Assam Roofing Limited

Brickwork Ratings reaffirms the ratings for the enhanced Bank Loan Facilities of Rs. 77.50 Crs. of Assam Roofing Limited

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (06 Sep 2021)	Present
Fund Based	65.00	72.50	Long Term	BWR A-/Stable Reaffirmed	BWR A - /Stable Reaffirmation
Non Fund Based	3.50	5.00	Short Term	BWR A2+ Reaffirmed	BWR A2 + Reaffirmation
Grand Total	68.50	77.50	(Rupees Seventy Seven Crores and Fifty 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 long-term and short-term ratings of BWR A-/BWR A2+ with a Stable outlook, on bank loan facilities of Assam Roofing Ltd aggregating Rs. 77.50crs, enhanced from Rs.68.50crs rated previously. The reaffirmation factors in the sustained increase in topline driven by better sales realisations with higher steel prices as compared to past year leading to higher than expected profitability in FY21 and during 9MFY22 resulting in an upward revision in estimated sales and profit for the full year FY22 by the company along with an improved credit profile. The rating reaffirmation also takes into account ARL's upgraded product portfolio with the addition of color coated steel sheets, its experienced management and established track record, group support, locational advantage, adequate liquidity, as well as a diversified customer portfolio. The rating is, however, constrained by the company’s moderate scale of operations and its geographic concentration, supplier concentration, susceptibility of operating profit margins to the volatility in input costs, and competition prevailing in this industry.

The rating has been assigned a Stable outlook as the company’s business risk profile is stable, and growth in business and profitability is expected to be maintained in the medium term.

BWR has principally relied upon the audited financial results up to FY20, FY21, provisional 9MFY22 financials and projected financials of FY22, publicly available information, and information/clarification provided by the Company’s management.

KEY RATING DRIVERS

Credit Strengths:

Improved Financial Performance in 9MFY22 :
ARL has continued to benefit from the higher steel prices in 9MFY22. The Company has reported total turnover of Rs.334Crs in the 9MFY22 with better sales realosations and has increased its full year FY22 sales estimates by 15% from the previous projections. The revised FY22 sales projections looks achievable as the Company has been historically booking major part of the total turnover in the last quarter of the year. On a consolidated basis, the Company has reported total revenues of Rs.434 Crs during 9MFY22, higher than Rs.407Crs reported in FY21. Despite operations being shut down due to Covid imposed lockdown, the company booked revenues of Rs.377crs in FY21(FY20:Rs.346crs) and consolidated revenues of Rs.411crs, up 15% Y-o-Y driven by a 22% jump in sales realisations per ton partially offset by a 8% decline in sales volumes in the Galvanised Steel Sheet segment. It reported EBIDTA of Rs.37crs in FY21 (FY20:Rs.17crs) and PAT of Rs.21.68crs (FY20: Rs.3crs). There has been an exceptional surplus in FY21 and during 9MFY22 as the Company made profits on raw materials held as inventory with steel prices surging. This led to ISCR is at over 10x in FY21 (FY20: 2.9x) and 7.56x in 9MFY22 however it is expected to moderate with normal profits but still be at acceptable levels. There has been an addition in the total debt during 9MFY22 to support liquidity requirements, however, total gearing continues to remains below 1.0x and is likely to be below unity going forward. The tangible net worth is at Rs.118Crs as of March 31, 2021.
Change in Product Mix :
ARL has started production of color coated steel sheets, demand for which has recently seen an upsurge and has been increasingly replacing Galvanised Steel Sheets. The Company has recently converted one of its galvanised steel sheet lines into colour coated steel sheet lines and expects to generate maximum sales from color-coated sheets in the future.
Established Brand and Market :
Assam is a major market for roofing sheets as it is prone to heavy rainfall, floods and earthquakes; low-cost houses and temporary constructions have to be constantly built and rebuilt on account of regular natural disasters. ARL is one of the leaders in roofing products in the Northeast region marketed under the RHINO brand. It has a strong local presence, supported by a strong distributors network. Accordingly, demand for its products is high and stable.
Group Support :
The group, promoted by Mr. Bhagirath Pasari and his family, consists of five companies, namely, ARL, North East Roofing Private Limited (NERPL), Afflatus Trading Private Limited (ATPL), PDP Steels Limited and Assam Enterprise LLP, of which Assam Enterprise LLP is debt-free. PDP Steels Ltd manufactures CR coils and CR sheets, which constitute important raw materials for manufacturing Galvanised Steel Sheets (GSS) for the roofing industry, and supplies a significant portion of ARL’s requirements. ARL also utilises the services of another group company, ATPL, for the procurement and supply of other essential inputs for its manufacturing process.
Locational Advantage :
ARL enjoys a strategic locational advantage by virtue of its manufacturing operations being situated in Guwahati. By manufacturing locally, ARL provides a price advantage to its customers, vis-a-vis its major competitors located elsewhere in the country; it is also able to customise its products as per clients’ requirements.
Experienced Management and long track record of operations :
The promoters have more than four decades of experience in the roofing segment in the Northeast region. The strong distribution network for its products and further support from backward integration through one of the group companies, PDP Steels Ltd (PDPSL), provide substantial cost and marketing benefits to ARL.

Credit Risks:

Geographic Concentration :
ARL earns its entire revenue through sales in the Northeastern region of India, mainly in Assam. This exposes the company’s revenue and profitability to risks related to geographical concentration.
Susceptibility of operating margins to volatility in input cost :
Raw materials required for the company’s manufacturing operations have shown a volatile trend over the years and are determined by market forces.
Competition :
There is competition in the sector from larger players like Tata Steel, JSW Steel, etc, but the company enjoys distinct advantages over them on account of its local presence and goodwill created over the years.
Supplier Concentration :
ARL sources the majority of its raw material requirement from its Group company-(PDP Steel Limited), engaged in processing of HR coils into CR coils and CR Sheets which exposes it to risk of a single supplier. However, the facilities of the Group company are on the same premises hence there is minimal risk of raw material supply disruptions. Also, PDP which used to purchase raw material from SAIL only has started sourcing a portion of its raw material requirement from Tata Steel recently.
Modest Scale of operations :
The company’s scale of operations is relatively moderate, which in turn limits its operational and financial flexibility.

ANALYTICAL APPROACH - Consolidated

For arriving at its ratings, BWR has applied its rating methodology as detailed in the Rating Criteria given below (hyperlinks provided at the end of this rationale). The ratings were arrived at based on the consolidated financial statements of two group companies. BWR has considered consolidated financials of Assam Roofing Ltd. and Afflatus Trading Pvt Ltd. as the companies have strong operational linkages.

RATING SENSITIVITIES

Positive Triggers: A significant overall improvement in the scale of operations, operating margins of over 10% on a sustained basis, and ISCR of greater than 4.50x on a sustained basis shall trigger a positive rating action.
Negative Triggers: Decline in the scale of operations leading to operating profit margins of below 5% and an ISCR of below 2.5x resulting in a deterioration in the company’s liquidity position shall trigger a negative rating action.

LIQUIDITY INDICATORS - Adequate

The company’s liquidity position is adequate, as reflected by the low average utilisation of ~60% of the sanctioned working capital limits for ARL in the trailing twelve months ending December 2021 which provides a cushion against liquidity requirements in near future. It has been maintaining its receivable days in the range of 25 to 30 days for the past two years, which is expected to remain in the same range, going forward. The Company does not have any term loan outstanding entire debt is in the form of working capital limits.

ABOUT THE ENTITY

Incorporated in 1972, Assam Roofing Limited (ARL) runs under the directorship of Mr. Bhagirath Pasari and Mr. Rahul Pasari who has replaced Mr. Sajan Kumar Pasari. ARL manufactures asbestos cement sheets and galvanized steel sheets for roofing, with an Installed capacity of 1,18,266 TPA, in Guwahati (Assam). It is the flagship company of the group of five companies, including Assam Roofing Limited (ARL), North East Roofing Pvt. Ltd (NERPL), PDP Steels Limited (PDPSL), Afflatus Trading Pvt. Ltd (ATPL) and Assam Enterprise LLP (which is debt-free).

ARL holds a 99.90% share in ATPL, which has also been rated by BWR at A2+(CE) for bank loan facilities aggregating Rs. 13 Crs, based on the corporate guarantee provided to the company by ARL.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	377.12	346.13
EBITDA	Rs.Crs.	37.13	17.33
PAT	Rs.Crs.	21.68	2.97
Tangible Net Worth	Rs.Crs.	118.01	96.16
Total Debt/Tangible Net Worth	Times	0.10	0.78
Current Ratio	Times	2.33	1.69

KEY COVENANTS OF THE FACILITY RATED

Standard.

STATUS OF NON-COOPERATION WITH PREVIOUS CRA

None.

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	72.50	BWR A-/Stable (Reaffirmation)	06Sep2021	BWR A-Stable (Reaffirmed )	08Jun2020	BWR A-Stable (Reaffirmed )	07Feb2019	BWR A-Stable (Reaffirmed )
		NA	NA	NA	NA	22Oct2020	BWR A-Stable (Reaffirmed )	NA	NA
Non Fund Based	ST	5.00	BWR A2+ (Reaffirmation)	06Sep2021	BWR A2+ (Reaffirmed)	08Jun2020	BWR A2+ (Reaffirmed )	07Feb2019	BWR A2+ (Reaffirmed )
		NA	NA	NA	NA	22Oct2020	BWR A2+ (Reaffirmed )	NA	NA
Grand Total		77.50	(Rupees Seventy Seven Crores and Fifty 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
Madhu Sonthalia Senior Rating Analyst Board : +91 80 4040 9940 madhusonthalia@brickworkratings.com	Anuradha Gupta Director - Ratings anuradha.g@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

Assam Roofing Limited

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	HDFC Bank	Cash Credit - Sanctioned	15.00	_	15.00
2	HDFC Bank	Bank Guarantee - Sanctioned	_	5.00	5.00
3	State Bank Of India (SBI)	Letter of Credit - Sanctioned	_	_	0.00
4	State Bank Of India (SBI)	Standby Line of Credit - EPC - Sanctioned	7.50	_	7.50
5	State Bank Of India (SBI)	Cash Credit - Sanctioned	50.00	_	50.00
Total			72.50	5.00	77.50
TOTAL (Rupees Seventy Seven Crores and Fifty lakhs Only)

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