Stock Report

Sahyadri Industries Limited - Ratings reaffirmed by ICRA

Posted On : 2023-02-28 22:31:50( TIMEZONE : IST )

Long term - Fund Based/ Cash Credit - Rs. 74.55 crores - [ICRA]A- (Stable); Reaffirmed

Short term - Non fund based Limits - Rs. 36.95 crores - [ICRA]A2+; Reaffirmed

The ratings reaffirmation factors in the long operational track record of Sahyadri Industries Limited (SIL) of over three decades in the roofing sheets (asbestos cement sheets - AC sheets) segment, a strong network of over 3,000 dealers and distributors and an established market position in AC sheets in the western region, mainly Maharashtra and Gujarat. The company also plans to diversify across other geographies with deeper penetration in the southern region, where it has some presence. The company has enhanced capacity at its Perundurai plant in Tamil Nadu to 227,000 MTPA from 155,000 MTPA, which manufactures asbestos and non-asbestos boards and has become operational from April 2022. The ratings continue to factor in the comfortable debt coverage metrics supported by low repayments with DSCR at 8.1 times in FY2022 and 12.9 times in H1 FY2023. The overall debt is likely to increase from September 30,2022 levels due to increased utilisation of working capital limits to support high inventory levels, and the term loans to be availed for funding the capex at the Wada plant (debt-toequity mix of 75:25). Consequently, the leverage is estimated to increase with total debt/OPBIDTA of 2.0-2.2 times as of March 2023, while the coverage indicators are expected to remain comfortable with estimated DSCR of around 9.0 times in FY2023.

The ratings, however, remain constrained by the vulnerability of SIL's revenues and margins to the regulatory risks associated with the threat of ban on use or manufacture of asbestos-related products as well as on the mining of asbestos in asbestos producing countries. The revenues from asbestos-related products accounted for 78% of total revenues in 9M FY2023. However, the company expects to improve the share of non-asbestos products over the medium term, which will partially mitigate the regulatory risks. SIL is undertaking another capex at Wada, Maharashtra for setting up a non-asbestos capacity of 72,000 MTPA, which is expected to be operational from Q4 FY2024. The ratings also take into account the working capitalintensive nature of SIL's operations given the high inventory requirements. The inventory levels have increased significantly in the current fiscal, as the company is stocking high raw material inventory, given the supply concerns arising due to the ongoing geopolitical tension between Russia and Ukraine. The company deals primarily in asbestos roofing sheet, demand for which remains exposed to demand conditions in the rural economy, which in turn is dependent on monsoons, minimum support price (MSP) movement and farm productivity. The ratings also factor in the vulnerability of margins to any adverse fluctuations in raw material prices, as well as exposure to fluctuations in foreign exchange rates, given the considerable imports of asbestos fibre and the absence of any formal hedging policy. The company's operating profit margins (OPM) have moderated to 15.6% in 9M FY2023 from 18.1% in FY2022, due to increase in prices of key raw material prices, which could not be passed on fully to the customers. Nonetheless, the company has been able to secure contracts with its key suppliers of asbestos for 9M FY2024 at lower rates compared to previous year and has also undertaken some price hikes on its products, which should support the OPM, going forward.

The Stable outlook on the rating reflects ICRA's expectations that SIL will continue to benefit from the established market position in the AC sheet industry in western India, planned geographical diversification, which is expected to boost the overall revenues over the medium term along with an improvement in the operating margins, going forward and comfortable debt coverage metrics.

Shares of SAHYADRI INDUSTRIES LTD. was last trading in BSE at Rs. 323.30 as compared to the previous close of Rs. 325.75. The total number of shares traded during the day was 3266 in over 91 trades.

The stock hit an intraday high of Rs. 332.90 and intraday low of 321.05. The net turnover during the day was Rs. 1062613.00.