieves its management projections, besides the financial risk profile improving from the current level or continuing to be comfortable.
Downward: BWR may revise the ratings downwards if the company achieves notably lower revenue and financials than projected and there is a deterioration in the debt protection metrics and liquidity.

LIQUIDITY INDICATORS - Adequate

The company had good cash accruals of Rs 34.94 Crs in FY21 (Rs 27.07 Crs in FY20) against the current portion of long-term debt of only Rs 0.46 Crs. The cash accruals are projected to be over Rs 50 Crs against a current portion of long term debt (CPLTD) of Rs 1.74 Crs for FY22. The company had cash and cash equivalents of 5.00 Crs at the end of March 2021.The working capital utilisation for fund based (working capital) is over 90% and for non-fund-based is around 80%. Higher fund-based utilisation is offset by the company’s good cash accruals.

ABOUT THE ENTITY

Salasar Techno Engineering Ltd (STEL) was incorporated in 2001 by Mr. Alok Kumar and Mr. Gyanendra Kumar Agarwal. The company provides 360-degree solutions through engineering, designing, fabrication, galvanisation and deployment services for the telecom and solar sectors. The company is also engaged in erecting towers and transmission line towers in the EPC segment. STEL provides steel solutions in India with global operations throughout Asia and Africa. STEL has three manufacturing facilities in Hapur, Uttar Pradesh. The company has a product range under various segments, including telecom, smart city solutions and power.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	583.31	525.51
EBITDA	Rs.Crs.	56.09	51.36
PAT	Rs.Crs.	29.34	22.08
Tangible Net Worth	Rs.Crs.	251.50	206.54
Total Debt/Tangible Net Worth	Times	0.78	0.80
Current Ratio	Times	1.64	1.47

STATUS OF NON-COOPERATION WITH PREVIOUS CRA

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	263.83	BWR A-/Stable (Reaffirmation)	08Jul2020	BWR A- (Stable) (Reaffirmation)	12Jul2019	BWR A- (Stable) (Assignment)	NA	NA
Non Fund Based	ST	190.00	BWR A2+ (Reaffirmation)	08Jul2020	BWR A2+ (Reaffirmation)	12Jul2019	BWR A2+ (Assignment)	NA	NA
Grand Total		453.83	(Rupees Four Hundred Fifty Three Crores and Eighty Three lakhs Only)

COMPLEXITY LEVELS OF THE INSTRUMENTS - Simple

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
Raman Thakur Senior Rating Analyst Board : +91 11 2341 2232 raman.t@brickworkratings.com	Tanu Sharma Director - Ratings tanusharma@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

Salasar Techno Engineering Ltd.

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.)
1	HDFC Bank	Cash Credit - Sanctioned	65.00	_	65.00
2	HDFC Bank	ILC/FLC/BG - Sanctioned	_	20.00	20.00
3	HDFC Bank	GECL - Sanctioned	12.88	_	12.88
4	IndusInd Bank	Cash Credit - Sanctioned	10.00	_	10.00
5	IndusInd Bank	ILC/FLC/BG - Sanctioned	_	40.00	40.00
6	IndusInd Bank	GECL - Sanctioned	1.96	_	1.96
7	State Bank Of India (SBI)	Cash Credit - Sanctioned	70.00	_	70.00
8	State Bank Of India (SBI)	Bank Guarantee - Sanctioned	_	65.00	65.00
9	State Bank Of India (SBI)	Letter of Credit - Sanctioned	_	15.00	15.00
10	State Bank Of India (SBI)	GECL - Sanctioned	13.86	_	13.86
11	Un tied portion from consortium of banks	Term Loan - Proposed	37.00	_	37.00
12	Un tied portion from consortium of banks	Cash Credit - Proposed	30.00	_	30.00
13	Un tied portion from consortium of banks	ILC/FLC/BG - Proposed	_	30.00	30.00
14	Yes Bank	Cash Credit - Sanctioned	20.00	_	20.00
15	Yes Bank	Bank Guarantee - Sanctioned	_	20.00	20.00
16	Yes Bank	GECL - Sanctioned	3.13	_	3.13
Total			263.83	190.00	453.83
TOTAL (Rupees Four Hundred Fifty Three Crores and Eighty Three lakhs Only)

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