Sir Shadi Lal Enterprises Ltd

Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 147.49 Crs. of Sir Shadi Lal Enterprises Ltd

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (14 Jul 2020)	Present
Fund Based	147.16	145.99	Long Term	BWR B+/Stable Upgrade	BWR B + /Stable Reaffirmation
Non Fund Based	1.50	1.50	Short Term	BWR A4 Reaffirmation	BWR A4 Reaffirmation
Grand Total	148.66	147.49	(Rupees One Hundred Forty Seven Crores and Forty Nine 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 has reaffirmed the long term and short term ratings assigned to the bank facilities of Sir Shadi Lal Enterprises Ltd at BWR B+ (Stable)/A4.

The reaffirmation of the rating takes into account experienced promoters and long track record of operations of the company, increasing scale of operations in FY21 on the back of improved capacity utilization levels, semi integrated of operations and locational advantage. The ratings are, however, constrained by the susceptibility of margins to volatility in raw material prices, working capital intensive nature of the industry, seasonal nature of operations, weak solvency position and stretched liquidity profile.

The outlook of the company is ‘Stable’ on account of uptick in demand in the sugar industry. Furthermore, the operating income is also expected to increase going forward on the back of a capacity expansion project planned by the company.

KEY RATING DRIVERS

Credit Strengths:

Experience of the promoters and long track record Experienced promoters :
The company was incorporated in the year 1933 and is managed by a team of highly experienced professionals. On the back of its long track record, the company has also developed long term relations with suppliers and customers
Established Integrated operations with improved sugar recovery - :
The company has an integrated sugar plant in Shamli district in Uttar Pradesh with a capacity of 7000 TCD and a distillery unit having capacity of 70 KLPD. The integrated facility of the company leads to offset the cyclic nature of operations of the sugar industry. On the back of increased demand, the operating income of the company increased by 9.26% in FY21. The entity undertaking a capex to expand its cane crushing from 7000 TCD to 10000 TCD in the current financial year, which will be operational from Nov 2021. Also, the company has installed incineration Boiler which will increase the operating days from 270 days to 330 days in a year. In Q1FY22 (UA), the company has achieved an operating income of Rs.120.56Cr., with PAT of Rs. (0.04) Cr.; compared to an operating income of Rs. 172.88 Cr. and PAT of Rs. 1.72 Crs in the corresponding period last year.
Locational Advantage :
The manufacturing plant of the company is situated in Shamli District in Uttar Pradesh which is the leading sugarcane and sugar producing State in the country.

Credit Risks:

Exposure to seasonal nature of business and agro climatic risk and government restrictions :
The sugar industry, being directly dependent on the sugarcane crop and its yield, is susceptible to agro climatic risks. The climatic conditions and pest-related attacks have a bearing on the cane output, which is the primary feedstock for a sugar producer. The sugar industry is highly regulated, with various Government Acts governing virtually all aspects of the business, which include the availability and pricing of sugarcane, sugar trade and by-product pricing. Access to sugarcane of a certain quality is critical for the operations of a sugar mill, which faces regulatory constraints in accessing sugarcane from outside its command area. The prices of these raw materials and sugar are highly volatile which causes a threat to the operating margins of the company.
Working capital intensive operations :
This industry is a seasonal nature of operations due to which the company has to procure the raw materials during September to November. The inventory is kept for more than 6 months for which the company requires a huge amount of funds to meet its working capital requirements.
Stretched liquidity :
s The current ratio stood weak at 0.56x, as on March 31, 2021 (Previous Year 0.59X) as the entity is dependent on bank borrowings and trade payables to meet its working capital requirements. The average utilisation of the working capital borrowing remained at 95% - 100% during the peak seasons which reduces to 50% -60% during off season.. The company had weak debt protection metrics with the operational and financial requirements being met from the cash flow from operations.
Financial Risk :
Despite an increase in scale of operations in FY21, the company reported a decline in the profitability margins with EBITDA and PAT margin standing at 0.60% and (-) 2.60% in FY 21, compared to 6.07% and 0.57% in FY20, respectively. This was mainly on account of high raw material expenses incurred by the company in FY21, which were further accentuated by the revaluation of the carrying value of the closing stock at the end of the year. Furthermore, losses reported in the past have resulted in negative tangible net worth and weak gearing ratio (i,e total overall liability/ tangible net worth ) for the company, as on March 31, 2021.

ANALYTICAL APPROACH - Standalone

For arriving at its ratings, BWR has applied its rating methodology as debited in the Rating Criteria detailed below ( hyperlinks provided at the end of this rationale).

RATING SENSITIVITIES

Positive: The rating may be revised upward in case the revenues and profit show sustained improvement backed by healthy liquidity.

Negative: The rating may be revised downward in case revenues of the company substantially deteriorates from current level. Rating may also be adversely affected in case of adequate deterioration in gearing and coverage ratios.

LIQUIDITY INDICATORS - Stretched

The company has reported a cash loss of Rs. 7.97 Crs in FY 21 against the cash profit of Rs. 9.83 Crs in FY20. The company, however, generated cash from operating activities (CFO) of Rs. 45.89 Crs., in FY 21. The company has a term debt repayment obligation of Rs. 13.63 Cr. in FY22, proposed to be met through the internal accruals. It has an average utilization of the working capital limit of 95% - 100% during the peak seasons which reduces to 50% -60% during off season. However the company is regular in payment of all its debts obligations. With the installation of incineration boiler and enhanced capacity, the company is expected to improve its profitability in FY22 which will provide support to the cash flows going forward.

ABOUT THE ENTITY

Sir Shadi Lal Enterprises Limited was established as a Corporate Body in the year 1933 under the name "The Upper Doab Sugar Mills Limited" by the Shri Sir Shadi Lal, promoter of the company. The name of the company was changed in 1982 to Sir Shadi Lal Enterprises Ltd in 1982. At present, the Company has two manufacturing units comprising of one sugar unit namely Upper Doab Sugar Mills, Shamli, District - Shamli, Uttar Pradesh - 247776 and one distillery unit Shamli Distillery & Chemical Works,Shamli, District - Shamli, Uttar Pradesh - 247776.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	549.25	497.17
EBITDA	Rs.Crs.	3.30	30.20
PAT	Rs.Crs.	-14.29	2.86
Tangible Net Worth	Rs.Crs.	-109.46	-95.35
Total Debt/Tangible Net Worth	Times	-1.38	-1.73
Current Ratio	Times	0.56	0.59

STATUS OF NON-COOPERATION WITH PREVIOUS CRA

CRISIL has moved the rating of the company to Issuer Not Cooperating category on 30-Jan-2021.

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	145.99	BWR B+/Stable (Reaffirmation)	14Jul2020	BWR B+Stable (Upgrade)	07May2019	BWR BStable (Assignment)	NA	NA
Non Fund Based	ST	1.50	BWR A4 (Reaffirmation)	14Jul2020	BWR A4 (Reaffirmation)	07May2019	BWR A4 (Assignment)	NA	NA
Grand Total		147.49	(Rupees One Hundred Forty Seven Crores and Forty Nine 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
Neha Wahi Ratings Analyst Board : +91 11 2341 2232 nehawahi@brickworkratings.com	Sudeep Sanwal Associate Director - Ratings sudeep.s@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

Sir Shadi Lal Enterprises 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	Zila Sahkari Bank Limited	Term Loan - Sanctioned	44.99	_	44.99
2	Zila Sahkari Bank Limited	Term Loan - Sanctioned	20.00	_	20.00
3	Zila Sahkari Bank Limited	Term Loan - Sanctioned	10.00	_	10.00
4	Zila Sahkari Bank Limited	Cash Credit - Sanctioned	30.00	_	30.00
5	Punjab National Bank	Bank Guarantee - Sanctioned	_	1.50	1.50
6	Punjab National Bank	Cash Credit - Sanctioned	41.00	_	41.00
7	State Bank Of India (SBI)	Working Capital Term Loan - Sanctioned	_	_	0.00
Total			145.99	1.50	147.49
TOTAL (Rupees One Hundred Forty Seven Crores and Forty Nine lakhs Only)

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