Sawaria Pipes Pvt. Ltd.

Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 124.00 Crs. of Sawaria Pipes Pvt. Ltd.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (22 Sep 2021)	Present
Fund Based	61.00	61.00	Long Term	BWR BBB /Negative to Stable Reaffirmation	BWR BBB /Stable Reaffirmation
	(15.00)	(15.00)
	(12.00)	(0.00)
Non Fund Based	63.00	63.00	Short Term	BWR A3+ Reaffirmation	BWR A3 + Reaffirmation
Non Fund Based	(13.00)	(13.00)	Short Term	BWR A3+ Reaffirmation	BWR A3 + Reaffirmation
Grand Total	124.00	124.00	(Rupees One Hundred Twenty Four Crores 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

The reaffirmation of the bank loan ratings of Sawaria Pipes Private Limited ('SPPL' or 'the company') continues to factor in the established track record, experienced management, longstanding relationships with reputed clientele and moderate financial risk profile with improvement in the business risk profile through exports. However, the ratings remain constrained by susceptibility of profitability to volatility in raw material prices, intense industry competition, cyclical nature of the steel industry, forex risks, customer concentration risk in the orderbook and the working capital intensive nature of operations.

BWR believes the company's business and financial risk profile will be maintained over the medium term. The outlook may be revised to Positive if the company shows significant growth in revenue and profitability with increased order inflow on a sustained basis, improving the capacity utilisation and fresh order inflow leading to improvement in the overall credit risk profile of the company. The outlook may be revised to 'Negative' if there is a decline in sales and profitability and any major debt-funded expenditure resulting in deterioration in capital structure and debt coverage indicators or and/or a delay or non realisation of receivables thereby weakening the credit risk profile.

KEY RATING DRIVERS

Credit Strengths:

Experienced management and established operational track record: :

SPPL was established in 1999 and has an operational track record of over two decades. The promoters are well experienced in the steel industry and are supported by a team of experienced professionals. The experience of the promoters, their understanding of the dynamics of the industry and the integrated nature of operations are expected to support the business risk profile.
Established relationships with reputed customers and suppliers :
Over the years, the company has established relationships with reputed clients such as Larsen & Toubro Ltd, Kalpataru Power Transmission Ltd, Shreem Electric Ltd, TATA Solar Power Limited, Andhra Pradesh State Housing Board (APSHB) etc. Also, it has established a strong client base and has been getting repeat business from such clients on a sustained basis, which reflects favourably on the company’s track record. The company has received an order worth ~Rs. 345 crores from APSHB in FY22. However, reportedly there has been a delay in the commencement of execution which is likely to be completed now in FY24 against the earlier envisaged Aug 2022. During FY22, the company's export sales constituted ~29% of the total sales.
Moderate financial risk profile :
The company's financial risk profile continues to be moderate reflected by adequate debt protection metrics, adequate gearing, liquidity and low cash & cash equivalents. Revenues decreased from Rs. 254.02 crores in FY20 to Rs. 231.90 crores in FY21 on account of operations being stalled due to the Covid-related restrictions in the industrial usage of oxygen resulting in low-capacity utilisation during FY21. However, EBITDA has improved from Rs. 20.10 crores in FY20 to Rs. 22.94 crores and the PAT has improved from Rs. 3.22 crores in FY20 to Rs. 4.68 crores in FY21 due to certain process improvements undertaken by the company. Tangible Net worth increased from Rs 53.80 crores as on 31 Mar 2020 to Rs. 58.48 crores as on 31 Mar 2021. Gearing is stable at 1.51 times as on 31 Mar 2021. Debt protection metrics were adequate with DSCR at 1.37 times and ISCR at 1.77 times as on 31 Mar 2021. On a provisional basis, the company has reported an operating income of Rs. 292.13 crores, EBITDA of Rs. 24.63 crores and PAT of Rs. 6.76 crores in FY22. Further, the company has recorded a revenue of ~Rs. 125 crores for 5MFY23.

Credit Risks:

Susceptibility to profitability to volatility in raw material prices and cyclicity in the industry :
Profit margins are highly susceptible to volatility in raw material prices and the performance of the company is exposed to the inherent cyclicity in the steel industry. Since the demand for steel products depends on end-user industries such as infrastructure, real estate and construction, the company’s operations are vulnerable to any adverse change in the demand-supply dynamics in these sectors.
Modest sale of operation with low capacity utilisation , intense competition in the fragmented industry and forex risks: :
The industry is highly competitive with a large number of organized and unorganized players which limits the bargaining power of the company and places pressure on profitability considering the modest scale of operations and low capacity utilisation (< 40% in FY22 (Prov)). BWR also notes the company's increasing presence in the export markets through the sale of solar towers and other components during FY22 contributing ~29% of total sales exposing it to foreign currency fluctuation risks. Although, the company has a one-time export limit from Axis bank (not being rated at the request of the lender and company), with envisaged expansion in the export market and the absence of regular foreign currency-based working capital/ forward contract limits the company's profitability is vulnerable to forex risks.
Working Capital intensive nature of operations and Supplier concentration risks: :
The operations remain working capital intensive in nature with a cash conversion cycle of 122 days (PY 152 days) as on 31 Mar 2022 (P). The stretch in the conversion cycle is primarily due to an increase in inventory holding days. The company generally maintains a large inventory to execute bulk orders and maintain the production cycle as it manufactures a varied range of products. The company's ability to improve its capacity utilisation to improve the scale of operations remains a key monitorable. Further, the company is sourcing nearly ~62% of its raw material from the Steel Authority of India and Rashtriya Ispat Nigam Limited in FY22 (PY ~70%) exposing it to concentration risks. The associated risks are mitigated to a certain extent by the long satisfactory association of nearly 16 years and low counterparty risks.

ANALYTICAL APPROACH - Standalone

For arriving at its ratings, Brickwork Ratings has applied its rating methodology as detailed at the end of the document. The company does not have any subsidiary, associate or holding company as on 31 Mar 2021 and BWR has taken a standalone approach.

RATING SENSITIVITIES

The ability of the company to ramp up the scale of operations with higher capacity utilisation while maintaining its profitability, ensuring steady order inflow, efficiently managing its working capital requirements and strengthening its overall credit profile would be the key rating sensitivities.

Upward

Significant growth in revenues, profitability, net worth and improvement in overall gearing, with improvement in competitive position on a sustained basis.

Downward

Significant decline in the scale of operations and profitability on a sustained basis
Further elongation of working capital cycle on a sustained basis.
Specific credit metrics that may result in a downward rating action include TOL/TNW above 2.75 times, ISCR and DSCR below 1.00 time on a sustained basis.

LIQUIDITY INDICATORS - Adequate

The liquidity profile is considered adequate as reflected in moderate working capital utilization, net cash accruals and cash & cash equivalents. The EBITDA was adequate to cover the finance charges in FY22(P). Net cash accruals in FY21 (audited) and FY22(Prov) are adequately covering the debt repayments and a similar trend in FY23 and FY24. Cash & cash equivalents increased from Rs. 0.28 crores as on 31Mar2021 to Rs. 0.38 crores as on 31Mar2022(P). The current ratio remained stable at 1.45 times as on 31 Mar 2021 and 31Mar22(P). The average working capital limit utilization of the company is ~75% for the last six months upto July 2022. However, with the increased scale of operations, BWR expects the utilisation levels to increase. The ability of the company to effectively manage its working capital utilisation while improving the scale of operations is a key monitorable.

ABOUT THE ENTITY

Sawaria Pipes Pvt. Ltd. (SPPL) was established in 1999 at Hyderabad, Telangana. The Company manufactures a wide range of solar towers and components, structural steel and galvanized towers for power transmission & telecommunication. The solar power plants division contributed ~50% structural steel contributed ~36% and the galvanised tower and tower parts contributed ~14% of revenue in FY22 (Prov). The plants are located at Nandigama Village, Patancheru Mandal, Medak Dist, Andhra Pradesh with a total installed capacity of 136000 MTPA for structural steel rolling mill plants and 24000 MTPA for Tower and Tower Parts with capacity utilisation ~32% (PY ~35%) and ~23% (PY ~25%) respectively. The Company’s manufacturing units are located at Medak Districts, Telangana. It has 3 rolling mill plants and 2 tower plants - one for galvanisation and one for fabrication.

The Company markets its products under the brand name “Sawaria”. SPPL is a family-owned business with Mr Sujit Agarwal as the Managing Director. Mr. Shatrughan Agarwal, Ms Shakuntala Agarwal and Ms Uma Agarwal are the other Directors

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	231.90	254.02
EBITDA	Rs.Crs.	22.94	20.10
PAT	Rs.Crs.	4.68	3.22
Tangible Net Worth	Rs.Crs.	58.48	53.80
Total Debt/TNW	Times	1.51	1.51
Current Ratio	Times	1.45	1.30

KEY COVENANTS OF THE FACILITY RATED

The terms of sanction include standard covenants normally stipulated for such facilities.

NON-COOPERATION WITH PREVIOUS CREDIT RATING AGENCY

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	61.00	BWR BBB/Stable (Reaffirmation)	22Sep2021	BWR BBB Negative to Stable (Reaffirmation)	30Sep2020	BWR BBB Negative (Reaffirmation)	17Sep2019	BWR BBB Stable (Reaffirmation)
FB SubLimit	LT	(15.00)	BWR BBB/Stable (Reaffirmation)	22Sep2021	BWR BBB Negative to Stable (Reaffirmation)	NA	NA	NA	NA
Non Fund Based	ST	63.00	BWR A3+ (Reaffirmation)	22Sep2021	BWR A3+ (Reaffirmation)	30Sep2020	BWR A3+ (Reaffirmation)	17Sep2019	BWR A3+ (Reaffirmation)
NFB SubLimit	ST	(13.00)	BWR A3+ (Reaffirmation)	22Sep2021	BWR A3+ (Reaffirmation)	30Sep2020	BWR A3+ (Reaffirmation)	17Sep2019	BWR A3+ (Reaffirmation)
Grand Total		124.00	(Rupees One Hundred Twenty Four Crores 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
Vineet Krishnan Nair Senior Ratings Analyst vineet.kn@brickworkratings.com	Saakshi Kanwar Senior Manager Ratings saakshi.k@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

Sawaria Pipes Pvt. 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	Axis Bank Ltd.	Cash Credit - Sanctioned	15.00	_	15.00
	Sub-Limit (FCDL) - Sanctioned	(0.00)
	Sub-Limit (WCDL) - Sanctioned	(15.00)
2	Axis Bank Ltd.	Letter of Credit - Sanctioned	_	13.00	13.00
	Sub-Limit (Bank Gaurantee) - Sanctioned		(13.00)
3	Punjab National Bank	Inland Letter of Guarantee - Sanctioned	_	27.00	27.00
4	Punjab National Bank	Cash Credit - Sanctioned	46.00	_	46.00
5	Punjab National Bank	Inland Letter of Credit (ILC) - Sanctioned	_	23.00	23.00
Total			61.00	63.00	124.00
TOTAL (Rupees One Hundred Twenty Four Crores Only)

Print and Digital Media

The Rating Rationale is sent to you for the sole purpose of dissemination through your print, digital or electronic media. While it may be used by you acknowledging credit to BWR, please do not change the wordings in the rationale to avoid conveying a meaning different from what was intended by BWR. BWR alone has the sole right of sharing (both direct and indirect) its rationales for consideration or otherwise through any print or electronic or digital media.

About Brickwork Ratings

Brickwork 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 12,000 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.

Disclaimer

Brickwork Ratings India Pvt. Ltd. (BWR), a Securities and Exchange Board of India [SEBI] registered Credit Rating Agency and accredited by the Reserve Bank of India [RBI], offers credit ratings of Bank Loan facilities, 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. [ hereafter referred to as "Instruments"]. BWR also rates NGOs, Educational Institutions, Hospitals, Real Estate Developers, Urban Local Bodies and Municipal Corporations.

BWR wishes to inform all persons who may come across Rating Rationales and Rating Reports provided by BWR that the ratings assigned by BWR are based on information obtained from the issuer of the instrument and other reliable sources, which in BWR's best judgment are considered reliable. The Rating Rationale / Rating Report & other rating communications are intended for the jurisdiction of India only. The reports should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in Europe and also the USA).

BWR also wishes to inform that access or use of the said documents does not create a client relationship between the user and BWR.

The ratings assigned by BWR are only an expression of BWR's opinion on the entity / instrument and should not in any manner be construed as being a recommendation to either, purchase, hold or sell the instrument.

BWR also wishes to abundantly clarify that these ratings are not to be considered as an investment advice in any jurisdiction nor are they to be used as a basis for or as an alternative to independent financial advice and judgment obtained from the user's financial advisors. BWR shall not be liable to any losses incurred by the users of these Rating Rationales, Rating Reports or its contents. BWR reserves the right to vary, modify, suspend or withdraw the ratings at any time without assigning reasons for the same.

BWR's ratings reflect BWR's opinion on the day the ratings are published and are not reflective of factual circumstances that may have arisen on a later date. BWR is not obliged to update its opinion based on any public notification, in any form or format although BWR may disseminate its opinion and analysis when deemed fit.

Neither BWR nor its affiliates, third party providers, as well as the directors, officers, shareholders, employees or agents (collectively, "BWR Party") guarantee the accuracy, completeness or adequacy of the Ratings, and no BWR Party shall have any liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the Rating Rationales or Rating Reports. Each BWR Party disclaims all express or implied warranties, including, but not limited to, any warranties of merchantability, suitability or fitness for a particular purpose or use. In no event shall any BWR Party be liable to any one for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the Rating Rationales and/or Rating Reports even if advised of the possibility of such damages. However, BWR or its associates may have other commercial transactions with the company/entity. BWR and its affiliates do not act as a fiduciary.

BWR keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of the respective activity. As a result, certain business units of BWR may have information that is not available to other BWR business units. BWR has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.

BWR clarifies that it may have been paid a fee by the issuers or underwriters of the instruments, facilities, securities etc., or from obligors. BWR's public ratings and analysis are made available on its web site, www.brickworkratings.com. More detailed information may be provided for a fee. BWR's rating criteria are also generally made available without charge on BWR's website.

This disclaimer forms an integral part of the Ratings Rationales / Rating Reports or other press releases, advisories, communications issued by BWR and circulation of the ratings without this disclaimer is prohibited.

BWR is bound by the Code of Conduct for Credit Rating Agencies issued by the Securities and Exchange Board of India and is governed by the applicable regulations issued by the Securities and Exchange Board of India as amended from time to time.