Shree Ram Green Ship Recycling Industries (Unit II) LLP (Formally known as Shree Ram Steel & Rolling Industries (Unit-2))

Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 178.10 Crs. of Shree Ram Green Ship Recycling Industries (Unit II) LLP (Formally known as Shree Ram Steel & Rolling Industries (Unit-2))

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (01 Jun 2021)	Present
Fund Based	(18.70)	(26.25)	Long Term	BWR BBB /Stable Reaffirmation	BWR BBB /Stable Reaffirmation
Non Fund Based	178.10	178.10	Short Term	BWR A3+ Reaffirmation	BWR A3 + Reaffirmation
Non Fund Based	(0.00)	(175.00)	Short Term	BWR A3+ Reaffirmation	BWR A3 + Reaffirmation
Grand Total	178.10	178.10	(Rupees One Hundred Seventy Eight Crores and Ten 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

The ratings continue to draw strength from Shree Ram group’s operational track record and group strength in the ship breaking industry, experienced management, its comfortable financial risk profile and improved financial performance in last two fiscals. The rating also notes the financial and business profile of the Shree Ram group, mainly consisting of four ship-breaking entities. All four entities have financial and operational synergies, common management, and cross-corporate guarantees. The group is also into manufacturing of industries gases.

The ratings, however, continue to remain constrained by the susceptibility of its profitability to adverse movement in steel scrap prices and foreign exchange rates along with its exposure to regulatory and environmental hazard risk and cyclicality associated with ship breaking industry. The ratings also take into account that the Company is exposed to intense competition from players operating in and around Alang, along with international competitors.

The ‘Stable’ outlook indicates a low likelihood of rating change over the medium term. BWR expects that SRSIPL’s business risk profile will be maintained over the medium term. The outlook may be revised to Positive if the Company sustains the improved financial performance and adequately manages working capital requirements. The outlook may be revised to Negative if the Company reports significantly lower than expected performance, resulting in lower than estimated coverage indicators and a weaker financial risk profile or liquidity position.

KEY RATING DRIVERS

Credit Strengths:

Experience of the Management :
The company is promoted by Mr. Mukesh Patel, Mr Jayenrda Modi, Mr. Chetan Patel and Mr Batuk Patel who belong to Shree Ram Group of Bhavnagar (Gujarat). Mr. Mukesh Patel has total work experience of more than 2 decades in ship-breaking.
Moderate financial risk profile :
As per scale of operations and level of debt, SRGSRI has comfortable networth position coupled with low gearing. The company majorly has working capital limits in term of non fund based bank limits. Due to the increase in steel prices the company's revenue and margins have improved significantly in FY21 and FY22. Current ratio remained adequate. Further, the firm has significant amount of ships leading to revenue visibility in current fiscal .

Credit Risks:

Profitability is susceptible to fluctuations in foreign exchange rates & steel prices :
It takes around 3-9 months to completely dismantle a ship and generate revenue. Hence, the firm has an inventory risk for ships that are in the process of breaking due to the time lag involved between the ship’s purchases and selling of scrap, given the high volatility faced in steel prices. While the firm hedges such risks by booking forward contracts, it remains exposed to adverse movement in exchange rates.
Intense competition and fragmented industry :
The firm faces intense competition from large and small existing players operating at Bhavnagar as well as neighboring countries

ANALYTICAL APPROACH - Standalone

BWR has considered a standalone approach. While assigning the ratings, BWR has applied its rating methodology as detailed in the Rating Criteria (hyperlinks provided at the end of this rationale).

RATING SENSITIVITIES

Positive

Substantial growth in scale along with adequate profit margins
Infusion of funds, effective working capital management- Strengthening of financial risk profile

Negative

Significant decline in revenue or profitability
Erosion in net worth base/ Unrelated investment in group companies or diversion of funds by way of investment in real estate/ deterioration in capital structure

LIQUIDITY INDICATORS - Adequate

The Company largely requires a non-fund-based working capital limit in the form of a Letter of Credit for the sole purpose of purchasing the ships for shipbreaking activity. The tenure for the same depends upon the size of the ships, and ranges from anywhere between 90-300 days. With the ongoing shipbreaking activity, it needs to build up FD with its LC banker as per given schedule by the bank. These FDs are lien marked against the LC obligation. This mechanism ensures gradual buildup of reserve funds to meet the LC obligations on the maturity date. The Company has to keep upfront minimum 15% TO 20% as LC margin. Due to the large inventory as the ship-breaking process takes 3-10 months, the Company has sizable working capital requirements. Further, it requires a fund-based working capital limit to pay upfront customs duty & GST on ship price. The working capital utilization is around 30% for past 12 months. It does not have any term debt repayment obligations which provide it with some financial flexibility. Adequate Current Ratio at 1.84 times in FY21.

ABOUT THE ENTITY

Shree Ram Green Ship Recycling Industries (Unit II) LLP belongs to Bhavnagar-based Shree Ram Group which is promoted by Mr. Mukesh Patel. SRGSRI undertakes ship recycling activities at Alang (Gujarat). The group is considered one of the leaders in the shipbreaking industry in India. The group is one of the oldest and largest ship-breaking units at Alang port, Gujarat. The group ventures into the Ship Recycling Industry with India’s first certified Green Ship recycling yard. Shree ram group has four shipbreaking units at Alang under different entities: Shree Ram Vessel Scrap Private Limited, RK Industries (Unit - II) LLP, Shree Ram Green Ship Recycling Industries (Unit II) LLP and Shree Ram Shipping Industries Pvt ltd. The group also has strong backward integration by its group companies like ShreeRam Oxy Gas Pvt Ltd, Shree Ram Gaox Pvt Ltd, and Shree Ram Chemiron Pvt Ltd which are into industrial gas manufacturing.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	67.63	75.64
EBITDA	Rs.Crs.	16.84	-0.35
PAT	Rs.Crs.	8.55	0.59
Tangible Net Worth	Rs.Crs.	77.69	58.36
Total Debt/TNW	Times	0.77	0.57
Current Ratio	Times	1.84	3.05

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

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
FB SubLimit	LT	(26.25)	BWR BBB/Stable (Reaffirmation)	01Jun2021	BWR BBB Stable (Reaffirmation)	03Mar2020	BWR BBB Stable (Reaffirmation)	NA	NA
Non Fund Based	ST	178.10	BWR A3+ (Reaffirmation)	01Jun2021	BWR A3+ (Reaffirmation)	03Mar2020	BWR A3+ (Reaffirmation)	NA	NA
NFB SubLimit	ST	(175.00)	BWR A3+ (Reaffirmation)	NA	NA	NA	NA	NA	NA
Grand Total		178.10	(Rupees One Hundred Seventy Eight Crores and Ten lakhs Only)

Rating Advisory was issued on 21 June 2022.

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
Priya Depala Senior Rating Analyst priya.d@brickworkratings.com	Vidya Shankar Principal Director - Ratings Board : +91 80 4040 9940 vidyashankar@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

Shree Ram Green Ship Recycling Industries (Unit II) LLP (Formally known as Shree Ram Steel & Rolling Industries (Unit-2))

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	State Bank Of India (SBI)	Letter of Credit - Sanctioned	_	175.00	175.00
	Sub-Limit (Sub-Limit (Cash Credit) -Sanctioned) - Sanctioned	(26.25)
	Sub-Limit (Sub-Limit (standby LC) -Sanctioned) - Sanctioned		(175.00)
2	State Bank Of India (SBI)	Credit Exposure Limit (CEL) - Sanctioned	_	3.10	3.10
Total			0.00	178.10	178.10
TOTAL (Rupees One Hundred Seventy Eight Crores and Ten lakhs Only)

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