Sangal Papers Ltd.

Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 21.90 Crs. of Sangal Papers Ltd.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (24 Aug 2021)	Present
Fund Based	18.44	20.20	Long Term	BWR BBB-/Negative Reaffirmation/ISSUER NOT COOPERATING*	BWR BBB - /Negative to Stable Reaffirmation and change in Outlook
Non Fund Based	1.70	1.70	Short Term	BWR A3 Reaffirmation/ISSUER NOT COOPERATING*	BWR A3 Reaffirmation
Grand Total	20.14	21.90	(Rupees Twenty One Crores and Ninety 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

\BWR has reaffirmed the rating of M/s Sangal Paper Limited to BWR BBB- (Stable)/ A3 deriving its strength from the experience of the management, moderate financial risk profile as marked by comfortable tangible Net worth, comfortable gearing ratio and moderate debt protection metrics . However the rating is constrained by the profitability exposed to volatility in the raw material prices, Intense competition and fragmented industry, environmental and regulatory risks and intensification of Covid-19 on the working of the company.

The Outlook of the company is changed from “Negative” to “ Stable” due to the increase in the demand of craft papers in the FMCG sector and Pharmaceutical sector in India and also abroad. Considering the current year performance of the company , current orders in hand , the company is able to achieve the projected revenue in FY22 (proj). They will be coming back to pre COVID Level. They have already started to achieve the monthly sales of Pre Covid level. Also, Growing manufacturing sector, requirement of better quality packaging of FMCG products marketed through organized retail and the demand for the upstream market of paper products, such as tissue paper, filter paper, tea bags, light weight online coated paper and medical grade coated paper are expected to drive the paper & paper products market in India.

KEY RATING DRIVERS

Credit Strengths:

Extensive experience of management :

The management of the company includes six directors namely, Mr. Himanshu Sangal - Chairman & Managing Director, Amit Sangal - Director - Finance & CFO, Tanmay Sangal - Director, Vinayak Sangal - Director, Prem Sethi - Director, Geeta Gupta - Director. With their extensive experience and knowledge of the industry, they are able to maintain long term relationship with their clients and suppliers.
Moderate financial risk profile :

The financial risk profile of the company has improved over the years as evidenced by a comfortable gearing ratio of 0.56 times in FY21 as compared to 0.62 times in FY20. The tangible net worth stood at Rs. 34.15 Cr. in FY21. The debt protection metrics stood moderate with an ISCR of 2.07 times and DSCR of 1.13 times in FY21.
Moderate Cash Conversion Cycle :

The cash Conversion Cycle stood moderate with 68 Days in FY21. The receivables days and Inventory days stood 82 days and 51 days respectively in FY21 and Payable days of 64 days in FY21.

Credit Risks:

Modest Scale of Operations and low Profitability margins. :

The total operating income of the company has slightly declined to Rs. 106.01 Cr in FY21 from Rs. 125.87 Cr in FY20 due to the lower order execution during the year . The company’s profitability margins have also slightly declined as evident from the OPM and NPM of 3.21% and 0.62% respectively in FY-21 as against 3.72% and 1.43% respectively in FY20.
Intense competition and fragmented industry :

The firm faces stiff competition from other small and unorganised players in the industry, which limits its bargaining power with customers and suppliers, and hence, exerts pressure on its margins. Also, due to impact of booming Internet and new media, the product structure of the paper industry will confront the pressure of profound adjustment. The widespread adoption of new media and paperless reading has led to a shrinking demand for printing & writing paper as well as newsprint. Whilst demand for printing, writing paper and newsprint is decreasing globally, the internet and e-commerce business model has driven the rapid expansion of the express delivery business, and the demand for packaging paper is expected to increase steadily.
Environmental and Regulatory risks posing threat to the industry :

The production of paper emits various pollutants as a part of manufacturing process. This has been a cause of concern and the pollution control boards are introducing stricter norms day after day to contain the level of pollution caused by this industry.

ANALYTICAL APPROACH - Standalone

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 Company to improve its scale of operations, profitability margins, overall credit risk profile and efficiently manage its working capital requirement would be the key rating sensitivities.

Positive : The rating may be revised if the firm is able to significantly improve its profitability margins, Debt Protection Matrix, current ratio and also substantially improve its order book.

Negative : The rating may be downgraded if there is a delay in debt servicing, substantial decline in revenues and deterioration in the liquidity profile of the firm.

LIQUIDITY INDICATORS - Adequate

Cash and cash equivalents is Rs. 0.23 Cr for FY21. The Current ratio of the company is above the benchmark at 1.51 times and gearing ratio of the company is comfortable at 0.56 times for FY21. The debt protection metrics stood moderate marked at ISCR at 2.07x and DSCR at 1.13x for FY21. The current portion of Long Term debt for FY21 is Rs. 1.63 Cr and Net Cash accruals (PAT+Dep.) for FY22 (Proj) is Rs. 3.39 Crs. Average credit utilization for last 6 months as per the banker’s feedback is 80 %.

Therefore, the overall liquidity position is adequate.

ABOUT THE ENTITY

Sangal Papers Ltd (‘SPL’ or ‘the Company’), incorporated in 1980 ,is a family concern having six directors .The company is situated at 22 KM, Meerut-Mawana Road, Mawana - 250401, Dist. Meerut, U.P. Sangal Papers Ltd. is engaged in the manufacturing of Newsprint, Writing & Printing Papers with installed capacity of 33000 MT. The management of the company includes six directors namely, Mr. Himanshu Sangal - Chairman & Managing Director, Amit Sangal - Director - Finance & CFO, Tanmay Sangal - Director, Vinayak Sangal - Director, Prem Sethi - Director, Geeta Gupta - Director. With their extensive experience and knowledge of the industry, they are able to maintain long term relationship with their clients and suppliers. The company is listed on BSE with a share price of Rs. 102.40 per share as on 23 /09/2021.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	106.01	125.87
EBITDA	Rs.Crs.	3.40	4.69
PAT	Rs.Crs.	0.65	1.80
Tangible Net Worth	Rs.Crs.	33.67	32.69
Total Debt/Tangible Net Worth	Times	0.56	0.62
Current Ratio	Times	1.51	1.52

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

Facilities	Current Rating (2021)			2021 (History)		2020		2019		2018
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating	Date	Rating
Fund Based	LT	20.20	BWR BBB-/Negative to Stable (Reaffirmation and change in Outlook)	24Aug2021	BWR BBB-Negative (Reaffirmation/ISSUER NOT COOPERATING*)	26May2020	BWR BBB-Stable to Negative (Reaffirmation)	23Mar2019	BWR BBB-Stable (Reaffirmation)	22Feb2018	BWR BBB-Stable (Upgrade)
Non Fund Based	ST	1.70	BWR A3 (Reaffirmation)	24Aug2021	BWR A3 (Reaffirmation/ISSUER NOT COOPERATING*)	26May2020	BWR A3 (Reaffirmation)	23Mar2019	BWR A3 (Reaffirmation)	22Feb2018	BWR A3 (Upgrade)
Grand Total		21.90	(Rupees Twenty One Crores and Ninety lakhs Only)

Rating Advisory, as on 27May2021
Press Release, as on 28May2021
As the 12 months have lapsed since the last rating, it has not been possible to review the rating within the stipulated time, mainly due to non receipt of essential information required for the review. Due to which rating advisory has been issued

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
Nisha Nagar Ratings Analyst nisha.n@brickworkratings.com	Hari Kishan Yadav Associate Director - Ratings hari.ky@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

Sangal Papers 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	State Bank Of India (SBI)	Cash Credit - Sanctioned	16.00	_	16.00
2	State Bank Of India (SBI)	Term Loan - Sanctioned	4.20	_	4.20
3	State Bank Of India (SBI)	ILC/FLC - Sanctioned	_	1.50	1.50
4	State Bank Of India (SBI)	Bank Guarantee - Sanctioned	_	0.20	0.20
Total			20.20	1.70	21.90
TOTAL (Rupees Twenty One Crores and Ninety lakhs Only)

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