Sharp Chucks & Machines Pvt. Ltd.

Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Sharp Chucks & Machines Pvt. Ltd., for an enhanced aggregate amount of Rs. 67.80 Crs.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (06 Jul 2021)	Present
Fund Based	55.55	66.80	Long Term	BWR BBB- /Stable Reaffirmation	BWR BBB - /Stable Reaffirmation
	(10.00)	(15.00)	Long Term	BWR BBB- /Stable Reaffirmation	BWR BBB - /Stable Reaffirmation
	(3.00)	(3.00)	Short Term	BWR A3 Reaffirmation	BWR A3 Reaffirmation
Non Fund Based	1.00	1.00	Short Term	BWR A3 Reaffirmation	BWR A3 Reaffirmation
Grand Total	56.55	67.80	(Rupees Sixty Seven Crores and Eighty 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 the ratings for the long term bank loan facilities of Sharp Chucks and Machines Pvt Ltd. (SMPL or the company) for Rs.66.80 Crs (enhanced from Rs. 55.55 Crs) at BWR BBB-/ Stable and has reaffirmed the ratings for their short term bank loan facilities for Rs. 1.00 Crs at BWR A3, (aggregate rated amount increased to Rs.67.80 Crs). The reaffirmation in the rating factors in the experienced promoters and established track record of the company, growth in revenues, reputed clientele and long relationships with the customers, acceptable debt coverage ratios and adequate liquidity. The rating is however constrained by business concentration risks, volatility in input prices and higher working capital requirements.

The outlook has been retained at Stable as BWR believes that the business risk profile of the Company will be maintained over the medium term. The Stable outlook indicates a low likelihood of a rating change over the medium term. The rating outlook may be revised to Positive in case of significant improvement in its topline and its credit metrics, or to Negative if there is any substantial decrease in the operating income or deterioration in the financial parameters.

For arriving at the ratings, Brickwork Ratings has relied upon the Audited Financial statements of FY21 , Audited Financial statements of FY21 as well as Projections for FY23 and FY24. and other information as available in the public domain, as well as information / clarifications provided by the company and its bankers.

KEY RATING DRIVERS

Credit Strengths:

Experienced Promoters and established track record of the company :
The company started its operations in 1994 and since then, the company has been manufacturing various types of chucks, forgings, machine tool accessories, auto parts etc for applications in varied sectors and industries through its integrated foundry with high precision machine shop. Ajay Sikka and Gopika Sikka are the promoters of the company with long experience in machine tool and auto parts manufacturing.
Growth in revenues :
Operating revenues of the company have been growing at a CAGR of 10.39% during the past 3 years and have improved from Rs.113.15 crs in FY20 to Rs.152.25 crs in FY22 despite challenging economic circumstances. The Operating Income achieved in FY21 was Rs.135.66 Crs, and as reported by the management, the Company has achieved a total sales of Rs.61.5 Crs in 4MFY23.
Reputed Clientele and long relationships with the customers :
The company is a Tier 1 supplier to reputed OEMs such as Mahindra & Mahindra Ltd, Swaraj Engines Ltd, International Tractors Ltd., Escorts, New Holland, Preet Tractors etc. and has been dealing for the last more than 10 years with majority of the large customers.
Acceptable Debt Coverage ratios :
The company has acceptable debt service coverage metrics marked by the interest service coverage ratio and debt service coverage ratio at around 2.66 times and 1.17 times respectively in FY22, as against 2.35 times and 1.55 times respectively in FY21. Total debt to tangible net worth stood at 2.20 times (FY21: 1.48 times) in FY22.

Credit Risks:

Business Concentration Risks :
The top 3 customers have contributed more than 60% of the total revenues during FY21. Further, the majority of the supplies are sourced from local areas. Top 5 suppliers, all located in Punjab, have contributed approx. 56% of the total purchases during FY21. Almost 80% of the products manufactured by the company finds application in the farm equipment sector. Hence there is moderate supplier as well as customer concentration risk
Volatility in input prices :
Raw material (RM) costs account for a large chunk of total operational expenses. Ferrous and non ferrous metal sheets and components etc are the major raw materials required for manufacturing of finished goods. Due to large volatility in commodity prices, RM input prices are highly susceptible to variations that may at times adversely affect the profit margins of the company by limiting its inability to pass on the increased costs to end buyers.
Higher Working Capital requirements :
Cash conversion cycle of the company remains elevated at an average of 140 days for the past four years FY19 to FY22) owing to higher inventory holding levels at an average of 166 days for the period, which is partially offset by obtaining a higher credit period of an average of 86 days from the suppliers for the period.

ANALYTICAL APPROACH - Standalone

Standalone

RATING SENSITIVITIES

Upward: Substantial and sustainable improvement in scale of operations and working capital cycle would improve liquidity and financial risk profile of the business and would attract upward rating action.

Downward: Deterioration in scale of revenues and working capital cycle would strain the liquidity in the company and therefore the ability of timely servicing of the borrowings would be hampered and thus would attract downward rating action.

LIQUIDITY INDICATORS - Adequate

Liquidity is adequate, as characterized by EBITDA of Rs.17.53 Crs.in FY22 (Rs.15.08 Crs for FY21) which was sufficient to cover the interest and finance charges of Rs.6.59 Crs (Rs.6.41 Crs for FY21). Net cash accruals was Rs.10.07 Crs for FY22 as against Net cash accruals of Rs.8.20 Crs in FY21. Current ratio was 1.12 times in FY22 (FY21: 1.16 times). ISCR was 2.66 times in FY22 as compared to ISCR of 2.35 times in FY21. The average utilization of WC limits from Canara bank in the past 6 months ending August 2022, is at around 90% as confirmed by the bankers. The company has also availed GECL aggregating to Rs.4.45 Crs from its lenders to meet its operational liabilities. Future cash accruals are expected to be sufficient to cover the debt obligations arising out of these loans.

ABOUT THE ENTITY

Sharp Chucks and Machines Pvt Ltd (SMPL), incorporated on 10 June 1994 with its current registered office at A-12, Industrial Colony, Jalandhar, Punjab, is engaged in casting and forgings of auto parts, chucks, machine tools and accessories for farm equipments, two wheelers, earth moving and other industrial sectors through its two manufacturing units located in Jalandhar. Ajay Sikka, Gopika Sikka and Mahendra Lodha are the promoters and directors in the company. The company is IATF 16949:2016, ISO 9001:2015 & SA 8000:2014 certified.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 21-22 (Audited)	FY 20-21 (Audited)
Operating Revenue	Rs.Crs.	152.25	135.66
EBITDA	Rs.Crs.	17.53	15.08
PAT	Rs.Crs.	4.54	3.81
Tangible Net Worth	Rs.Crs.	46.73	42.67
Total Debt/TNW	Times	2.20	1.48
Current Ratio	Times	1.12	1.16

KEY COVENANTS OF THE FACILITY RATED

Usual covenants for bank loan facilities.

NON-COOPERATION WITH PREVIOUS CREDIT RATING AGENCY

The ratings with CARE ratings have been classified under Issuer Non Cooperation. CARE BB/A4 (Stable) as on 16 June 2021.

ANY OTHER INFORMATION

NIL

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	66.80	BWR BBB-/Stable (Reaffirmation)	06Jul2021	BWR BBB- Stable (Reaffirmation)	01Jun2020	BWR BBB- Stable (Assignment)	NA	NA
FB SubLimit	LT	(15.00)	BWR BBB-/Stable (Reaffirmation)	NA	NA	NA	NA	NA	NA
FB SubLimit	ST	(3.00)	BWR A3 (Reaffirmation)	06Jul2021	BWR A3 (Reaffirmation)	NA	NA	NA	NA
Non Fund Based	ST	1.00	BWR A3 (Reaffirmation)	06Jul2021	BWR A3 (Reaffirmation)	01Jun2020	BWR A3 (Assignment)	NA	NA
Grand Total		67.80	(Rupees Sixty Seven Crores and Eighty 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
Ambar Kumar Chauhan Ratings Analyst ambarkumar.c@brickworkratings.com	Anuradha Gupta Director - Ratings anuradha.g@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

Sharp Chucks & Machines 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	Canara Bank	GECL - Sanctioned	4.45	_	4.45
2	Canara Bank	Standby LC/ILC/FLC/BG - Sanctioned	_	1.00	1.00
3	Canara Bank	CECL - Sanctioned	_	_	0.00
4	Canara Bank	Term Loan - Sanctioned	0.95	_	0.95
5	Canara Bank	Term Loan - Sanctioned	1.01	_	1.01
6	Canara Bank	Term Loan - Sanctioned	6.37	_	6.37
7	Canara Bank	Term Loan - Sanctioned	2.02	_	2.02
8	Canara Bank	Term Loan - Sanctioned	10.00	_	10.00
9	Canara Bank	Term Loan - Sanctioned	6.00	_	6.00
10	Canara Bank	Cash Credit - Sanctioned	36.00	_	36.00
	Sub-Limit (ODBD) - Sanctioned	(15.00)
	Sub-Limit (PC/FDB/FBE) - Sanctioned		(3.00)
Total			66.80	1.00	67.80
TOTAL (Rupees Sixty Seven Crores and Eighty lakhs Only)

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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.

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