By Priyanga Thirumal

India Ratings and Research (Ind-Ra) has affirmed Shivam Wood Works’ (SWW) Long-Term Issuer Rating at ‘IND B+’. The Outlook is Stable. The instrument-wise rating actions are given below:

Instrument Type

Date of Issuance

Coupon Rate

Maturity Date

Size of Issue (million)

Rating

Rating Action

Fund-based working capital limits

-

-

-

INR36 (reduced from INR46 million)

IND B+/Stable/IND A4

Affirmed

Non-fund-based working capital limits

-

-

-

INR200

IND A4

Affirmed

Term  loan

-

-

June 2024

INR10.0

IND B+/Stable

Assigned


KEY RATING DRIVERS

The affirmation  reflect SWW’s continued small scale of operations, as reflected by revenue of INR406.14 million in FY20 (FY19: INR464.38 million). The decline in revenue was driven by a fall in the number of orders received due to poor domestic demand as well as the adverse impact of the COVID-19 outbreak. The firm had booked sales of INR324 million till 9MFY21.

 

The ratings also factor in SWW’s weak credit metrics. The interest coverage (operating EBITDAR/gross interest expense) improved slightly to 1.32x in FY20 (FY19: 1.04x) and the net leverage (total adjusted net debt/operating EBITDAR) to 4.65x (4.74x). The improvement in the metrics was driven by a fall in debt to INR99.4 million in  FY20 (FY19: INR118.3 million), and the resultant decrease in interest expenses to INR16.18 million (INR23.88 million), coupled with the low usage of working capital limits.

 

The ratings are constrained by SWW’s inherently modest EBITDA, owing to the trading nature of business. Its EBITDA margin contracted to 5.25% in FY20 (FY19: 5.35%) owing to an increase in the overall direct expenses, coupled with a decrease in the revenue. The firm’s return on capital employed stood at 13% in FY20 (FY19: 18%).

 

Liquidity Indicator-Stretched:  SWW has high repayments of INR16.6 million in FY22 and INR13.0 million in FY23, due to which the agency expects its debt service coverage ratio  to deteriorate over the medium term. SWW’s average utilisation of the fund-based facilities and non-fund-based limits over the 12 months ended February 2020 stood at 71.4% and 52.2%, respectively. The cash flow from operations turned positive to INR13.88 million in FY20 (FY19: negative INR61.46 million) due to an improvement in the working capital to INR94.4 million from INR108.0 million. Its cash and cash equivalents amounted to INR0.31 million at FYE20 (FYE19: INR0.30 million).  The firm availed the Reserve Bank of India-prescribed moratorium over March-August 2020.

The ratings, however, continue to be supported by the promoters’ experience of three decades in the trading of timber.



RATING SENSITIVITIES

Negative: A further decline in the revenue or the EBITDA margin, leading to any deterioration in the overall credit metrics, along with deterioration in the liquidity will lead to a negative rating action. 

Positive: A significant rise in the revenue and the EBITDA margin, leading to the interest coverage exceeding 1.8x, along with a further improvement in the liquidity position will lead to positive rating action.


COMPANY PROFILE

SWW was incorporated in 1999 as partnership firm and is engaged in the trading of timber in Trichy (Tamil Nadu). The firm was founded by Ramesh N Patel. 

 

FINANCIAL SUMMARY 

Particulars

FY20

FY19

Revenue (INR million)

406.14

464.38

EBITDAR (INR million)

21.32

24.86

EBITDAR margin (%)

5.25

5.35

Gross interest coverage (x)

1.32

1.04

Net leverage (x)

4.65

4.74

Source: SWW; Ind-Ra



RATING HISTORY

Instrument Type

Current Rating/Outlook

Historical Rating/Outlook

Rating Type

Rated Limits (million)

Rating

22 April 2021

20 March 2020

Issuer rating

Long-term

-

IND B+/Stable

IND B+(ISSUER NOT COOPERATING)

IND B+/Stable

Fund-based limits

Long-/short-term

INR36.0

IND B+/Stable/IND A4

IND B+(ISSUER NOT COOPERATING /IND A4(ISSUER NOT COOPERATING

IND B+/Stable/IND A4

Non-fund-based Limits

Short-term

INR200.0

IND A4

IND A4(ISSUER NOT COOPERATING

IND A4

Term loan

Long-term

INR10.0 million

IND B+/Stable


 



COMPLEXITY LEVEL OF INSTRUMENTS

Instrument Type

Complexity Indicator

Fund-based facilities

Low

Non fund-based facilities

Low

Term  loan

Low

 

For details on the complexity level of the instrument, please visit https://www.indiaratings.co.in/complexity-indicators.

SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings. 

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

ABOUT INDIA RATINGS AND RESEARCH

About India Ratings and Research: India Ratings and Research (Ind-Ra) is India's most respected credit rating agency committed to providing India's credit markets accurate, timely and prospective credit opinions. Built on a foundation of independent thinking, rigorous analytics, and an open and balanced approach towards credit research, Ind-Ra has grown rapidly during the past decade, gaining significant market presence in India's fixed income market. 

Ind-Ra currently maintains coverage of corporate issuers, financial institutions (including banks and insurance companies), finance and leasing companies, managed funds, urban local bodies and project finance companies. 

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Applicable Criteria

Analyst Names

  • Primary Analyst

    Priyanga Thirumal

    Analyst
    India Ratings and Research Pvt Ltd Harmony Square 3rd Floor, Door No. 48 & 50 Prakasam Street T Nagar Chennai 600 017

    Media Relation

    Ankur Dahiya

    Manager – Corporate Communication
    +91 22 40356121