Special Blasts Limited

Brickwork Ratings reaffirms the ratings with a change in outlook for the Bank Loan Facilities of Rs.239.37 Crs. of Special Blasts Limited (SBL or The Company).

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (10 Dec 2020)	Present
Fund Based	65.50	79.37	Long Term	BWR BBB/Stable Reaffirmation	BWR BBB /Stable to Positive Reaffirmation and change in Outlook
Non Fund Based	160.00	160.00	Short Term	BWR A3+ Reaffirmation	BWR A3 + Reaffirmation
Non Fund Based	(20.00)	(20.00)	Short Term	BWR A3+ Reaffirmation	BWR A3 + Reaffirmation
Grand Total	225.50	239.37	(Rupees Two Hundred Thirty Nine Crores and Thirty Seven 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 reaffirmation of rating has factored, inter alia, the stable financial performance of the company, experience and track record of the promoters of SBL, established customer base, and order book position reflecting medium-term revenue visibility. However, the rating is constrained by the working capital-intensive nature of operations and vulnerability to fluctuations in the prices of key raw materials.

The revision in outlook on SBL factors in the Positive outlook for the explosive industry (how do we say this?) in India, coupled with significant growth opportunities for domestic players in the medium term. SBL is the second-largest manufacturer of commercial explosives in India and is expected to benefit from its leadership position due to favorable demand-supply dynamics. BWR also notes the company’s plans to capitalize on these opportunities by way of capacity addition through the establishment of the Raigad unit which is expected to be operational from Apr '22.

BWR has essentially relied upon the company’s audited financial results up to FY21, projections up to FY23 as well as publicly available information and the information/clarifications provided by the company.

KEY RATING DRIVERS

Credit Strengths:

Extensive experience and established track record of the Company in the commercial explosives industry :
The company has a track record of nearly three decades has begun its operations in 1988. SBL has a complete product range comprising Large Diameter Explosives, Small Diameter Explosives, Detonating Fuse, PETN, Cast Boosters, Permitted Explosives, Bulk Emulsion Explosives developed and related accessories for mining and construction segments. The company has a licensed capacity of 86,000 MT and 15 Million Mtrs for production of slurry explosives & detonating fuse respectively with stable plant utilization of ~99% & ~80% respectively for FY22. The operations at the unit in Raigad are yet to commence.
The moderate financial risk profile :
The company’s financial risk profile is moderate as reflected by the moderate scale of operations. The company achieved a revenue of Rs.313.18 Crs in FY21(A) as against Rs.389.24 Crs in FY20(A). While the operating profit margins improved to 7.70% in FY21 (FY20: 5.83%), the net profit margins remained stable at 2.28% respectively in (FY20: 2.10%). The gearing was stable and comfortable at 1.11 times. The debt protection metrics were adequate with ISCR and DSCR at 1.47 times and 1.29 times respectively as on 31 Mar 2021 as against 1.53 times and 1.39 times as on 31 Mar 2020. Further, the company has already surpassed its estimates for FY22. As of Feb’22, the company successfully registered gross revenue of Rs.521.58 Crs. (Mfg. Sales of Rs.418.48 Crs. and Trading Sales of Rs.103.10 Crs.).
Healthy order book position :
The company enjoys long-term relationships and has long-term running contracts with reputed customers such as Coal India Ltd, Adani, SAIL, etc. As of 15-Mar-2022, the company had a confirmed order book of around 104507 MT (~Rs.300 Crs.) to be executed over the next 1-2 years providing short to medium-term revenue visibility.

Credit Risks:

Working capital intensive nature of operations :
The company’s operations are capital intensive in nature mainly driven by the relatively high credit period provided to its key customers (COAL India, SAIL, etc.). There are certain receivables pertaining to private customers under dispute. The management has informed that they are expecting these receivables to be realized within the coming year. The average fund-based utilization for the last 11 months ended Jan’22 is ~90%.
Susceptibility of margins to fluctuations in raw material prices :
Raw material accounts for around ~80% of the total cost which exposes the company to the risk arising due to volatility in the prices of raw material. This is mitigated to some extent due to the incorporation of escalation clauses pertaining to the price change of raw material in its long-term contracts.
Segment, customer concentration risk, and tender based nature of the operation :

The company is primarily catering to the manufacturers of explosives (~75% in FY21) with the top two customers viz Coal India Ltd (CIL) and Adani, which have significant bargaining power, accounted for ~40% of the revenue in FY21. The company continues to be vulnerable to downturns in the mining space and associated risks with customer concentration. Although the company has been supplying to CIL and its subsidiaries for over two decades through long-term contracts, the tender-based order procurement process leads to competitive pressures. BWR takes note of the SBL's efforts in focusing on trading sales, sales to private players, and segmental diversification.
Exposure to Regulatory Risks :
The explosive industry is regulated by the Petroleum and Explosives Safety Organization, which continuously monitors the sale of explosives to avoid the misuse of the finished products. Hence, SBL’s operations remain vulnerable to any changes in the regulatory framework that governs the industry.

ANALYTICAL APPROACH - Standalone

To arrive at its ratings, BWR has applied its rating methodology as detailed in the Rating criteria below (hyperlinks provided at the end of this rationale). BWR has analyzed SBL’s on a standalone basis to arrive at the rating.

RATING SENSITIVITIES

Upward: BWR may revise the ratings upward in the case of a sustained improvement in the scale of operations, improved working capital management, better debt coverage metrics, and liquidity profile.

Downward: BWR may revise the rating downward in the case of any debt-funded capital expenditure, deterioration in the profitability of the company, delay in realization of the stretched receivables, deterioration in profitability and/or working capital cycle along with a further stretch in the liquidity position.

LIQUIDITY INDICATORS - Adequate

The company’s liquidity position is adequate in relation to its scale of operations. Repayment for FY22 is Rs.7.15 Crs. against expected net cash accruals of Rs,16.59 Crs. Similarly, the repayment for FY23 is Rs.9.62 Crs. against the net cash accruals of Rs.17.79 Crs. The average cash credit utilization for 11MFY22 is ~90%. The unencumbered FD amount is Rs.2.03 crores. The current ratio as of 31-March-2021 was 1.39 times (FY20: 1.17 times).

As of 11-Mar-2022, the company has an undrawn CC balance of Rs.22.83 Crs which will provide the financial cushion in case of any adverse conditions or downturn in the business.

ABOUT THE ENTITY

SBL, incorporated in 1999 is into the manufacturing of industrial explosives. SBL is also an Import trader of Ammonium Nitrate. The company is managed under the leadership of Mr. Ajay Choudhari who holds over 28 years of experience. The client base of SBL consists of Public Sector Units, Government organizations, Mining Contractors, Explosive Dealers in sectors such as Construction, Oil prospecting organizations, Water development agencies, Departments, etc. Some of the major clients are Coal India, Reliance Industries, Ultratech Cement, etc.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	313.18	389.24
EBITDA	Rs.Crs.	24.13	22.71
PAT	Rs.Crs.	7.15	8.17
Tangible Net Worth	Rs.Crs.	98.64	91.54
Total Debt/Tangible Net Worth	Times	1.11	1.10
Current Ratio	Times	1.39	1.17

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	79.37	BWR BBB/Stable to Positive (Reaffirmation and change in Outlook)	NA	NA	10Dec2020	BWR BBBStable (Reaffirmation)	05Dec2019	BWR BBBStable (Assignment)
Non Fund Based	ST	160.00	BWR A3+ (Reaffirmation)	NA	NA	10Dec2020	BWR A3+ (Reaffirmation)	05Dec2019	BWR A3+ (Assignment)
NFB SubLimit	ST	(20.00)	BWR A3+ (Reaffirmation)	NA	NA	NA	NA	NA	NA
Grand Total		239.37	(Rupees Two Hundred Thirty Nine Crores and Thirty Seven 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.

Analytical Contacts
Gaurav Agnihotri Senior Rating Analyst gaurav.a@brickworkratings.com	Chintan Dilip Lakhani Director- Ratings chintan.l@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

Special Blasts Limited

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	IDBI Bank	Bank Guarantee - Sanctioned	_	20.00	20.00
2	IDBI Bank	Cash Credit - Sanctioned	15.50	_	15.50
3	IDBI Bank	GECL - Sanctioned	2.68	_	2.68
4	IDBI Bank	GECL - Sanctioned	6.33	_	6.33
5	IDBI Bank	ILC/FLC - Sanctioned	_	50.00	50.00
	Sub-Limit (TCBG as sublimit of LC) - Sanctioned		(20.00)
6	State Bank Of India (SBI)	Stand by Line of Credit - Sanctioned	_	_	0.00
7	State Bank Of India (SBI)	Bank Guarantee - Sanctioned	_	30.00	30.00
8	State Bank Of India (SBI)	Letter of Credit - Sanctioned	_	60.00	60.00
9	State Bank Of India (SBI)	GECL - Sanctioned	9.80	_	9.80
10	State Bank Of India (SBI)	GECL - Sanctioned	5.06	_	5.06
11	State Bank Of India (SBI)	Cash Credit - Sanctioned	40.00	_	40.00
Total			79.37	160.00	239.37
TOTAL (Rupees Two Hundred Thirty Nine Crores and Thirty Seven lakhs Only)

Print and Digital Media

The Rating Rationale is sent to you for the sole purpose of dissemination through your print, digital or electronic media. While it may be used by you acknowledging credit to BWR, please do not change the wordings in the rationale to avoid conveying a meaning different from what was intended by BWR. BWR alone has the sole right of sharing (both direct and indirect) its rationales for consideration or otherwise through any print or electronic or digital media.

About Brickwork Ratings

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 11,400 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.

Disclaimer

Brickwork Ratings India Pvt. Ltd. (BWR), a Securities and Exchange Board of India [SEBI] registered Credit Rating Agency and accredited by the Reserve Bank of India [RBI], offers credit ratings of Bank Loan facilities, 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. [ hereafter referred to as "Instruments"]. BWR also rates NGOs, Educational Institutions, Hospitals, Real Estate Developers, Urban Local Bodies and Municipal Corporations.

BWR wishes to inform all persons who may come across Rating Rationales and Rating Reports provided by BWR that the ratings assigned by BWR are based on information obtained from the issuer of the instrument and other reliable sources, which in BWR's best judgment are considered reliable. The Rating Rationale / Rating Report & other rating communications are intended for the jurisdiction of India only. The reports should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in Europe and also the USA).

BWR also wishes to inform that access or use of the said documents does not create a client relationship between the user and BWR.

The ratings assigned by BWR are only an expression of BWR's opinion on the entity / instrument and should not in any manner be construed as being a recommendation to either, purchase, hold or sell the instrument.

BWR also wishes to abundantly clarify that these ratings are not to be considered as an investment advice in any jurisdiction nor are they to be used as a basis for or as an alternative to independent financial advice and judgment obtained from the user's financial advisors. BWR shall not be liable to any losses incurred by the users of these Rating Rationales, Rating Reports or its contents. BWR reserves the right to vary, modify, suspend or withdraw the ratings at any time without assigning reasons for the same.

BWR's ratings reflect BWR's opinion on the day the ratings are published and are not reflective of factual circumstances that may have arisen on a later date. BWR is not obliged to update its opinion based on any public notification, in any form or format although BWR may disseminate its opinion and analysis when deemed fit.

Neither BWR nor its affiliates, third party providers, as well as the directors, officers, shareholders, employees or agents (collectively, "BWR Party") guarantee the accuracy, completeness or adequacy of the Ratings, and no BWR Party shall have any liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the Rating Rationales or Rating Reports. Each BWR Party disclaims all express or implied warranties, including, but not limited to, any warranties of merchantability, suitability or fitness for a particular purpose or use. In no event shall any BWR Party be liable to any one for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the Rating Rationales and/or Rating Reports even if advised of the possibility of such damages. However, BWR or its associates may have other commercial transactions with the company/entity. BWR and its affiliates do not act as a fiduciary.

BWR keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of the respective activity. As a result, certain business units of BWR may have information that is not available to other BWR business units. BWR has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.

BWR clarifies that it may have been paid a fee by the issuers or underwriters of the instruments, facilities, securities etc., or from obligors. BWR's public ratings and analysis are made available on its web site, www.brickworkratings.com. More detailed information may be provided for a fee. BWR's rating criteria are also generally made available without charge on BWR's website.

This disclaimer forms an integral part of the Ratings Rationales / Rating Reports or other press releases, advisories, communications issued by BWR and circulation of the ratings without this disclaimer is prohibited.

BWR is bound by the Code of Conduct for Credit Rating Agencies issued by the Securities and Exchange Board of India and is governed by the applicable regulations issued by the Securities and Exchange Board of India as amended from time to time.