Brickwork Ratings revises the long term rating and reaffirms the short term rating for the Bank Loan Facilities of Rs. 112.20 Crs. of Ghaziabad Ship Breakers Pvt Ltd
ParticularsFacilities** | Amount (Rs.Crs.) | Tenure | Rating# | ||
---|---|---|---|---|---|
Previous | Present | Previous (11 Dec 2020) |
Present | ||
Fund Based | (15.00) | (15.00) | Long Term |
BWR BB/Stable
Reaffirmation |
BWR BB +
/Stable Upgrade |
Non Fund Based | 112.20 | 112.20 | Short Term |
BWR A4+
Reaffirmation |
BWR A4 +
Reaffirmation |
Grand Total | 112.20 | 112.20 | (Rupees One Hundred Twelve Crores and Twenty lakhs Only) |
BWR has taken a Standalone view of Ghaziabad Ship Breakers Pvt Ltd and essentially relied upon the audited financial results up to FY21, management certified provisional sales for 7MFY22, Projected financials for FY22-FY23 and information/clarification provided by the entity's Management.
The rating upgrade in long term rating and reaffirmation in short term rating factors the consistent purchase of ships, moderate financial risk profile marked by comfortable leverage and adequate liquidity position. The rating also factors extensive experience of the promoters in the ship breaking business along with financial support and locational advantage of the Alang Bhavnagar-Gujarat. However, the profit margins are vulnerable to volatility in the prices of steel, adverse fluctuations in forex rates and exposure of its revenues to the cyclicality inherent in the ship breaking and metal industry. The entity is exposed to intense competition from a large number of players operating in Bhavnagar, Gujarat as well as international competitors and the regulatory risks due to environmental issues.
BWR believes that Ghaziabad Ship Breakers Pvt Ltd's 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 Company is promoted by Mr Tarsemlal Gupta and family, who have experience of more than three decades in the ship breaking business. The Company’s long standing presence in the industry provides benefits in terms of easy procurement of ships at reasonable prices
The company purchased a ship worth Rs. 65.29 Crs in FY20, two ships of Rs. 75.40 crs in FY21 and two ships of Rs. 99.13 Crs in the current fiscal FY22. All purchases are the letter of credit from 120 to 300 days. The entity has achieved a total operating income of Rs. 78.08 Crs in FY21 against an Rs. 6.97 Crs in FY20. As per management certified provisional financials, the Firm has achieved a revenue of Rs. 103.53 Crs as of 31st October 2021. The scale of operations is increased backed by consistently procured ships in the past months. The financial risk profile is moderate; marked by a modest tangible net worth of Rs. 21.41 crores, low gearing of 0.39x in absence of long term liabilities as of 31st March 2021. Also, 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.
It takes around four to five months on average to completely dismantle a ship and generate revenue. Hence, the Company 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. The firm has reported an operating loss of Rs. 1.26 Crs during FY21 on account of low sales realization, delay in dismantling work during pandemic as an adverse of nationwide lockdown . Nonetheless, the company reported a net profit margin of 1.30% in FY21 on the back of a non operating income generated from a forex gain. While the company hedges such risks by booking forward contracts, it remains exposed to adverse movement in exchange rates. Also, Profit margins are vulnerable due to steel price fluctuations.
The Company faces intense competition from large and small existing players operating at Bhavnagar as well as neighbouring countries, The revenues and profit margins are exposed to the Ship procurement as per the international economic situation. 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.
For arriving at its ratings, BWR has considered standalone financials of the company and applied its rating methodology as detailed in the Rating Criteria .
RATING SENSITIVITIES
Positive: Timely completion of ship dismantling, its sales, and thereby collection of the receivables, growth in operations & profitability will be positive for ratings.
Negative: Any deterioration in the financial risk profile coupled with increased debt level, stretched liquidity position , further operating losses will be negative for the ratings.
LIQUIDITY INDICATORS - Adequate
The company has availed a non-fund based foreign Letter of Credit and stand by line of credit for purchasing the ships for shipbreaking activity ranging from 120 to 300 days and a cash credit limit for other operational requirements. Also, the company provides an upfront cash margin for the opening of the LC. Liquidity position has remained comfortable with the surplus available in the form of inventory and receivables. The working capital cycle is healthy as reflected in short receivable cycles of 17 days in FY21.
ABOUT THE ENTITYIncorporated in 1986, Ghaziabad Ship Breakers Pvt Ltd(GSBPL) is engaged in ship breaking and recycling business. The Company is located in Bhavnagar, Gujarat and promoted by Tarsemlal Gupta and family.
KEY FINANCIAL INDICATORS (Standalone)Key Parameters | Units |
FY 20-21 (Audited) |
FY 19-20 (Audited) |
---|---|---|---|
Operating Revenue | Rs.Crs. | 78.08 | 6.97 |
EBITDA | Rs.Crs. | -1.26 | 1.94 |
PAT | Rs.Crs. | 1.02 | 0.35 |
Tangible Net Worth | Rs.Crs. | 21.41 | 20.40 |
Total Debt/Tangible Net Worth | Times | 0.39 | 0.73 |
Current Ratio | Times | 1.29 | 1.23 |
Not Applicable
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 | NA |
NA
|
NA |
NA
|
18Jul2019 |
BWR BBStable
(Upgrade) |
15Jun2018 |
BWR BB- Stable
(Reaffirmation) |
FB SubLimit | LT | (15.00) |
BWR BB+/Stable
(Upgrade) |
21Jul2020 |
BWR BB Stable
(Reaffirmation) |
NA |
NA
|
NA |
NA
|
NA |
NA
|
11Dec2020 |
BWR BBStable
(Reaffirmation) |
NA |
NA
|
NA |
NA
|
||
Non Fund Based | ST | 112.20 |
BWR A4+
(Reaffirmation) |
21Jul2020 |
BWR A4+
(Reaffirmation) |
18Jul2019 |
BWR A4+
(Reaffirmation) |
15Jun2018 |
BWR A4+
(Reaffirmation) |
NA |
NA
|
11Dec2020 |
BWR A4+
(Reaffirmation) |
NA |
NA
|
NA |
NA
|
||
Grand Total | 112.20 | (Rupees One Hundred Twelve Crores and Twenty 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 | |
---|---|
Kunjal Dabhi Rating Analyst Board : +91 79 66174046 / 47 kunjal.r@brickworkratings.com |
Vidya Shankar Principal Director - Ratings Board : +91 80 4040 9940 vidyashankar@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 | _ | 100.00 | 100.00 | |
Sub-Limit (Cash Credit) Sanctioned | (15.00) | |||||
2 | State Bank Of India (SBI) | Credit Exposure Limit (CEL)Sanctioned | _ | 2.20 | 2.20 | |
3 | State Bank Of India (SBI) | Standby line of Credit (SLC)Sanctioned | _ | 10.00 | 10.00 | |
Total | 0.00 | 112.20 | 112.20 | |||
TOTAL (Rupees One Hundred Twelve Crores and Twenty lakhs Only) |
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