Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 58.93 Crs. of Quartzkraft LLP
ParticularsFacilities** | Amount (Rs.Crs.) | Tenure | Rating# | ||
---|---|---|---|---|---|
Previous | Present | Previous (11 Feb 2021) |
Present | ||
Fund Based | 20.00 | 28.93 | Long Term |
BWR BB-/Stable
Reaffirmation |
BWR BB -
/Stable Reaffirmation |
10.00 | 30.00 | Short Term |
BWR A4
Assignment |
BWR A4
Reaffirmation |
|
Grand Total | 30.00 | 58.93 | (Rupees Fifty Eight Crores and Ninety Three lakhs Only) |
The reaffirmation of ratings of Quartzkraft LLP (the 'firm') continues to factor the experience of the management in the same line of business and moderate partner's capital. The ratings also derives comfort from the stabilization of the operations of the firm and resumption of normalcy as reflected by the improved FY22 performance. The improvement is backed by an increase in sales volumes vis a vis the previous year as the firm became fully operational. Also, the company has reported EBITDA and net profits which have improved capital, debt protection metrics and liquidity. However, the ratings remain constrained by susceptibility of profit margins to foreign exchange fluctuation risk, geographic concentration risk, nascent stage of operations and risk of being a partnership firm. BWR notes the impact of conflict between Russia and Ukraine on business operations and financial risk profile, resulting in a subdued Q4FY22 performance. The developments of the geopolitical situation, pick up in capacity utilisation, healthy flow of orders and sustenance of profitability remains a key monitorable.
BWR notes that the firm had availed relief under the COVID-19 moratorium package during Mar'20 - Aug'20 involving deferment of interest and emergency credit lines. The firm has been regular in debt obligation payments in the post-moratorium period, as confirmed by the lenders. BWR also notes the firm has availed for restructuring of the term loan under RBI Resolution Framework 2.0 Covid-19 scheme.
The ‘Stable’ outlook indicates a low likelihood of rating change over the medium term. Brickwork Ratings believes that the firm's business and financial risk profile will be maintained over the medium term. The outlook may be revised to Positive if significant improvement in the scale of operations and profitability and improved capital structure results in an overall improved financial risk profile. The outlook may be revised to Negative if lower than expected revenue or profitability, further deterioration in the debt protection metrics, any significant and unanticipated capex or weakening gearing adversely impacting the financial risk profile.
KEY RATING DRIVERSCredit Strengths:
M/s.FS Enigma International Ltd, M/s.Purple Investment LLC, M/s.The Stone Resource Inc. and M/s.Qnext Stone Products Pvt. Ltd. are the partners of the firm. Mr.Parvat Srinivas Reddy, Mrs. Samantha Reddy P and Mr. Guoxing Ding, are the designated partners of the firm. The partners of the firm have more than three decades of business experience, which has enabled the firm to build healthy relationships with customers and suppliers.
Raw materials such as aggregated chips pigments, additives and resin binders together with power/fuel account for around 70% of the total operating costs for the firm. This together with rising competition and increasing industry fragmentation makes the operating margin vulnerable to volatility in input costs. Further, since the major portion of the revenue comes from exports, any sharp fluctuation in forex rates affects profitability, realizations and accrual. However, the forex risk is partially offset due to natural hedging.
The operating cycle of the firm stood at high at ~6 months as on 31 Mar 2021 resulting in working capital intensity. The firm maintains a higher inventory level of ~5 months to offer different product varieties to its customers and is in line with general industry trend. The high working capital intensity leads to higher reliance on the bank borrowings which subsequently impacts the profitability.
The firm is primarily exporting to the USA where in top 3 customers constitute 80% of the revenues in FY22 (Provisional) which exposes the firm to the associated risks.
Being a limited liability partnership firm, it is exposed to inherent risks of capital being withdrawn at a time of personal contingency, risks of dissolution and limited avenues to raise capital.
The firm’s financial risk profile is considered below average as reflected by the nascent and small scale of operations, incurring cash losses, having weak debt protection metrics and stretched liquidity position. The firm commenced its commercial operations in Aug 2020 and achieved a revenue of Rs.11.40 Crs during FY21. The firm reported an operating loss of Rs.4.42 Crs and net loss of Rs.14.72 Crs during the year. Partners' capital of the firm stood at Rs.13.77 Crs as on 31 Mar 2021. It declined from Rs.30.71 Crs as on 31Mar2020 mainly due to the net loss incurred during the year. The total debt/TNW stood high at 3.88 times as on 31 Mar 2021. However, the total debt/TNW (analyzed) stands moderate at 1.86 times.
For FY22, on a provisional basis, the firm clocked revenue of Rs.57.54 Crs. The firm earned an operating profit of Rs.14.59 Crs. and PAT of Rs.4.57 Crs. Pick up in capacity utilisation, healthy flow of orders and sustenance of profitability will be a key monitorable.
For arriving at its ratings, BWR has adopted a stand-alone approach as the firm does not have any subsidiaries.
RATING SENSITIVITIES
Positive:
Negative:
The liquidity is stretched marked by the almost fully drawn working capital limits for the past 12 months and weak debt service metrics as on 31 Mar 2021. The EBITDA was insufficient to cover the interest charges in FY21. The cash and cash equivalents as on 31 Mar 2021 stood at Rs.0.49 Crs (excluding Rs.5 Crs of lien marked deposits) and Rs.0.87 Crs (excluding Rs.10 Crs of lien marked deposits) as on 31 Mar 2022 (Prov). BWR notes the availment of GECL loans amounting to ~Rs.9 Crs and the rephasement of the term loan under the Resolution Framework (RF) 2.0 Covid-19 scheme for MSME clients under Rs.50 crs is expected to support the liquidity in the short term. The firm's ability to scale up its operations and achieve the envisaged cash accruals to adequately cover its debt obligations is a key rating monitorable. The firm has a debt obligation of ~Rs.1 Crs in FY23 and ~Rs.3 Crs in FY24 is expected to be serviced by the envisaged net cash accruals.
ABOUT THE ENTITYQuartzkraft LLP was established as a limited liability partnership firm in October 2018, located at Hyderabad, Telangana. The commercial operations partially commenced in August 2020. The firm is engaged in the manufacturing of Engineered Quartz Slabs(EQS) and exports to the USA. The manufacturing unit will be located in APIIC Building Product Special Economic Zone (SEZ), Plot No. 34-A & 34-B,Annangi Village, Maddipadu Mandal, Prakasam District, Andhra Pradesh. The land was taken on lease for a period of 33 years and the area of the land is 61788 Sq. Meters (i.e. 15.26 Acres).
Qnext stone products Private limited, FS Enigma International PTE. Ltd, Purple Investment LLC and TSRI are the partners of the firm.
Key Parameters | Units |
FY 20-21 (Audited) |
FY 19-20 (Audited) |
---|---|---|---|
Operating Revenue | Rs.Crs. | 11.40 | 1.67 |
EBITDA | Rs.Crs. | -4.42 | -0.39 |
PAT | Rs.Crs. | -14.72 | -4.68 |
Tangible Net Worth | Rs.Crs. | 13.77 | 30.71 |
Total Debt/Tangible Net Worth | Times | 3.88 | 1.23 |
Current Ratio | Times | 1.08 | 2.06 |
Facilities | Current Rating (2022) | 2021 | 2020 | 2019 | |||||
---|---|---|---|---|---|---|---|---|---|
Type | Tenure | Amount (Rs.Crs.) |
Rating | Date | Rating | Date | Rating | Date | Rating |
Fund Based | LT | 28.93 |
BWR BB-/Stable
(Reaffirmation) |
11Feb2021 |
BWR BB-Stable
(Reaffirmation) |
NA |
NA
|
28Nov2019 |
BWR BB- Stable
(Assignment) |
Fund Based | ST | 30.00 |
BWR A4
(Reaffirmation) |
11Feb2021 |
BWR A4
(Assignment) |
NA |
NA
|
NA |
NA
|
Grand Total | 58.93 | (Rupees Fifty Eight Crores and Ninety Three 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 | |
---|---|
Priyanka RS Rating Analyst Board : +91 044 24663326 priyanka.rs@brickworkratings.com |
Saakshi Kanwar Senior Manager Ratings saakshi.k@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 | Term LoanSanctioned | 20.00 | _ | 20.00 |
2 | Canara Bank | PC/FDB/FBESanctioned | _ | 10.00 | 10.00 |
3 | Canara Bank | Funded Interest Term LoanSanctioned | 0.41 | _ | 0.41 |
4 | Canara Bank | GECLSanctioned | 3.17 | _ | 3.17 |
5 | Canara Bank | GECLSanctioned | 5.35 | _ | 5.35 |
6 | Union Bank of India | PC/FDB/FBESanctioned | _ | 20.00 | 20.00 |
Total | 28.93 | 30.00 | 58.93 | ||
TOTAL (Rupees Fifty Eight Crores and Ninety Three lakhs Only) |
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About Brickwork RatingsBrickwork Ratings (BWR), a Securities and Exchange Board of India [SEBI] registered Credit Rating Agency and accredited by Reserve Bank of India [RBI], offers credit ratings of Bank Loan, Non- convertible / convertible / partially convertible debentures and other capital market instruments and bonds, Commercial Paper, perpetual bonds, asset-backed and mortgage-backed securities, partial guarantees and other structured / credit enhanced debt instruments, Security Receipts, Securitization Products, Municipal Bonds, etc. BWR has rated over 11,541 medium and large corporates and financial institutions’ instruments. BWR has also rated NGOs, Educational Institutions, Hospitals, Real Estate Developers, Urban Local Bodies and Municipal Corporations. BWR has Canara Bank, a leading public sector bank, as one of the promoters and strategic partner. BWR has its corporate office in Bengaluru and a country-wide presence with its offices in Ahmedabad, Chandigarh, Chennai, Hyderabad, Kolkata, Mumbai and New Delhi along with representatives in 150+ locations.
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