Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 125.00 Crs. of Diamond Industries (SBD).
ParticularsFacilities** | Amount (Rs.Crs.) | Tenure | Rating# | ||
---|---|---|---|---|---|
Previous | Present | Previous (18 Jan 2022) |
Present | ||
Fund Based | (125.00) | (25.00) | Long Term |
BWR BB+ /Stable
Reaffirmation/ISSUER NOT COOPERATING* |
BWR BB +
/Stable Reaffirmation |
(0.00) | (10.00) | ||||
Non Fund Based | 125.00 | 125.00 | Short Term |
BWR A4+
Reaffirmation/ISSUER NOT COOPERATING* |
BWR A4 +
Reaffirmation |
Grand Total | 125.00 | 125.00 | (Rupees One Hundred Twenty Five Crores Only) |
Ratings: BWR BB+/Stable/ BWR A4+ (Reaffirmed & removal from INC category)
The rating reaffirmation draws strength from the experienced partners in the ship-breaking industry, the firm's locational advantage and its various certification for green recycling and optimal management of cash flow to serve maturing LC repayment obligations. However, the rating is constrained by its exposure to risks related to inherent cyclicality, forex rates, volatile steel prices, and to regulatory changes and intense competition. The ratings also continue to remain constrained on account of moderate capital structure and constitution as a partnership firm.
BWR believes that Diamond Industries' business risk profile will be maintained over the medium term. The ‘Stable’ outlook indicates a low likelihood of rating change over the medium term.
KEY RATING DRIVERS
Credit Strengths:
Mr. Ajay Kumar Jain and Akshay Jain are the managing partners of the firm and have experience of around 2 decades in the shipbreaking industry. The firm is engaged in ship-breaking activities since 1995 and has been successfully able to operate its business through various industry cycles.
The firm is located in Alang – Sosiya Ship Breaking yard, world’s largest shipbreaking yard which ensures easy availability of ship, labour and infrastructure. The Alang ship breaking yard of the firm is holding Class NK Certificate and Reena Certificate for green recycling. These certifications give DI an advantage to source ships at marginally better prices compared with market rates.
The firm procures ships against letter of credit(LC) facility. FD balances are persistently built up from the first month of dismantling activities, ensuring adequate liquidity to service the maturing LC debt.
The ship breaking industry is cyclical in nature as ship procurement depends on the current trends in the ship-breaking industry and the international economic situation. The firm has a fluctuating revenue stream due to the cyclical nature of the industry. The firm recorded revenue of Rs. 100.89 Crs in FY20 against revenue of Rs. 157.38 Crs in FY19. During FY21, the company has recorded revenue of Rs. 123.34 CRs with a net profit of Rs. 0.92 Crs.
Diamond Industries (SBD) is a partnership concern that restricts its financial flexibility and there is an inherent risk of withdrawal of capital by the partners from the firm. Distribution of profits of the business by way of withdrawal from partners adversely impacts the Networth base and capital structure of the firm.
However, partners are infusing funds to support business as and when it is needed in the form of Unsecured loans from Friends and Family.
On purchase of ship, DI is required to immediately pay the entire purchase value of the ship by availing LC limit from the bank whereas its sales happen over a period of time. Accordingly, it is exposed to the volatility in steel prices driven by demand and supply conditions in the global as well as local markets. Any adverse price movement for the uncut ship inventory as well as unsold inventory of steel scrap held by the Company can impact its profitability. Further, it is exposed to forex risk during LC usance period.
Positive:
Negative:
Liquidity is adequate backed by modest cash accrual, a buffer through unutilised bank limit, funding support from the partners, adequate fixed deposits vis-a-vis letter of credit (LC) obligation, and absence of long-term debt. The bank limit-CC is used only to pay custom duties and meet other nominal expenses. The firm purchases ships against LCs and repays LCs through realizations from the sale of steel scrap. It does not have any term debt repayment obligations which provide it with some financial flexibility. Adequate Current Ratio at 1.77 times in FY21.
ABOUT THE ENTITYEstablished in 1982, Diamond industries (SBD). ('DI' or 'The firm) has been involved in ship breaking activities at Alang, Gujarat since 1995. Prior to which it had a rolling mill. The Alang ship breaking yard of the firm is holding ClassNK Certificate and Reena Certificate. Mr. Ajay Kumar Jain and Mr. Akshay Ajay Jain are the managing partners of the firm and have an experience of around 2 decades in the ship breaking industry. Associate concern, Diamond TMT & Procon Pvt Ltd, established in 2010, is engaged in Manufacturing of TMT Bars with the annual capacity of 1,44,000 MT. (BWR BBB-/Stable/A3 upgraded on 13Oct2021)
KEY FINANCIAL INDICATORS (Standalone)Key Parameters | Units |
FY 20-21 (Audited) |
FY 19-20 (Audited) |
---|---|---|---|
Operating Revenue | Rs.Crs. | 123.34 | 94.01 |
EBITDA | Rs.Crs. | 4.53 | 2.42 |
PAT | Rs.Crs. | 0.92 | 0.07 |
Tangible Net Worth | Rs.Crs. | 8.92 | 10.41 |
Total Debt/Tangible Net Worth | Times | 0.62 | 4.86 |
Current Ratio | Times | 1.77 | 1.43 |
NA
ANY OTHER INFORMATIONThe Company has now started cooperating by providing partial information for the review. BWR would complete the review process and remove the ratings from Issuer Not Cooperating category once the required information for the review is received.
RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)Facilities | Current Rating (2022) | 2022 (History) | 2021 | 2020 | 2019 | ||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Type | Tenure | Amount (Rs.Crs.) |
Rating | Date | Rating | Date | Rating | Date | Rating | Date | Rating |
Fund Based | LT | 0.00 |
NA
|
18Jan2022 |
BWR BB+ Stable
(Reaffirmation/ISSUER NOT COOPERATING*) |
NA |
NA
|
09Dec2020 |
BWR BB+ Stable
(Reaffirmation) |
28Jun2019 |
BWR BB+ Stable
(Assignment) |
FB SubLimit | LT | (25.00) |
BWR BB+/Stable
(Reaffirmation) |
NA |
NA
|
NA |
NA
|
NA |
NA
|
NA |
NA
|
(10.00) |
BWR BB+/Stable
(Reaffirmation) |
NA |
NA
|
NA |
NA
|
NA |
NA
|
NA |
NA
|
||
Non Fund Based | ST | 125.00 |
BWR A4+
(Reaffirmation) |
18Jan2022 |
BWR A4+
(Reaffirmation/ISSUER NOT COOPERATING*) |
NA |
NA
|
09Dec2020 |
BWR A4+
(Reaffirmation) |
28Jun2019 |
BWR A4+
(Assignment) |
Grand Total | 125.00 | (Rupees One Hundred Twenty Five Crores Only) |
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 CriteriaAnalytical 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 |
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 | Letter of CreditSanctioned | _ | 125.00 | 125.00 | |
Sub-Limit (Cash Credit -for ship breaking (Sublimit of LC)) Sanctioned | (25.00) | |||||
Sub-Limit (Cash Credit -for trading (Sublimit of LC)) Sanctioned | (10.00) | |||||
Total | 0.00 | 125.00 | 125.00 | |||
TOTAL (Rupees One Hundred Twenty Five Crores Only) |
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