Shree Ram Shipping Industries Pvt. Ltd.

Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 100.00 Crs. of Shree Ram Shipping Industries Pvt. Ltd.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (28 May 2021)	Present
Fund Based	(7.50)	(11.65)	Long Term	BWR BBB /Stable Reaffirmation	BWR BBB /Stable Reaffirmation
Non Fund Based	100.00	100.00	Short Term	BWR A3+ Reaffirmation	BWR A3 + Reaffirmation
	(0.00)	(100.00)
	(0.00)	(2.00)
Grand Total	100.00 ***	100.00 ***	(Rupees One Hundred 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
*** Total non fund based ceiling at Rs. 100 rs

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 the 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.

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:

Operational track record and group strength in the ship breaking industry, experienced management :
SRSIPL belongs to Shree Ram Group of Bhavnagar (Gujarat) which is promoted by Mr. Mukesh Patel. Mr. Mukesh Patel has total work experience of around 2 decades in ship-breaking Shree ram 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. The group also has strong backward integration by its group companies like Shree Ram Oxy Gas Pvt Ltd, Shree Ram Gaox Pvt Ltd, and Shree Ram Chemiron Pvt Ltd which are into industrial gas manufacturing and diversified into real estate business.
Locational Advantage :
Shree ram’s ship breaking units are located in Alang – Sosiya Ship Breaking yard, world’s largest shipbreaking yard which ensures easy availability of ship, labor and infrastructure. Further, the Company possesses certifications from Nippon Kaiji Kyokai (NK) which certify the operations of the ship-breaking yards from the environmental and worker safety points of view, including secure management of hazardous waste generated from the ship-breaking activities. These certifications give the Company an advantage to source ships at marginally better prices compared with market rates.
Comfortable financial risk profile :
The company has low gearing at 0.01 times in FY21 with healthy networth of Rs. 48.26 Crs and non fund base working capital bank limits of Rs. 100 Crs in form of LCs for ship purchasing. ISCR is comfortable at 7.72x in FY21 and 14.19x in FY22 (provisional). Company’s liquidity position also remains adequate, reflected by the current ratio at 1.72 times as on 31st March 2022. Further, as per provisional financials, the company has achieved revenue of Rs Rs, 50.00 Crs 5MFY23.

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.
Cyclical nature of ship breaking industry along with Regulatory and environmental hazard risks associated with shipbreaking activities :
The shipbreaking industry is cyclical in nature as ship procurement depends on the current trends in the shipbreaking industry and the international economic situation. Better availability of old ships for recycling is there at the time of recession and when freight rates are low which makes it economical to dismantle the ship rather than continue to operate it. Due to the economic slowdown amid covid 19, the ship prices have come down significantly whereas steel prices have improved significantly post Aug20, due to which the Company has reported significant improvement in revenue and profitability for FY21 & FY22. However, the revenue and margins of the company in current year are expected to get impacted as the prices have normalized now.
Intense competition :
The Company faces intense competition from large and small existing players operating at Bhavnagar as well as neighbouring countries.

ANALYTICAL APPROACH - Standalone

BWR has taken a standalone approach for the company. 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 non-fund-based working capital limit in the form of 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 the 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 an upfront LC margin of minimum 15%. 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 60% for the past 10 months. It does not have any term debt repayment obligations which provide it with some financial flexibility. Reasonable Current Ratio at 1.29 times in FY21 which has improved to 1.72 times in FY22(Provisional)

ABOUT THE ENTITY

Shree Ram Shipping Industries Pvt Ltd belongs to Bhavnagagar-based Shree ram Group which is promoted by Mr. Mukesh Patel. SRSIPL 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 ventured 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.	78.99	82.67
EBITDA	Rs.Crs.	15.21	0.73
PAT	Rs.Crs.	11.79	0.98
Tangible Net Worth	Rs.Crs.	48.26	36.47
Total Debt/TNW	Times	0.01	0.20
Current Ratio	Times	1.29	1.26

KEY COVENANTS OF THE FACILITY RATED

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

STATUS OF NON-COOPERATION WITH PREVIOUS CRA

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	(11.65)	BWR BBB/Stable (Reaffirmation)	28May2021	BWR BBB Stable (Reaffirmation)	17Mar2020	BWR BBB Stable (Reaffirmation)	NA	NA
Non Fund Based	ST	100.00	BWR A3+ (Reaffirmation)	28May2021	BWR A3+ (Reaffirmation)	17Mar2020	BWR A3+ (Reaffirmation)	NA	NA
NFB SubLimit	ST	(100.00)	BWR A3+ (Reaffirmation)	NA	NA	NA	NA	NA	NA
		(2.00)	BWR A3+ (Reaffirmation)	NA	NA	NA	NA	NA	NA
Grand Total		100.00 ***	(Rupees One Hundred Crores Only)

*** Total non fund based ceiling at Rs. 100 rs Press Release, as on 21Jun2022
Advisory for delay in periodic review was issued in 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 Shipping Industries 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	Punjab National Bank	ILC/FLC - Sanctioned	_	100.00	100.00
	Sub-Limit (CEL) - Sanctioned		(2.00)
	Sub-Limit (FLG-Buyer's Credit) - Sanctioned		(100.00)
	Sub-Limit (Fund Base Working Capital limits(CC)) - Sanctioned	(11.65)
Total			0.00	100.00	100.00 *
TOTAL (Rupees One Hundred Crores Only)

* Total non fund based ceiling at Rs. 100 rs

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