Long track record of operations,experienced Management and improvement in operating income:
SFL has long track record of over three decades in the manufacturing of HDPE woven fabrics and sacks. The Directors, Mr. Rajkumar Sipani, Mrs. Kanchan devi Sipani and Mr. Anil Sipani, also have over three decades of experience in the polymer industry and are well supported by a second line of management comprising Mr. Anurag Sipani. SFL has reputed clientele, who are leading players in the fertilizer industry such as SPIC Limited, RCF Limited and KRIBHCO Limited, among others. SFL's longstanding relationship with customers and suppliers aids the company in securing repeat orders on a regular basis and ensure continuous flow of raw materials at a competitive prices.
SFL has shown improvement in its operations in FY22. As the company has reported operating revenue of Rs.343.70Cr during FY22 against Rs.295.25Cr in FY21. This improvement in revenue is mainly contributed by healthy demand for HDPE products during the year. Similar growth is shown as per YTD figures till December, 2023. As the company has reported revenue of Rs.319Cr during the 9months of FY23 and estimated to reach Rs.400Cr by the year end.
Acuité believes that SFL will continue to benefit from their established presence in the industry over the medium term.

Healthy  Financial Risk Profile:
SFL’s financial risk profile is healthy  marked by healthy net worth, low gearing and strong debt protection metrics. The net worth of the company stood at Rs.130.81Cr as on March 31, 2022 as against Rs.113.79Cr as on March 31, 2021. The net worth level has improved significantly on account of healthy profits accretion to the reserves during FY22.
The gearing of the company stood low at 0.18 times as on March 31, 2022 as against 0.07 times as on March 31, 2021. Interest coverage ratio and Debt service coverage ratio stood at 17.7times and 5.81 times as on March 31, 2022. Total outside liabilities to total net worth stood low at 0.33 times as on March 31, 2022. Debt to EBITDA level is healthy at 0.85 times as on March 31, 2022.
Acuite believes that financial risk profile of the company is expected to remain above average over the medium term in absence of any debt funded capex plan.

Efficiently Managed Working Capital Cycle:
The working capital of the company is efficiently managed  marked by moderate Gross Current Assets (GCA) of 101 days in FY22 as against 90 days in FY21. The inventory days increased to 58 days during FY22 against 26 days during FY21. The creditor days are low over the years in the range of 0-2 days from FY20 to FY22 and debtor days were in the range of 29-34 days over the last three years.  The average utilization of bank limits stood 42.8 percent in the last 8 months ending November 2022. Acuité believes that continued efficient management of working capital cycle will remain a key rating monitorable.

Susceptibility of profitability margins to changes in the raw material prices:
The profitability margins of SFL have been flucatuating over the last three years ended FY22. Operating  margin stood at  8.11 percent in FY22 against 10.55 percent in FY21 and 6.28 percent in FY2020. PAT margins stood at 4.95 percent in FY22 against 6.68 in the previous year. The margins of the company are highly susceptible to fluctuations in raw material prices as the raw materials are based out of petroleum products.

Fragmented and competitive nature of industry
The company operates in a highly price sensitive domestic market that is largely fragmented with the presence of several smaller players, which restricts its pricing flexibility. The intense competition and volatility in raw material prices continues to constrain its ability to pass on the raw material prices and its pricing flexibility.