Signet Industries Ltd

Brickwork Ratings reaffirm the ratings for the Bank Loan Facilities of Rs. 369.38 Crs. of Signet Industries Ltd

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
	Previous	Present		Previous (03 Nov 2021)	Present
Fund Based	205.81	199.38	Long Term	BWR BBB+ Upgrade	BWR BBB + /Stable Reaffirmation
Non Fund Based	170.00	170.00	Short Term	BWR A2 Upgrade	BWR A2 Reaffirmation
Grand Total	375.81	369.38	(Rupees Three Hundred Sixty Nine Crores and Thirty Eight 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
Note: Note: This rating pertains to an existing assignment received prior to October 06, 2022.

RATING ACTION / OUTLOOK

BWR has reaffirmed the long term and short term ratings to BWR BBB+/Stable /A2 .The rating reaffirmation  is underpinned by comfortable scale of operations and capital structure over the years. The rating continues to factor in the experienced management of company coupled with long track record,  diversified product portfolio ,comfortable  scale of operations, tangible net worth, healthy order book position and stable industry scenario with strong government support in the form of Government’s thrust on infrastructure development, expansion in the housing sector and increasing  demand for agricultural production. The ratings are, however, constrained due to thin profit margins, high interest & finance cost, major contribution of the trading segment to the overall sales which in itself is a thin margin business for the company and working capital intensive nature of operations.

 The rating outlook is stable as the company has been able to sustain the revenues from business operations even during the  Covid-19 pandemic. Also the future growth of India HDPE/PVC pipes and fittings market is expected to be led by rapidly increasing population leading to increased demand for agricultural production, expanding housing sector and significant role played by the government in the development of the irrigation infrastructure sector in the country. The company has order book position of Rs 511.23 Crs which shows revenue visibility in medium term.

 

KEY RATING DRIVERS

Credit Strengths:

• Experienced Management: coupled with a long track record of the company :

  Mr. Mukesh Sangla, Managing Director of the company is a commerce graduate and has over four decades of experience in the agro and polymers business. He looks after the overall strategic decision making for the future growth of the company. Also Mr. Saurabh Sangla, Director, is an Industrial engineer, having more than 16 years of experience and currently heads the technical and sales operations team of Signet. Both the directors are well supported by qualified & experienced managerial & other staff members to take care of day to day business operations. . The company has a track record of almost four decades .

• Diversified customer base with presence in Manufacturing & Trading :

  The company implements government-backed drip irrigation and agricultural projects, where 50-70% of the project cost is received as subsidy from government, depending on the state. Also, the company has a policy of operating in only those states which have a track record of payment within stipulated time and which have higher budgetary allocation, such as Gujarat, Andhra Pradesh, Karnataka and Tamil Nadu. During FY19& FY20 the company has increased its penetration in Karnataka due to familiarity with demographic set up of these states. The company has a diversified customer base in its trading business, with the top-10 debtors comprising only around 20-25% of its trading business debtors. The customer base in manufacturing business is also diversified with the top-10 debtors comprising around 58% of its manufacturing business debtors. Around 85% of the debtors of manufacturing segment are for MIS products.

• Comfortable scale of operations over the years :

  Although operating income improved  to Rs 877.26 crores in FY 22 compared to Rs 826.99 crores in FY20 at a growth rate of 6.07 % due to a  increase  in  volumes coupled with  price realization of  , the scale of operations is comfortable over the years as product portfolio of company is well diversified into manufacturing and trading contributing  ~49 .32% and 50.56 % in overall operating income in FY 22 , thus providing cushion to any business shock /cylicality over the years.

• Comfortable capital structure :

  Tangible net worth of the company is comfortable as it  stood at Rs. 195.14 Crs as on 31st March 2022 as against Rs.188.59 Crs. as on 31st March 2021 . Although gearing has increased to 1.57 x in FY 22 as against 1.56 x in FY 21 , the increase is due to the Emergency credit line guarantee scheme (ECLGS)/Covid- 19 loan availed by the company during FY 21 , the repayment of which has started , and gearing is expected to reduce in medium term  with no debt funded capital expenditure in pipeline . 

• Healthy order book and increase in share of manufacturing division :

  The company has a healthy order book for Micro irrigation system segment and manufacturing segment as well totalling to Rs 511.23 crores as on 30 Sep 2022 which will be executed during FY 23 .Signet’s manufacturing revenue has increased during FY22 as compared to FY21 with increase  in production and demand for the products post Covid. The manufacturing revenue is increased  by 11% in FY22 as compared to FY21 and expected to increase further during FY23 with  increased capacity and demand for the products in projects. The proportion of revenue from  manufacturing segment has increased from 47.34% in FY21 to 49.32% in FY22, whereas  proportion of revenue from trading business has reduced from 52.57% in FY21 to 50.56% in  FY221.

• Stable industry outlook :

  Future growth of India HDPE/PVC pipes and fittings Market is expected to be led by rapidly increasing population leading to increased demand for agricultural production, expanding housing sector and significant role played by the government in the development of irrigation infrastructure sector in the country. The Indian PVC pipes and fittings industry has grown significantly over the last few years due to  the increase in the demand from the irrigation sector on account of the burgeoning population and uncertain weather conditions in the country. Government’s thrust on infrastructure development, expansion in the housing sector and burgeoning population leading to increased demand for agricultural production, will drive the market growth in the coming years.

Credit Risks:

• Thin profit margins :

  The profit margins of the company are thin due to sizable share of trading in overall operating income over the years. Operating profit margin stood at 7.04 % in FY 22 as compared to 7.56 % in FY 21 . Net Profit margin declined   to 0.94 % in FY 22 as compared to 1.68 % in FY 21.The decline in operating profit margins and net profit margins  in manufacturing division is due to increase in  fixed manpower cost and manufacturing expenses owing to increase in installed capacity.

• High Interest & Finance Cost :

  The performance of the company is also constrained by high interest and finance cost which is at 69.36 % of EBITDA. High interest and finance cost is due  to interest paid on fund based limits , term loans , processing charges on non fund based Limits.

• Moderate debt protection metrics :

  The company’s Debt protection metrics is moderate as the company reported ISCR and DSCR of 1.44 x and 0.90 x in FY 22 against 1.35 x and 1.30x in FY 21 . Decline in DSCR in FY 22 is due to increase in current portion of long term debt  to Rs 23.29 Crs in FY 22 as compared to Rs 6.08 Crs in FY 21

• Working capital intensive nature of operations :

  The company’s operations are of working capital intensive nature as average working capital utilization for last  six months ending Sep 2022 was  at 76% .  Cash conversion cycle stood at 149 days in FY 22 as against  136 days in FY 21 .Reason for deterioration in cash conversion cycle in FY 21 is due to decrease in trade payables to  96 days in FY 22 as against 107 days in FY 21

ANALYTICAL APPROACH - Standalone

BWR has applied the standalone approach . For detailed information view hyperlinks below .  

RATING SENSITIVITIES

Positive: BWR may revise the ratings upward if there is a sustained improvement in SIL’s  scale of operations ,credit profile, coupled with improvement in EBITDA margins on a sustained basis .

Negative: BWR may revise the ratings downwards if there is a sustained deterioration in the company’s EBITDA and debt protection metrics and/or stretch in its working capital/liquidity

LIQUIDITY INDICATORS - Adequate

 Working capital utilization for last nine months ending Dec 2022 is 76 % . Company registered cash accruals of Rs 21.88Crs in FY 22 against repayment of Rs  6.07Crs  . Company  registered cash accruals of Rs 16.85 Crs against CPLTD of Rs 23.29 Crs . Current ratio stood at 1.42 x in FY 22.   Even though DSCR is  less than 1 x in FY 22 , there is no delay in debt servicing  , source of repayment is VAT /GST refund /received  of Rs 10 Crs out  of total outstanding of Rs 15 Crs as on 31st March 2021. Also the company's  overall cash flow from operations improved in FY 22 as compared to FY 21 due to changes in working capital  which is the source of repayment in FY 22. Cash flow from operations increased to Rs 33.57 Crs in FY22 as compared to Rs 6.57 Crs  due to reduction in receivables , short term loans and advances ,  other current assets . Average Liquidity index stood at 1.64 x in FY 22-23 which  is expected to keep liquidity in adequate range 

ABOUT THE ENTITY

• Incorporated in 1985, Signet is engaged in manufacturing of plastic pipes and fittings for  Micro Irrigation System (MIS) and manufacture of moulded plastic goods for household use. Signet is also engaged in trading and distribution of polymers such as polypropylene (PP),  high density polyethylene (HDPE), and poly-vinyl chloride resin (PVC).  The MIS (drip & sprinkler) is the major contributor to total revenue, wherein SIL provides water solutions such as transporting water, creating irrigation systems and assisting with agronomy.  The manufacturing operations commenced in 2011 at its manufacturing facility at Pithampur, Madhya Pradesh, equipped with a capacity of  60,870 MTPA in 2022 as compared to  54,870 MT in FY 21 . In trading division, the company mainly deals in various types of polymers, which are partly imported and partly sourced from large players.  Besides, the company also has a wind power generation capacity of 1.4 (MW) in the states of  Maharashtra and Rajasthan. The company implements government-backed drip irrigation and agricultural projects,  where 50-70% of the project cost is received as subsidy from government, depending on the  state.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 21-22 (Audited)	FY 20-21 (Audited)	FY 22-23 (Audited - Midterm_H1)
Operating Revenue	Rs.Crs.	877.26	826.99	441.78
EBITDA	Rs.Crs.	61.72	62.53	29.90
PAT	Rs.Crs.	8.24	13.95	3.35
Tangible Net Worth	Rs.Crs.	195.14	188.59	197.00
Total Debt/TNW	Times	1.57	1.56	1.53
Current Ratio	Times	1.42	1.37	1.42

NON-COOPERATION WITH PREVIOUS CREDIT RATING AGENCY

CRISIL  has reaffirmed  rating to B+/A4 on 28 Feb 2022 on account of continued non cooperation from company  over the years.

RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)

Facilities	Current Rating (2023)			2022		2021		2020
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating
Fund Based	LT	199.38	BWR BBB+/Stable (Reaffirmation)	NA	NA	06Oct2021	BWR BBB (Downgrade/ISSUER NOT COOPERATING*)	06Jul2020	BWR BBB+ (Reaffirmation)
		0.00	NA	NA	NA	03Nov2021	BWR BBB+ (Upgrade)	NA	NA
Non Fund Based	ST	170.00	BWR A2 (Reaffirmation)	NA	NA	06Oct2021	BWR A3+ (Downgrade/ISSUER NOT COOPERATING*)	06Jul2020	BWR A2 (Reaffirmation)
		0.00	NA	NA	NA	03Nov2021	BWR A2 (Upgrade)	NA	NA
Grand Total		369.38	(Rupees Three Hundred Sixty Nine Crores and Thirty Eight lakhs Only)

Rating Advisory, as on 14Nov2022
Press Release, as on 14Nov2022
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

• General Criteria
• Approach to Financial Ratios
• Trading Entities
• Short Term Debt

Analytical Contacts
Karan Ahluwalia Senior Rating Analyst Board : +91 11 2341 2232 karan.a@brickworkratings.com	Ravi Rashmi Dhar ravi.d@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	Bank of Baroda	Cash Credit - Sanctioned	4.00	_	4.00
2	Bank of Baroda	Letter of Credit - Sanctioned	_	28.00	28.00
3	Punjab National Bank	Letter of Credit - Sanctioned	_	18.00	18.00
4	Punjab National Bank	Cash Credit - Sanctioned	28.00	_	28.00
5	ShamRao Vitthal Co-operative Bank	Term Loan - Sanctioned	4.38	_	4.38
6	UCO Bank	Cash Credit - Sanctioned	102.00	_	102.00
7	UCO Bank	Bank Guarantee - Sanctioned	_	20.00	20.00
8	UCO Bank	Letter of Credit - Sanctioned	_	72.00	72.00
9	Union Bank of India	Bank Guarantee - Sanctioned	_	10.00	10.00
10	Union Bank of India	Letter of Credit - Sanctioned	_	22.00	22.00
11	Union Bank of India	Cash Credit - Sanctioned	61.00	_	61.00
Total			199.38	170.00	369.38
TOTAL (Rupees Three Hundred Sixty Nine Crores and Thirty Eight lakhs Only)