India Ratings revises SIL outlook
India Ratings has revised Shalimar Industries Limited's (SIL) Outlook to Positive from Stable while affirming its Long-Term Issuer rating at 'IND B'. A list of additional rating actions is provided at the end of this commentary.
The Outlook revision reflects India Ratings' expectation that SIL's financial leverage will improve to below 5x in FY13 (FY12: 5.7x, FY11: 5.5x) if the company maintains EBITDA margins at around the H1FY13 level of 9.9pc (H1FY12: 3.4pc ) with no additional debt throughout the year.
Revenue grew 39.4pc yoy to INR113.6m in H1FY13 and interest cover improved to 2.5x from around 1x in the four years ended FY12.
The margin improvement has resulted from SIL's strengthening market position in the pin industry through the acquisition of its competitor UIC Udyog Limited's pin division in FY13.
The acquisition has given SIL the flexibility to set up pin prices (forming around 70pc of total revenue).
This has enabled the company to pass on any increase in raw material prices. SIL was not able to report margin improvements in the four years ended FY12 due to competition.
The ratings continue to be constrained by SIL's small scale of operation due to limited market for its products.
The ratings are constrained by the company's tight liquidity as reflected by the almost-full utilisation of its working capital facility in the 12 months ended October 2012.
SIL's ratings derive strength from over 60 years of experience of its founders, the Khaitan family, in manufacturing pin and pin-based products for the jute industry, with leadership position in the segment.
SIL's product portfolio comprises pins, card staves, aluminum staves, jute shuttle and tobacco staves. At end-FY12, SIL had revenue of INR168m (FY11: INR166.8m), EBITDA margin of 5.3pc (5.3pc ), total debt of INR52.6m (INR49.3m).
The agency has affirmed SIL's bank loan ratings as follows:
- INR48m fund-based working capital limits: affirmed at Long-Term 'IND B'
- INR12m non-fund-based limits: affirmed at Short-Term 'IND A4'