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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 22.00 | ACUITE B+ | Stable | Assigned | - |
| Bank Loan Ratings | 28.00 | ACUITE B+ | Stable | Upgraded | - |
| Total Outstanding Quantum (Rs. Cr) | 50.00 | - | - |
| Rating Rationale |
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Acuité has upgraded the long term rating to ACUITE B+’ (read as ACUITE B plus) from ‘ACUITE B’ (read as ACUITE B) on the Rs. 28.00 crore bank facilities and assigned the long term rating of ACUITE B+’ (read as ACUITE B plus) on the Rs. 22.00 crore bank facilities availed by the company. The outlook is ‘Stable’.
Rationale for rating upgrade The rating upgrade factors the ramp up in operations in SAPL’s manufacturing facility as reflected in operating revenues of Rs. 94.62 Cr compared to Rs.33.32 in FY2022. There was a fire accident in January 2021 due to which the revenues of the company had declined in FY2022. However, the company had taken a capex in FY2022 to revamp operations and had been successful as reflected in FY2023. The operating margins of the company stood at 8.59 per cent in FY2023(Provisional) compared to 4.05 per cent in FY2022. Furthermore, the rating also draws comfort from the extensive experience of the management in the lead battery industry and its longstanding relationship with its key customers. However, the rating is constrained by average financial risk profile. and susceptibility of its margins to competition in a fragmented industry and prices of raw materials. |
| About the Company |
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Incorporated in 1992 at Anekal Taluk (Bangalore), ‘Sakthi Accumulators Private Limited (SAPL) was started by Mr. R. Kandasamy as a partnership firm for the manufacturing and marketing of lead batteries. Later in 2014, the company reconstituted itself as a private limited liability company. The management of SAPL has more than three decades of experience in the given line of business. The day-to-day operations of the company are managed by Mr. Shiv Kumar and Mr. Nagaraj Rajgopal, who are well supported by experienced and qualified professionals.
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| Analytical Approach |
| Acuité has considered the standalone business and financial risk profile of SAPL to arrive at the rating. |
Key Rating Drivers
| Strengths |
| Extensive experience of the management in the industry
SAPL was formed in 1992 at Anekal Taluk (Bangalore) as a partnership firm and later incorporated as a company by Mr. R. Kandasamy, who has three decades of experience in the lead battery business. The company manufactures lead batteries (tubular batteries, automotive batteries, and traction batteries), which find application in UPS, inverters, and solar panels, among others. The manufacturing facilities have an installed capacity of 1000 million VAH (volt-ampere hours) per year. The company also enjoys healthy relationship with its customers and suppliers and is expected to benefit from the same over the medium term. Its order book as on FY2023 is about Rs.30.23 Cr which gives it revenue visibility. Acuité believes that the company will continue to benefit from the extensive experience of its promoters and its established presence in the automobile ancillaries’ industry over the medium term. |
| Weaknesses |
| Average financial risk profile
The financial risk profile of the company remained average marked by low net worth, high gearing and moderate debt protection metrics. The net worth of the company stood improved at Rs.11.05 Cr as on FY2023(Provisional) as compared to Rs.10.53 Cr. as on FY2022. The gearing (debt-equity) stood high at 3.91 times as on FY2023 (Provisional) as against 4.80 times as on FY2022. The total debt of Rs.43.20 Cr as on FY2023(Provisional) consists of short-term bank borrowings of Rs.12.73 Cr and unsecured loans from directors of Rs.6.00 Cr. and long-term bank borrowings of Rs.18.14 Cr over the same period. The interest coverage ratio and DSCR stood moderate at 1.58 times and 1.58 times respectively for FY2023(Provisional) as against (0.22) times and (0.21) times respectively for FY2022. Acuité believes that the financial risk profile of SAPL is however expected to remain moderate over the medium term. Susceptibility of its margins to competition in a fragmented industry and prices of raw materials SAPL manufactures lead batteries (tubular batteries, automotive batteries, and traction batteries), which find application in UPS, inverters, and solar panels, among others. This is a highly competitive and fragmented market with limited entry barriers as reflected in its margins of 8.57 per cent in FY2023. Acuite believes that in order to increase sales amidst the highly competitive industry, the margins are expected to remain a key rating sensitivity factor over the medium term. |
| Rating Sensitivities |
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| All Covenants |
| None |
| Liquidity Position |
| Stretched |
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The liquidity position of the company is stretched marked by low net cash accruals and working capital intensive nature of operations. The company reported net cash accruals of Rs. 2.61 crore in FY2023(Provisional)as against Rs.1.68 Cr. matured debt obligations over the same period. The working capital requirement of the company remained intensive, marked by a high gross current asset (GCA) of 147 days for FY2023 (Provisional) as compared to 457 days as of FY2022. The Fund based limit utilisations is marked by 95.48% in the last seven months ended July 2023. The cash and bank balances of the company stood at Rs. 0.06 crore as on FY2023(Provisional). The current ratio stood at 1.21 times as on FY2023 (prov.) as compared to 2.65 times as on FY2022.
Acuité believes that the liquidity position of the company will remained stretched due to working capital intensive nature of operations and low but steady accruals over the medium term. |
| Outlook: Stable |
| Acuité believes that the society will maintain a ‘Stable’ outlook over the medium term on account of the established track record of the society and experienced professionals as trustees. The outlook may be revised to ‘Positive’ if the society achieves substantial improvement in its gearing. Conversely, the outlook may be revised to 'Negative' in case of a steep decline in revenues and profitability leading to deterioration in liquidity. |
| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 23 (Actual) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 94.62 | 33.32 |
| PAT | Rs. Cr. | 0.52 | (2.44) |
| PAT Margin | (%) | 0.55 | (7.31) |
| Total Debt/Tangible Net Worth | Times | 3.91 | 4.80 |
| PBDIT/Interest | Times | 1.58 | (0.22) |
| Status of non-cooperation with previous CRA (if applicable) |
| None |
| Any other information |
| None |
| Applicable Criteria |
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• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Manufacturing Entities: 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 |
| In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuite’ s categorisation of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow patterns, number of counterparties and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Rating Criteria “Complexity Level Of Financial Instruments” on www.acuite.in. |
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