Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 99.85 Crs. of Atam Manohar Ship Breakers Pvt. Ltd.(AMSBPL or "The Company")
ParticularsFacilities** | Amount (Rs.Crs.) | Tenure | Rating# | ||
---|---|---|---|---|---|
Previous | Present | Previous (20 Oct 2020) |
Present | ||
Fund Based | (10.27) | (10.27) | Long Term |
BWR BB-/Stable
Reaffirmation |
BWR BB -
/Stable Reaffirmation |
(0.00) | (4.73) | ||||
Non Fund Based | 69.85 | 99.85 | Short Term |
BWR A4
Reaffirmation |
BWR A4
Reaffirmation |
Grand Total | 69.85 | 99.85 | (Rupees Ninety Nine Crores and Eighty Five lakhs Only) |
The reaffirmation of the rating continues to factor in more than 2 decades of experience of the promoters in the ship breaking industry and average financial risk profile marked by moderate debt protection metrics. These strengths are partially offset by the relatively modest size of operations of the company, cyclicality associated with the ship breaking business, high reliance on Letter of Credit backed purchases, exposure to environmental and regulatory risk and susceptibility of profitability margins to adverse exchange rate fluctuations and volatile metal prices.
BWR believes the AMSBPL 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 promoter has experience of more than two decades in this line of activity. The established presence and long standing relationships with various stakeholders across the value chain have supported the performance across the business cycles. The promoter is well versed with the price dynamics of the ship-breaking industry which helps in buying ships at competitive rates depending on the prevailing market scenario.
AMSBPL is located in Alang – Sosiya Ship Breaking yard, the world’s largest shipbreaking yard which ensures easy availability of ship, labor, and infrastructure.
The company procures ships against a LC facility. FD balances are persistently built up from the first month of dismantling activities, ensuring adequate liquidity to service the maturing LC debt.
The company has achieved a total operating income of Rs. 93.61 Crs in FY21 against an Rs. 71.07 Crs in FY20. For the first six months of FY22 the company has achieved revenues of Rs. 43 Crs. and PBIT of Rs. 1.5 Crs. The scale of operations is relatively modest backed by consistently procured ships in the past years. The financial risk profile of the firm is moderate; marked by a modest tangible net worth of Rs. 17.67 Crs.in FY21 (FY20: Rs 16.47 Crs.), Total Debt/TNW of 0.44x (0.36x) and TOL/TNW of 3.09x(FY20: 0.95x) due to USLs and high trade payables against the LCs. Also, the company has various international certification to undertake safe and environmentally sound ship recycling operations in accordance with the International Maritime Organization’s Hong Kong Convention, which supports the ship procurement capabilities
The company has an inventory risk for ships that are under the process of breaking for 4-5 months and selling of scrap, given the high volatility faced in steel prices. AMSBPL's operating profit margins to 2.22% in FY21 (3.45% in FY20). Debt protection metrics are weak as is reflected in reduced ISCR of 0.83x(FY20: 1.84x). Also, the profit margins are exposed to adverse movement in exchange rates and fluctuation in steel or scrap prices
The company 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.
Ship procurement depends on the current trends in the ship-breaking industry and the international economic situation, which affects its revenues and thus the profit margins. The company has a fluctuating revenue stream due to the inherent nature of the ship-breaking industry as the revenue and profitability of the company is highly dependent on external factors such as favorable foreign exchange rates, the number of ships purchased, and the size of the plot area.
For arriving at its ratings, BWR has assessed the standalone financials of AMSBPL and has applied its rating methodology as detailed in the Rating Criteria (hyperlinks provided at the end of this rationale)
RATING SENSITIVITIES
Positive: Sustained improvement in profit margins leading to an improvement in the credit metrics will be positive for the ratings.
Negative: Deterioration in the scale of operations, Decline in operating margins and a stretch debt indicators or working capital cycle will be negative for the ratings.
LIQUIDITY INDICATORS - Stretched
The current ratio of the company stood at 1.13 times in FY21 (A) as against 2.01 times in FY20 on account of ship acquisition leading to higher trade payables . Cash & cash equivalent as of 31-March-2021 stood at Rs. 0.09 Cr and amount in fixed deposit account stood at Rs. 22.35 Crs (Fixed deposit amount of Rs. 13.73 is completely pledged). The Op. EBITDA/Finance Cost fell to 0.83x in FY21 (FY20: 1.84x) the lower Operating margins due to fall in realization per ton and rise in finance cost on account of higher unsecured loans led to deterioration in ISCR. The leverage and coverage ratios are likely to remain the same in the near term. For FY22 the company had LC repayment obligation of Rs. 88 Crs; of this the company has cleared Rs. 57 Crs. of the repayment obligation during H1FY22 and the rest Rs. 31 Crs. payment would be done in the months of October and November. The company manages short term cash flow mismatches by taking overdraft facility against the long term FDR’s. The average working capital utilisation for seven months ended September 2021 was 62.96%.
ABOUT THE ENTITYEstablished in 1997, AMSBPL is engaged in ship breaking and recycling business. The Company’s registered office is at Bhavnagar, Gujarat and operates in Alang (plot of 3700 sq mts). The Company is promoted by Mr. Anil Jain having extensive experience in the business. The company has a capacity to break ships ranging up to 50000 tonnes.
KEY FINANCIAL INDICATORS (Standalone)Key Parameters | Units |
FY 20-21 (Audited) |
FY 19-20 (Audited) |
---|---|---|---|
Operating Revenue | Rs.Crs. | 93.61 | 71.07 |
EBITDA | Rs.Crs. | 2.07 | 2.45 |
PAT | Rs.Crs. | 1.20 | 0.74 |
Tangible Net Worth | Rs.Crs. | 17.67 | 16.47 |
Total Debt/Tangible Net Worth | Times | 0.44 | 0.40 |
Current Ratio | Times | 1.14 | 2.07 |
Facilities | Current Rating (2021) | 2020 | 2019 | 2018 | |||||
---|---|---|---|---|---|---|---|---|---|
Type | Tenure | Amount (Rs.Crs.) |
Rating | Date | Rating | Date | Rating | Date | Rating |
Fund Based | LT | NA |
NA
|
NA |
NA
|
30Sep2019 |
BWR BB-Stable
(Upgrade) |
12Sep2018 |
BWR B+Stable
(Reaffirmation) |
FB SubLimit | LT | (10.27) |
BWR BB-/Stable
(Reaffirmation) |
20Oct2020 |
BWR BB-Stable
(Reaffirmation) |
NA |
NA
|
NA |
NA
|
NA
|
18Jun2020 |
BWR BB-Stable
(Reaffirmation) |
NA |
NA
|
NA |
NA
|
|||
(4.73) |
BWR BB-/Stable
(Reaffirmation) |
NA |
NA
|
NA |
NA
|
NA |
NA
|
||
Non Fund Based | ST | 99.85 |
BWR A4
(Reaffirmation) |
20Oct2020 |
BWR A4
(Reaffirmation) |
30Sep2019 |
BWR A4
(Reaffirmation) |
12Sep2018 |
BWR A4
(Reaffirmation) |
NA
|
18Jun2020 |
BWR A4
(Reaffirmation) |
NA |
NA
|
NA |
NA
|
|||
Grand Total | 99.85 | (Rupees Ninety Nine Crores and Eighty Five 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.
Hyperlink/Reference to applicable CriteriaAnalytical Contacts | |
---|---|
Sagar Harendra Desai Ratings Analyst sagar.d@brickworkratings.com |
Chintan Dilip Lakhani Director- Ratings chintan.l@brickworkratings.com |
1-860-425-2742 | media@brickworkratings.com |
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) | Letter of CreditSanctioned | _ | 68.50 | 68.50 | |
Sub-Limit (CC Limit) Sanctioned | (10.27) | |||||
Sub-Limit (CC Limit) Proposed | (4.73) | |||||
2 | State Bank Of India (SBI) | Letter of CreditProposed | _ | 30.00 | 30.00 | |
3 | State Bank Of India (SBI) | Credit Exposure Limit (CEL)Sanctioned | _ | 1.35 | 1.35 | |
Total | 0.00 | 99.85 | 99.85 | |||
TOTAL (Rupees Ninety Nine Crores and Eighty Five lakhs Only) |
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