Adroit Industries (India) Ltd

Brickwork Ratings upgrades the ratings for the Bank Loan Facilities of Rs. 31.10 Crs. of Adroit Industries (India) Ltd

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (10 Aug 2021)	Present
Fund Based	5.74	3.10	Long Term	BWR BBB- /Stable Downgrade/ISSUER NOT COOPERATING*	BWR BBB /Stable Upgrade
Fund Based	20.00	22.00	Short Term		BWR A2 Upgrade
Non Fund Based	6.00	6.00	Short Term	BWR A3 Downgrade/ISSUER NOT COOPERATING*	BWR A2 Upgrade
Grand Total	31.74	31.10	(Rupees Thirty One Crores and Ten 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
Note: EPC Limits were classified as long term , which now has been classified as short term , thus previous rating history for short term is not visible .

RATING ACTION / OUTLOOK

BWR has upgraded the long term and short term rating to BWR BBB (Stable) and BWR A2 respectively for the bank loan facilities of Adroit Industries (India) Ltd. The rating has, inter alia, factored in the promoter’s extensive business experience and long track record of company, diversified customer base and product profile, comfortable financial profile marked by high profitability margins, moderate tangible net worth, strong debt protection metrics and low gearing levels. The rating is, however, constrained by low scale of operations, elongated conversion cycle owing to nature of business along with exposure to foreign exchange risk.

The rating outlook continues to be stable on account of the company’s improved financial performance until 8M FY 22 ending Nov 2021 as compared to 8M FY 21 along with comfortable order book position which shows revenue visibility and rebound in performance in FY22.

KEY RATING DRIVERS

Credit Strengths:

Experienced promoter group and established track record of operation :
Adroit has an established track record of over two decades in manufacturing of propeller shafts, drive shaft assemblies and components which find wide applications in industries such as automotive, industrial equipment, fire-fighting equipment, locomotives, irrigation industry, off-highway products and marine equipment. The principal promoter, Mr. Mukesh Sangla, has around four decades of experience in the agro and polymer business and his son Mr. Saurabh Sangla, Managing Director, is an Industrial Engineer from California USA (also having Six Sigma professional certification from GE-USA) and has more than a decade of experience. The management is assisted by qualified personnel for day to day operations.
Low leverage and geaing levels :
With the Y-O-Y profit retention coupled with high profitability margins the company has managed comfortable leverage levels with average Net debt /EBIDTA of 3.4 x for last three years ending FY 21. Also with the beginning of term loan repayment, the company expects gearing to go down further in the coming years. Gearing for the company stood at 0.42 x in FY 21 as against 0.40 x in FY 20. Adjusted gearing after considering LC acceptances as part of debt and removing investment and long term loans and advances extended to group companies stood at ~1.08 x in FY 21 which is also in a comfortable range.
Reputed and diversified clientele and diversified end user industry :
The company caters to a large customer base from a number of industries keeping the customer and industry concentration on the lower side. Also risk of losing customers is on lower side owing to the nature of business as the company develops customized products from scratch for its customers. In FY 21 almost 24 % of revenue is derived from locomotives (railway rolling stock and railway track maintenance machinery) , 21 % of revenue is derived from fire-fighting equipment, 18 % from irrigation , 13 % from off highway products , 16 % from industrial mixers, steel rolling mills and papermaking machinery).
Strong debt protection metrics :
Due to high profitability and low debt level, debt protection metrics of the company stood strong with average ISCR and DSCR at 3.80 times and 1.80 times for last three fiscal years ending FY 21 . The strong debt protection metrics provide cushion in overall debt servicing during times of economic uncertainty.

Credit Risks:

Small scale of operations :
Scale of operations of the company is still on lower side as the company is catering to a specialized segment. . The company has orders of ~Rs.36 Crs. to be executed during the current year FY22. On a provisional basis the company has achieved Rs. 51.09 Crs during 8 M FY 22 as compared to Rs 34.15 Crs in 8m FY 21 which shows that company is expected to move close to pre pandemic level of scale of operations and profitability in current financial year FY 22. This risk is also mitigated by the fact that company’s average operating profit margins stood at ~16 % for last three fiscal years ending FY 21 due to the value added nature of its products and less competition in industry
Elongated conversion cycle :
Conversion cycle of the company is still elongated at 120 days in FY21 as against 142 days in FY 20 , making its operations working capital intensive in nature. Payable days increased to 142 days in FY 20 and to 227 days in FY 21 as compared to 116 days in FY 19. Increase in payable days over the years is due to disruptions caused in economy due to Covid-19 pandemic and operations of company were shut for two months ending May 2020 in FY 21 .
Exposure to foreign exchange risk :
As exports constitute a significant percentage of the turnover which was ~92 % in FY 21, the company remains exposed to currency fluctuations to the extent of unhedged exposure. However, it has a well-defined treasury risk management policy in place to reduce any impact of fluctuations in foreign exchange rates through EPC limits and a forward cover. This risk is mitigated as almost 90-95% of the currency exposure is hedged for the company at any time.

ANALYTICAL APPROACH - Standalone

BWR has applied standalone approach and detailed hyperlinks are attached in annexures .

RATING SENSITIVITIES

Positive: BWR may revise the ratings upwards if the company’s scale of operations, net profit and EBITDA improve substantially and sustainably from current levels, with other metrics, such as gearing , debt protection metrics and liquidity, also favoring an upgrade.

Negative: BWR may revise the ratings downwards if the position of the company’s scale of operations, net profit, EBITDA , liquidity and receivables deteriorate.

LIQUIDITY INDICATORS - Adequate

The current ratio stood at 1.53 x in FY21. The working capital utilization was 91.40% for six months ending Dec 2021 . The company reported cash & cash equivalents of Rs. 1.09 Crs as on 31March 31, 2021. In addition to this, the company generated cash accruals (PAT+Depreciation) amounting to Rs. 4.96 Crs in FY 21 . In comparison with this, the company’s repayment obligation is Rs 1.5 Crs in FY 21 indicating that there is sufficient cushion available to ensure timely debt servicing. In FY 22 cash accruals is estimated around Rs 7.9 Crs as against repayment obligations of Rs 3.23 Crs.

ABOUT THE ENTITY

Adroit Industries (India) Limited (Adroit) was established as a partnership firm by Mr. Mukesh Sangla and Mr. Saurabh Sangla in 1967 and was reconstituted as a company in January 1995. Adroit is engaged in manufacturing of propeller shafts, drive shaft assemblies and components which find wide applications in industries such as automotive, industrial equipment, firefighting equipment, locomotives, irrigation industry, off-highway products and marine equipment. The company is an export oriented unit where all the manufactured products other than scrap are exported to other countries. The company has integrated manufacturing units including foundry, forging, machining, assembling and balancing division. Adroit’s manufacturing facilities are located at Indore and Dewas, Madhya Pradesh, with a total installed capacity of 1,800(MTPA) metric tonnes per annum.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	53.61	62.69
EBITDA	Rs.Crs.	7.09	9.76
PAT	Rs.Crs.	2.72	4.10
Tangible Net Worth	Rs.Crs.	70.92	68.21
Total Debt/Tangible Net Worth	Times	0.42	0.40
Current Ratio	Times	1.53	1.58

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

Facilities	Current Rating (2022)			2021		2020		2019
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating
Fund Based	LT	3.10	BWR BBB/Stable (Upgrade)	10Aug2021	BWR BBB- Stable (Downgrade/ISSUER NOT COOPERATING*)	28Jan2020	BWR BBB- Stable (Downgrade/ISSUER NOT COOPERATING*)	NA	NA
		NA	NA	NA	NA	11May2020	BWR BBB Stable (Upgrade)	NA	NA
Fund Based	ST	22.00	BWR A2 (Upgrade)	NA	NA	NA	NA	NA	NA
Non Fund Based	ST	6.00	BWR A2 (Upgrade)	10Aug2021	BWR A3 (Downgrade/ISSUER NOT COOPERATING*)	28Jan2020	BWR A3 (Downgrade/ISSUER NOT COOPERATING*)	NA	NA
		NA	NA	NA	NA	11May2020	BWR A2 (Upgrade)	NA	NA
Grand Total		31.10	(Rupees Thirty One Crores and Ten 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
Karan Ahluwalia Senior Rating Analyst Board : +91 11 2341 2232 karan.a@brickworkratings.com	Tanu Sharma Director - Ratings tanusharma@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

Adroit Industries (India) 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	Export Import Bank of India	Term Loan - Sanctioned	3.10	_	3.10
2	Kotak Mahindra Bank	Letter of Credit - Sanctioned	_	6.00	6.00
3	Kotak Mahindra Bank	Sales Invoice Financing - Sanctioned	_	2.00	2.00
4	Kotak Mahindra Bank	EPC/ PCFC/ FBP/ PSFC - Sanctioned	_	20.00	20.00
Total			3.10	28.00	31.10
TOTAL (Rupees Thirty One Crores and Ten lakhs Only)

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