Furnace & Foundry Equipment Co

Brickwork Ratings reaffirms the long term and the short term rating for the Bank Loan Facilities of Rs. 33.83 Crs. of Furnace & Foundry Equipment Co

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
	Previous	Present		Previous (24 Dec 2020)	Present
Fund Based	20.55	19.83	Long Term	BWR BB Reaffirmation/ISSUER NOT COOPERATING*	BWR BB /Stable Reaffirmation
Non Fund Based	14.00	14.00	Short Term	BWR A4 Reaffirmation/ISSUER NOT COOPERATING*	BWR A4 Reaffirmation
Grand Total	34.55	33.83	(Rupees Thirty Three Crores and Eighty Three 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 rating and the short term rating of Furnace & Foundry Equipment Co for Bank loan facilities at BWR BB(Stable)/A4. Brickwork Ratings(BWR) has essentially relied on the audited financial statements of Furnace & Foundry Equipment Co upto FY21, projections upto FY23, publicly available information and information/clarifications provided by the company’s management and its bankers to arrive at the present ratings. The rating further draws strength from experienced management , moderate financial risk profile and locational advantage The rating is partially offset by constitution as a partnership, stretched working capital cycle, modest coverage ratios and competition in the Industry.

BWR believes that Furnace & Foundry Equipment Co business risk profile will be maintained over the medium term. The 'Stable' outlook indicates a low likelihood of rating change over the medium term. The rating outlook may be revised to 'Positive' in case the revenues and profit show sustained improvement. The rating outlook may be revised to 'Negative' if the revenues go down and profit margins show lower than expected figures.

The lenders/investors may note to exercise due caution while using the above rating which mentions "Issuer Not Cooperating" since the rating lack any projections or forward looking component as it is arrived at based on the best available information without any management/banker's interaction.

KEY RATING DRIVERS

Credit Strengths:

• Experienced Management :

  The company has qualified and enormously experienced work force of 300+ in all its facilities, which has in-depth knowledge of crane manufacture since the last three to four decades. Mr. Shyam Gurnani, Partner, a 1st Class Mechanical Engineering Graduate of 1977, after extensive experience in each area of crane design, manufacture, erection, etc. has taken a leading role in FAFECO’s Design Growth. He has spearheaded the conceptualization, design and development of hi-technology, innovative, import-substitute, state-of-the-art, technological cranes along with the team of ingenuous engineers at FAFECO. He has also contributed a lot towards Modernisation, Developments and Quality Standards of the company and is presently on the Advisory Committee of Indian Standard for cranes. He is also India’s Representative on ISO’s TC-96 Committee for Cranes. Mr. M.K. RAMCHANDANI, the senior partner was appointed as technical advisor to a number of companies to impart crane manufacturing technology. He has been to Europe on crane knowledge exchange meetings with well-known manufacturers like Voest Alpine, Litostroj and has chaired the prestigious Workshop on Material Handling, organized by Indian Space Research Organisation, Sriharikota in January 1985.

• Locational Advantage :

  The Firm three manufacturing units, at Mumbai , Vadodara & Pune with a total work force of about 300, an overall capacity of 150 cranes / year and individual crane upto 500 T Capacity and thus has a competitive advantage in terms of skilled labor, logistics, production knowledge and vendors making the company more efficient and cost effective.

• Moderate Financial Risk Profile :

  The company's TOI is at moderate level of Rs 23.85 Cr as per FY21 v/s Rs 35.61 Cr in FY20. Revenue upto February 2022 is Rs. 29.19 Cr. However, this is expected to be at Rs 36.21 Crs and Rs 61.14 Crs as per the projections of FY22 and FY23 respectively.  The net profit margin remains at moderate level and has declined to 0.59% in FY21 v/s 1.28% in FY20. The operating profit margin is moderate and has improved to 14.37% in FY21 v/s 10.41% in FY20. TNW has improved to Rs 54.44 Cr as per FY21 v/s Rs 53.91 Cr in FY20. TNW (A)is at Rs 67.27 Crs in FY21 v/s Rs 66.26 Crs in FY20. The gearing of the company is moderate and is at the same level at 0.74x as per FY21 v/s 0.67x in FY20. TOL/TNW is moderate and at the same level at 0.47x in FY21 v/s 0.43x in FY20. 

Credit Risks:

• Constitution as a Partnership :

  Firm exposed to the inherent risk of fluctuation of capital due to withdrawal of capital by the partner for any personal contingency would adversely affect the capital structure of the firm. Limitations of Partnership constitution in terms of capital and management

• Competition in the Industry :

  Entry barriers in the industry are low on account of limited capital and technology requirement and also low differentiation in the end product leading to intense competition and limiting the pricing power resulting in low profitability

• Stretched Working capital cycle :

  Working capital cycle remains stretched indicated by overall high conversion cycle of 1156 days , driven majorly by high inventory holding and receivable days

• Modest coverage ratios :

  The coverage ratios as reflected by ISCR and DSCR which are at modest level which stands at 0.97x and 0.50x respectively in FY21 v/s 1.11x & 0.61x in FY20.

ANALYTICAL APPROACH - Standalone

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

RATING SENSITIVITIES

Going forward the company’s ability to improve the scale of operations, improve and maintain profitability, the debt servicing capability & liquidity will be the key rating sensitivities.

Positive: The ratings may be upgraded in case the revenue, profitability, capital structure of the company shows improvement.
Negative: The rating may be downgraded in case there is a significant deterioration in the business revenue, profitability, working capital cycle, coverage ratios or financial risk profile of the company.

LIQUIDITY INDICATORS - Stretched

The current ratio is at moderate level at 5.02X in FY21 v/s 4.87X in FY20. It has expected to be in the same level at 3.52X and 3.35X as per FY22 and FY23 (proj).
Cash and bank balances as on February 2022 is Rs 1.26 Crs. It was Rs. 0.18 Crs as on March 31 2021 v/s Rs. 0.04 Crs as on March 2020.
The average CC utilization stands at 70.46% for the latest ten months and 95.89% for the latest six months
Working capital cycle remains stretched indicated by overall high conversion cycle of 1156 days , driven majorly by high inventoryholding and receivable days.
Net Cash Accruals is Rs 0.37 Crs in FY21 v/s 0.69 in FY20

ABOUT THE ENTITY

1. FURNACE & FOUNDRY EQUIPMENT CO, is one of India’s leading Crane manufacturers since 1971 having manufactured and tested cranes with 430 T load at its works.
    
2. FAFECO has not only supplied cranes all over India to practically all government / public sector organizations and large / medium private sector units, but also exported them to Canada, Russia, Turkey, Azerbaijan, Thailand, Uganda, Sri Lanka, etc. It is a Partnership firm headquartered at Mumbai, India. 
    
3. The company has designed and manufactured not only Copper Smelter Cranes, Highly Automated Aluminum Industry Cranes but also High Capacity Steel Mill Duty, Power House above 200T Capacity and other Hi-Technology cranes including PTMs, CRANES for STEEL MILL LADLE HANDLING APPLICATION incorporating Thyristor & VVVF/PLC Controls, Electronic Weighing Systems, Radio Remote Control and Caliper Brakes etc.
    
4. ISO-9001:2015 & focused quality crane manufacture has ensured steady growth over the years and FAFECO GROUP’s three manufacturing units, at Mumbai , Vadodara & Pune, with a total work force of about 300, an overall capacity of 150 cranes / year and individual crane upto 500 T Capacity is presently possible. There are Branches at Bangalore, Calcutta & New Delhi have erection/service teams too and Representative offices are in Visakhapatnam, Coimbatore, Chennai, Hyderabad, Nagpur, Lucknow, Cochin and Bhubaneswar. 
    
5. Mr. SHYAM GURNANI is also India’s Representative on ISO’s TC-96 Committee for Cranes and Mr. M.K. RAMCHANDANI TECHNICAL ADVISOR to a number of companies to impart crane manufacturing technology. are the partners in the firm. FAFECO is backed by qualified and enormously experienced work force of 300+ in all its facilities, which has in-depth knowledge of crane manufacture since the last three to four decades. Due to this strength too FAFECO enjoys the confidence of all Clients and Consultants who place repeat orders without any hesitation.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	23.85	35.61
EBITDA	Rs.Crs.	3.43	3.71
PAT	Rs.Crs.	0.14	0.45
Tangible Net Worth	Rs.Crs.	54.44	53.91
Total Debt/Tangible Net Worth	Times	0.74	0.67
Current Ratio	Times	5.02	4.87

KEY COVENANTS OF THE FACILITY RATED

N.A

STATUS OF NON-COOPERATION WITH PREVIOUS CRA

N.A

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	19.83	BWR BB/Stable (Reaffirmation)	NA	NA	24Dec2020	BWR BB (Reaffirmation/ISSUER NOT COOPERATING*)	30Aug2019	BWR BBStable (Downgrade)
Non Fund Based	ST	14.00	BWR A4 (Reaffirmation)	NA	NA	24Dec2020	BWR A4 (Reaffirmation/ISSUER NOT COOPERATING*)	30Aug2019	BWR A4 (Downgrade)
Grand Total		33.83	(Rupees Thirty Three Crores and Eighty Three 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

• General Criteria
• Approach to Financial Ratios
• Manufacturing Companies

Analytical Contacts
Shevya Agarwal Rating Analyst shevya.a@brickworkratings.com	Sushil Kumar Chitkara Director - Ratings Board : +91 22 2831 1426, +91 22 2831 1439 sushilkumar.c@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	Canara Bank	Working Capital Term Loan - Sanctioned	0.56	_	0.56
2	Canara Bank	Bank Guarantee - Sanctioned	_	14.00	14.00
3	Canara Bank	Working Capital Demand Loan - Sanctioned	0.80	_	0.80
4	Canara Bank	GECL - Sanctioned	1.73	_	1.73
5	Canara Bank	OCC/ODBD - Sanctioned	8.00	_	8.00
6	State Bank Of India (SBI)	Term Loan - Sanctioned	6.90	_	6.90
7	State Bank Of India (SBI)	GECL - Sanctioned	0.84	_	0.84
8	State Bank Of India (SBI)	Cash Credit - Sanctioned	1.00	_	1.00
Total			19.83	14.00	33.83
TOTAL (Rupees Thirty Three Crores and Eighty Three lakhs Only)