Product Quantum (Rs. Cr) Long Term Rating Short Term Rating
Bank Loan Ratings 15.50 - ACUITE A3+ | Reaffirmed
Bank Loan Ratings 3.56 ACUITE BBB | Stable | Reaffirmed -
Total Outstanding Quantum (Rs. Cr) 19.06 - -
Total Withdrawn Quantum (Rs. Cr) 0.00 - -
 
Rating Rationale

Acuité has reaffirmed the long-term rating of ‘ACUITE BBB’ (read as ACUITE  triple B) and short-term rating of 'ACUITE A3+' (read as ACUITE A three plus) on Rs.19.06 crore bank facilities of Pal Shell Cast Limited (PSPL). The outlook is ‘Stable’.

Rationale for reaffirmation
The rating reaffirmation factors in the established market position of the company, reputed clientele and extensive experience of the promoters of more than three decades in the auto ancillary industry. The rating also factors the healthy operating performance of the company over the last four years despite the onset of covid-19 pandemic, moderate financial risk profile and adequate liquidity position of the company. However, the rating is constrained by susceptibility of the profitability to volatility in the prices of raw materials and intense competition marked by fragmented nature of the auto ancillary industry.

About the Company
Pal Shellcast Private Limited (PSPL), incorporated in 1981 is an Ahmedabad based company. It is engaged in the manufacturing of cylinder liners, blocks and sleeves. The components manufactured by the company are majorly used in tractors and other vehicles. The company derives around 84% of revenue from the sale of cylinder liner and remaining from sale of blocks and sleeves. The company has 6 manufacturing units, located at GIDC, Odhav and Changodhar with an aggregate installed capacity of 40,928 tons.
 
 
Analytical Approach
Acuite has considered a standalone approach to arrive at the rating of Pal Shellcast Pvt Ltd (PSPL)
 
 

Key Rating Drivers

Strengths

Experienced promoters and established track record of operation
PSPL is promoted by Mr. H.G. Dhingra and has experience of more than 3 decades in the business. The company has established track record of 35 years in the industry. This has enabled PSPL in establishing strong relationship with clients and suppliers. The company is further managed by second generation of Dhingra family. Acuité believes that the group will continue to benefit from the promoters' experience and established track record of operations in improving its business risk profile over the medium term.

Healthy operating performance
Pal Shell Cast Limited (PSPL) has recorded a healthy operating performance in its revenue with a Y-o-Y increase of 22 percent in its revenue. Revenue of the company stood at Rs. 213.23 crore in FY2022 as against Rs.174.72 crore in FY2021. Profitability of the company has decline marginally to 5.22 percent in FY2022 as against 6.22 percent in FY2021. Such decline is on account of increase in repairs and maintenance expenses and freight and forwarding charges. The operating margins however have been range bound between 5.5 to 6 percent historically. PAT margins stood at 1.28 percent in FY2022 as against 1.61 percent in FY2021.
Acuité believes that the business risk profile of the company is likely to continue to improve on the back of reputed clientele and healthy demand expected over the near to medium term.

Moderate working capital operations
Working capital operations of the company are moderate marked by GCA days of 95 days in FY2022 as against 104 days in FY2021. GCA days are driven by inventory holding period and debtor collection period Inventory holding period of the company remained at similar levels at 26 days in FY2022 as against 24 days in FY2021. Debtor collection period for PSPL stood at 63 days in FY2022 as against 77 days in FY2021. Major raw materials of the company include Pig Iron and MS Scrap which are procured domestically. Creditor days stood at 95 days in FY2022 as against 117 days in FY2021. Fund based bank limit utilization stood remained low at 43.09 percent for 5 months ended August 2022.
Acuite believes that the working capital operations of the company will remain moderate over the medium term and will continue to remain a key rating sensitivity.

Weaknesses

Moderate financial risk profile
PSPL’s financial risk profile is moderate marked by low networth, low gearing and a comfortable debt protection metrics. Tangible networth of the company stood at Rs. 26.60 crore as on 31st March, 2022 as against 23.90 crore as on 31st March, 2021. Improvement in networth comes at the back of accretion of profits to reserves. Gearing of the company stood low at 1.23 times as on 31st March, 2022 as against 1.13 times as on 31st March 2021. Gearing of the company has improved from its peak gearing at 1.62 times as on 31st March 2019. The adjusted gearing of the company (excluding unsecured loans from promoters and related parties) stood at 0.70 times as on 31st March 2022 as against 0.56 times as on 31st March 2021. Tangible networth to Total debt (TOL/TNW) stood at 2.67 times as on 31st March 2022 as against 2.82 times as on 31st March 2021. Net cash accruals to Total Debt (NCA/TD) stood at 0.26 times in FY2022 as against 2.82 times in FY2021. Debt protection metrics of the company remained comfortable with DSCR at 2.89 times in FY2022 as against 3.39 times in FY2021. Interest coverage ratio stood at 7.12 times in FY2022 as against 8.09 times in FY2021.
Acuite believes that the financial risk profile is likely to remain moderate in the absence of any debt-funded capital expenditure and any large deviations in incremental working capital requirements.

Susceptibility to changes in prices of raw materials
Raw materials like MS scrap and pig iron, which are sourced locally, are the major cost drivers. These raw materials occupy 60%-65% of the total cost. Albeit, the company has long standing relationship with client which helps in mitigating the increase in prices of raw materials to some extent, however, any significant increase in same is likely to impact the financial risk profile of PSPL.

Rating Sensitivities
  • Improvement in the scale of operations while maintaining its profitability margin at current level
  • Any deterioration or stretch in the working capital cycle
 
Material covenants
­None
 
Liquidity: Adequate

Liquidity of the company is adequate with sufficient net cash accruals as against its debt repayment obligation. Net cash accruals of the company stood at Rs.8.63 crores as against repayment obligations of Rs.1.95 crores in FY2022. PSPL is likely to generate net cash accruals in the range of Rs. 11.90-14.47 crore as against debt repayment obligations of Rs.2.86-2.50 crore. Reliance on bank limit utilization remained low with limits being utilized at 43.09 percent for 5 months ended August 2022. PSPL maintained unencumbered cash balance of Rs.0.64 crore as on 31st March, 2022
Acuité believes that the liquidity of the company is likely to remain adequate over the medium term on account of healthy cash accruals against its maturing debt obligations.
 
Outlook: Stable
Acuité believes that PSPL will continue to maintain a ‘Stable’ outlook over near to medium term owing to its established market position and experienced management. The outlook may be revised to ‘Positive’ in case the company achieves higher than expected growth in revenues and improvement in profitability level and margins, working capital management and debt protection metrics. Conversely, the outlook may be revised to ‘Negative’ in case of a significant decline in revenues and operating profit margins, or deterioration in the capital structure and liquidity position on account of higher-than-expected working capital requirements.
 
Other Factors affecting Rating
­None
 

Particulars Unit FY 22 (Actual) FY 21 (Actual)
Operating Income Rs. Cr. 213.23 174.72
PAT Rs. Cr. 2.72 2.81
PAT Margin (%) 1.28 1.61
Total Debt/Tangible Net Worth Times 1.23 1.13
PBDIT/Interest Times 7.12 8.09
Status of non-cooperation with previous CRA (if applicable)
­None
 
Any other information
­None
 
Applicable Criteria
• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm
• Entities In Manufacturing Sector:- https://www.acuite.in/view-rating-criteria-59.htm
• Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm
Note on complexity levels of the rated instrument
https://www.acuite.in/view-rating-criteria-55.htm

Date Name of Instruments/Facilities Term Amount (Rs. Cr) Rating/Outlook
13 Aug 2021 Bank Guarantee Short Term 3.50 ACUITE A3+ (Reaffirmed)
Packing Credit Short Term 11.00 ACUITE A3+ (Reaffirmed)
Term Loan Long Term 4.56 ACUITE BBB | Stable (Reaffirmed)
06 Aug 2021 Term Loan Long Term 3.29 ACUITE BBB | Stable (Reaffirmed)
Packing Credit Short Term 10.00 ACUITE A3+ (Reaffirmed)
Proposed Bank Facility Long Term 1.17 ACUITE BBB | Stable (Reaffirmed)
Bank Guarantee Short Term 2.25 ACUITE A3+ (Reaffirmed)
09 Oct 2020 Term Loan Long Term 2.00 ACUITE BBB | Stable (Reaffirmed)
Proposed Bank Facility Long Term 2.46 ACUITE BBB | Stable (Reaffirmed)
Packing Credit Short Term 10.00 ACUITE A3+ (Reaffirmed)
Bank Guarantee Short Term 2.25 ACUITE A3+ (Reaffirmed)
06 Aug 2019 Proposed Bank Facility Long Term 0.86 ACUITE BBB | Stable (Reaffirmed)
Term Loan Long Term 3.60 ACUITE BBB | Stable (Reaffirmed)
Bank Guarantee Short Term 2.25 ACUITE A3+ (Reaffirmed)
Packing Credit Short Term 10.00 ACUITE A3+ (Reaffirmed)
08 Jul 2019 Term Loan Long Term 0.86 ACUITE BBB | Stable (Assigned)
Term Loan Long Term 3.60 ACUITE BBB | Stable (Reaffirmed)
Packing Credit Short Term 10.00 ACUITE A3+ (Reaffirmed)
Bank Guarantee Short Term 2.25 ACUITE A3+ (Reaffirmed)
04 Jul 2018 Term Loan Long Term 5.60 ACUITE BBB | Stable (Reaffirmed)
Proposed Cash Credit Long Term 0.45 ACUITE BBB | Stable (Reaffirmed)
Packing Credit Short Term 9.00 ACUITE A3+ (Reaffirmed)
Bank Guarantee Short Term 1.66 ACUITE A3+ (Reaffirmed)
24 Apr 2017 Term Loan Long Term 5.60 ACUITE BBB | Stable (Assigned)
Term Loan Long Term 0.40 ACUITE BBB | Stable (Assigned)
Proposed Cash Credit Long Term 2.55 ACUITE BBB | Stable (Assigned)
Packing Credit Short Term 6.50 ACUITE A3+ (Assigned)
Bank Guarantee Short Term 1.66 ACUITE A3+ (Assigned)
­

Lender’s Name ISIN Facilities Date Of Issuance Coupon Rate Maturity Date Quantum (Rs. Cr.) Rating
Central Bank of India Not Applicable Bank Guarantee/Letter of Guarantee Not Applicable Not Applicable Not Applicable 3.50 ACUITE A3+ | Reaffirmed
Central Bank of India Not Applicable PC/PCFC Not Applicable Not Applicable Not Applicable 12.00 ACUITE A3+ | Reaffirmed
Central Bank of India Not Applicable Term Loan Not available Not available Not available 3.56 ACUITE BBB | Stable | Reaffirmed

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