AJ. Industries

Brickwork Ratings assigns the ratings for the Bank Loan Facilities of Rs.5.50 Crs. of AJ. Industries

Particulars

Facility**	Amount (Rs.Crs)	Tenure	Rating*
Fund Based
Cash Credit - Sanctioned Cash Credit - Proposed Term Loan - Sanctioned	02.90 00.30 00.05	Long Term	BWR B (Stable)
Sub Total	03.25
Non-Fund Based
Letter of Credit - Sanctioned Letter of Credit - Proposed Bank Guarantee - Sanctioned	01.45 00.55 00.25	Short Term	BWR A4
Sub Total	02.25
Grand Total	05.50	(Rupees Five Crores and Fifty lakhs Only)

*Please refer to BWR website www.brickworkratings.com for definition of the ratings
**Details of Bank facilities are provided in Annexure-I RATING ACTION / OUTLOOK : Stable

BWR has assigned a rating of BWR B to A J Industries factoring in extensive experience of the partners,established relations with the suppliers and customers, geographical spread of the business. The ratings are however constrained by small scale of operations, low level of owned funds, stretched gearing, weak coverage ratios, weak profitability margins, stretched liquidity profile, high conversion cycle.

The ratings have been assigned a stable outlook on account of the potential upswing in the EPC market due to the extensive infrastructure investment plan by Government of India providing a sustainable impetus to the EPC segment. BWR believes that A J Industries business risk profile will be maintained over the medium term.

KEY RATING DRIVERS

Credit Strengths:

• Extensive experience of the partners :

  The partners Ajay Mehra and Ashwani Mehra have an extensive experience of over 10 years in the industry.

• Established relations with the suppliers and customers :

  The firm has developed and maintained relations with high end suppliers like SAIl, Jindal Steel and maintained a consistent relations with customers like Bevcon Wayors Pvt Ltd.

• Geographical spread of the business :

  The firm’s business is widely spread across different parts of the country like Mumbai, Delhi, Bangalore, Raipur, Hyderabad, Pune etc.

Credit Risks:

• Small scale of operations :

  Small scale of operations with the TOI standing at Rs 7.86 Cr in FY18 as compared to Rs 2.75 Cr in FY17. The same has increased to Rs 8.21 CR in FY19.

• Low level of owned funds resulting in stretched gearing :

  Low level of owned funds with the TNW standing at Rs Rs 0.89 Cr in FY18 as compared to Rs 0.71 Cr in FY17. Whereas, the analysed TNW stands at Rs 1.32 Cr in FY18 as compared to Rs 1.15 Cr in FY17. Till FY19, the same has increased to Rs 1.46 Cr. As a result of which the gearing is stretched with the total debt/ TNW and TOL/TNW standing at 5.18x and 13.21x in FY18 respectively and at 5.51x and 7.15x in FY17 respectively. The analysed total debt/ TNW stands at 3.15x in FY18.

• Weak financial risk profile :

  Weak coverage ratios with the ISCR and DSCR standing at 1.35x and 1.07x respectively in FY18 as compared to 1.15x and 0.95x respectively in FY17. Weak profitability margins with the NPM and OPM standing at 0.39% and 7.23% respectively in FY18 as compared to 0.29% and 17.67% respectively in FY17. Stretched liquidity profile with the current ratio standing at 1.09x in FY18 as compared to 1.16x in Fy17. High conversion cycle of 250 days in FY18 on account of high inventory days (310 days).

• Constitution as a partnership firm :

  Limitations of the partnership firm with respect to the inherent risk of fluctuation of capital on account of the withdrawal of capital by the partners.

ANALYTICAL APPROACH AND APPLICABLE RATING CRITERIA

For ariving at its ratings, BWR has applied its rating methodology as detailed in the Rating Criteria detailed below (hyperlinks provided at the end of this rationale).

RATING SENSITIVITIES

Going forward the firm’s ability to improve the scale of operations, improve and maintain profitability, the debt servicing capability & liquidity will be the key rating sensitivities.

Positive: The rating will be upgraded  if the company is able to achieve significant growth in revenue and profitability backed by a favourable industry scenario and optimum utilisation of capacities, and simultaneous improvement working capital management.

Negative: The rating may be downgraded if there is lower than expected revenues affecting the profitability margins, coverage ratios, liquidity and gearing ratios adversely.

LIQUIDITY POSITION

LIQUIDITY POSITION: Stretched

The cash and cash equivalents of AJI stand at Rs 0.61 Cr in FY18. The current ratio of the company stands at 1.09x in FY18. The average CC utilization for the last 6 months stands at ~ 70-80%. The firm has cash accruals amounting to Rs 0.16 cr in FY18 as opposed to a long term debt obligation of Rs 16,666 per month.

PROFILE

A J Industries was established as a partnership firm in 2010. It deals in fabrication for structures equipments, metallic & Non metallic joints, rail coach items, conveyors, ducting, pipeline tanks, star column weigh bridges. It provides a wide range of products with technological structures (star & star box columns, column and beam, built up beam & tie beams) and process equipments (C chutes, Air heater, dust collector).

KEY FINANCIAL INDICATORS

Key Parameters	Units	FY 17-18	FY 16-17
Operating Revenue	Rs.Crs.	7.86	2.75
EBITDA	Rs.Crs.	0.57	0.49
PAT	Rs.Crs.	0.03	0.01
Tangible Net Worth	Rs.Crs.	0.89	0.71
Total Debt/Tangible Net Worth	Times	5.18	5.51
Current Ratio	Times	1.09	1.16

RATING HISTORY (INCLUDING WITHDRAWAL AND SUSPENSION)

S.No	Current Rating (2019)				Rating History
	Facilities	Tenure	Amount (Rs.Crs)	Rating	2018	2017	2016
Fund Based
1	Cash Credit - Sanctioned Cash Credit - Proposed Term Loan - Sanctioned	Long Term	2.90 0.30 0.05	BWR B (Pronounced as BWR Single B ) (Outlook: Stable)	NA	NA	NA
Non-Fund Based
2	Letter of Credit - Sanctioned Letter of Credit - Proposed Bank Guarantee - Sanctioned	Short Term	1.45 0.55 0.25	BWR A4 (Pronounced as BWR A Four )	NA	NA	NA
Total			05.50	(Rupees Five Crores and Fifty lakhs Only)

COMPLEXITY LEVELS OF THE INSTRUMENTS

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
• Short Term Debt

For More Information Contact:

Analytical Contacts	Investor Contacts
Saloni R Singh Ratings Analyst D : +91 22 6745 6647 B : +91 22 2831 1426, +91 22 2831 1439 saloni.s@brickworkratings.com	Liena Thakur Assistant Vice President - Corporate Communications M : +91 84339 94686 liena.t@brickworkratings.com
Sushil Kumar Chitkara Associate Director - Ratings B : +91 22 2831 1426, +91 22 2831 1439 sushilkumar.c@brickworkratings.com
1-860-425-2742

SL.No.	Type Of Facilities	Long Term(Rs.Crs.)	Short Term(Rs.Crs.)	Total(Rs.Crs.)
1	Cash Credit - Sanctioned	2.90	_	2.90
2	Cash Credit - Proposed	0.30	_	0.30
3	Term Loan - Sanctioned	0.05	_	0.05
4	Letter of Credit - Sanctioned	_	1.45	1.45
5	Letter of Credit - Proposed	_	0.55	0.55
6	Bank Guarantee - Sanctioned	_	0.25	0.25
Total				5.50
TOTAL (Rupees Five Crores and Fifty lakhs Only)