July 12, 2021

Sandfits Foundries Private Limited: Ratings reaffirmed

Summary of rating action

Previous Rated Amount Current Rated Amount
Instrument Rating Action
(Rs. crore) (Rs. crore)
Long Term - Fund Based TL 10.00 23.50 [ICRA]A- (Stable); reaffirmed
Long Term - Fund Based/ CC 25.00 25.00 [ICRA]A- (Stable); reaffirmed
Short Term - Non Fund Based 1.50 1.50 [ICRA]A2+; reaffirmed
Short Term - Fund Based 0.00 5.00 [ICRA]A2+; assigned
Long Term / Short Term - [ICRA]A- (Stable)/[ICRA]A2+;
0.00 10.00
Unallocated assigned
Total 36.50 65.00
*Instrument details are provided in Annexure-1

Rationale
The ratings reaffirmation factors in Sandfits Foundries Private Limited’s (SFPL) strong financial profile, characterised by stable
earnings and strong debt protection metrics with gearing at 0.4 times and total debt to OPBDITA at 1.2 times as of March 31,
2021, despite moderation in revenues from FY2019 levels. The ratings remain supported by the promoter’s rich experience in
foundry business and SFPL’s healthy operational profile characterised by its diverse presence across end-user industries like
passenger vehicles (PV), medium and heavy commercial vehicles (M&HCV), tractors/farm, mining and construction equipment
(MCE), textiles and engineering, among others. The ratings also consider SFPL’s reputed client profile and longstanding
relationship with its customers, which has resulted in low churn rate and repeat order inflow over the years. SFPL’s sustained
efforts towards cost reduction measures as reflected through reduction in power costs and selling costs supported its profit
margins in in FY2021.
The ratings however remain constrained by the moderate scale of operations, which restricts SFPL’s scale benefits and
vulnerability of its earnings to the cyclicality in end-user industries, especially commercial vehicles and tractors. The ratings
also factor in limited pricing power with few OEMs by virtue of high competition operating in the highly fragmented foundry
industry and sensitivity of profit margins to the volatility in raw material prices.
The Stable outlook on the [ICRA]A- rating reflects ICRA’s opinion that SFPL will continue to maintain strong capitalisation and
coverage metrics. SFPL’s scale of operations is expected to improve in FY2022 due to expected rebound in the auto industry.
Nevertheless, given the uncertainties around ongoing Covid-19 pandemic; any large impact on demand in end-user industries
shall be a key rating sensitivity.

Key rating drivers and their description

Credit strengths
Strong operational profile with diversified presence across industries with reputed clientele - SFPL’s business risk profile is
strong supported by the promoter’s vast experience and the company’s longstanding presence in the castings industry,
supplying components to diverse end-user industries, namely PV (18% of the revenues during FY2021), M&HCV (27%), tractors
(30%), MCE (16%), textiles (2%) and engineering (11%), among others (9%). This insulates its earnings against any exogenous
shocks or demand slowdown in a specific industry.

In FY2021, while most of the automotive segments suffered from the pandemic-led issues, tractor segment outperformed
supported by favourable rural demand. SFPL, accordingly witnessed higher share of revenues and profits from tractor segment.
ICRA’s FY2022 demand estimates for most of the end-user segments to be favourable and shall accordingly support SFPL’s
revenues and earnings. SFPL also has a reputed client profile with whom it enjoys established relationships, resulting in repeat
orders over years.

www.icra .in
Page | 1
 Significant experience of the promoters in the foundry industry - Incorporated in 1962, SFPL has a long track record of
manufacturing grey iron and SG iron castings that find applications in diverse industries. SFPL is currently managed by Mr. R.
Saravanan, who has over three decades of experience in the castings business and is well supported by a qualified and
experienced management team. The promoter’s long-standing experience supported by strong management team continues
to support SFPL’s sustenance of business with existing customers and new deal wins from both domestic and export markets.

Financial profile characterised by healthy profit margins and strong debt metrics – Aided its diversified segmental presence,
SFPL’s operating margins had remained healthy at 17.5% during FY2021. Despite contraction in revenues from FY2019 levels,
margins were stable supported by better product mix (with higher share of tractors) and improved operational efficiencies
(captive power generation from windmills and better cost control measures). SFPL’s capitalisation and coverage indicators
remain strong with low debt levels and stable accruals, with a gearing of 0.4 times, total debt/OPBITDA of 1.2 times as on
March 31, 2021, interest coverage of 18.2 times and DSCR of 4.8 times for FY2021. ICRA expects the debt coverage metrics to
remain comfortable.

Credit challenges
Potential impact of Covid-19 pandemic on end-user industries– Muted auto demand on the back of Covid-19 led pandemic,
had impacted SFPL’s revenues during FY2021, with revenues from the PV segment declining by 4.6%. SFPL derived more than
half of its revenues in FY2021 from automotive and construction equipment industries. However, the impact of ongoing
slowdown is cushioned by the fact the company derives about a third of its revenues from the tractor segment (wherein
current demand is supported by rural demand) and presence of diversified end-user segments like non-automotive segments
like textiles, engineering, etc. While the company has presence across diversified segments, SFPL’s revenues remain vulnerable
to any large vagaries in domestic and global auto industry.

Moderate scale of operations limits benefits of scale economies – With a revenue of Rs. 162.2 crore in FY2020 and Rs. 184.1
crore in FY2021, SFPL’s scale of operations remains moderate. Higher scale provides the benefits of influencing business trends,
credit terms and pricing within the industry, develop competitive cost structure and an efficient vendor and distribution
network. It also enhances resilience to changes in product demand, supports bargaining power with suppliers, enable better
cost absorption, besides building up R&D capabilities.

Vulnerability of earnings to the fluctuation in raw material costs and competitive pressures – SFPL’s profit margins are
susceptible to fluctuations in the prices of raw materials, primarily pig iron and scrap steel. Although the company has
demonstrated ability to pass on the rise in raw material costs, it is usually done with a lag, impacting profits temporarily due
to price rises. Further the margins are affected by pricing pressures given the fragmented nature of domestic foundry industry
resulting in competitive pressures.

Liquidity position: Adequate

SFPL’s liquidity is adequate with estimated net cash accruals of over Rs. 20 crore in the medium-term, cash and bank balances
and liquid investments of Rs. 2.1 crore as on March 31, 2021. In relation to these sources of cash, SFPL has capex commitments
of ~Rs. 10 crore per annum in the near-term and debt repayments of Rs. 4.8 crore in FY2022 and FY2023 and Rs. 3.6 crore in
FY2024. Further, the company has unused working capital facilities of Rs. 11.1 crore as on May 31, 2021. Overall, ICRA expects
SFPL to be able to meet its near-term commitments through internal as well as external sources of cash.

Rating sensitivities
Positive factors – An upward trigger in rating could arise from SFPL’s ability to achieve scale improvement beyond Rs. 250.0
crore on a sustained basis without any significant deterioration in profit margins, capitalisation and coverage metrics.

Negative factors – Negative pressure on SFPL’s rating could arise if the debt levels rise with increase in working capital
requirements or on account of higher-than-estimated capex, resulting in deterioration of adjusted debt / OPBITDA over 2.3
times on a sustained basis. Any sharp decline in the top line on a sustained basis could also exert pressure on ratings.

www.icra .in
Page | 2
 Analytical approach
Analytical Approach Comments
Corporate Credit Rating Methodology
Applicable Rating Methodologies
Rating Methodology for Auto Component Manufacturers
Parent/Group Support Not applicable
Consolidation/Standalone Standalone

About the company

Sandfits Foundries Private Limited, founded by Mr. A. V. Varadharajan, was established in 1962 before being converted into a
private limited company in 1993. The company is primarily engaged in the manufacturing of grey iron and SG iron castings that
find application in automotive (45.5%), tractors (29.9%), earth moving (11.1%), textiles (2.7%), and heavy engineering
industries (1.9%). The company is closely held by Mr. Saravanan and family. SFPL operates with two units at Coimbatore, Tamil
Nadu with an installed production capacity of 33,600 MT per annum.

Key financial indicators

Standalone FY2020 FY2021 *
Operating Income (Rs. crore) 162.2 184.1
PAT (Rs. crore) 15.7 17.4
OPBDIT/OI (%) 16.0% 17.5%
PAT/OI (%) 9.7% 9.5%
Total Outside Liabilities/Tangible Net Worth (times) 1.1 1.1
Adjusted Debt/OPBDIT (times) 1.0 1.2
Interest Coverage (times) 17.1 18.2
PAT: Profit after Tax; OPBDIT: Operating Profit before Depreciation, Interest, Taxes and Amortisation; * - provisional results
Source: Company

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

www.icra .in
Page | 3
 Rating history for past three years
Chronology of Rating History
Current Rating (FY2022)
for the past 3 years
Date & Date &
Amount Date &
Instrument Rating in Date & Rating in FY2020 Rating in
Amount Rated Outstanding as Rating
Type FY2021 FY2019
(Rs. crore) of Mar 31, 2021
(Rs. crore) Mar 27, Jul 31, Apr 27,
Jul 12, 2021 -
2020 2019 2018
Long Term - [ICRA]A- [ICRA]A- [ICRA]A- [ICRA]A-
1 Long-term 23.50 16.5 -
Fund Based TL (Stable) (Stable) (Stable) (Stable)
Long Term - [ICRA]A- [ICRA]A- [ICRA]A- [ICRA]A-
2 Long-term 25.00 - -
Fund Based/ CC (Stable) (Stable) (Stable) (Stable)
Short Term -
3 Short Term 1.50 - [ICRA]A2+ - [ICRA]A2+ [ICRA]A2+ [ICRA]A2+
Non Fund Based
Short Term -
4 Short Term 5.00 - [ICRA]A2+ - - - -
Fund Based
Long Term / [ICRA]A-
Long-term/
5 Short Term - 10.00 - (Stable)/ - - - -
Short Term
Unallocated [ICRA]A2+

Complexity level of the rated instrument

Instrument Complexity Indicator
Long Term - Fund Based TL Simple
Long Term - Fund Based/ CC Simple
Short Term - Non Fund Based Very Simple
Short Term - Fund Based Very Simple
Long Term / Short Term – Unallocated Not Applicable
The Complexity Indicator refers to the ease with which the returns associated with the rated instrument could be estimated.
It does not indicate the risk related to the timely payments on the instrument, which is rather indicated by the instrument's
credit rating. It also does not indicate the complexity associated with analyzing an entity's financial, business, industry risks or
complexity related to the structural, transactional, or legal aspects. Details on the complexity levels of the instruments, is
available on ICRA’s website: www.icra.in

www.icra .in
Page | 4
 Annexure-1: Instrument details
ISIN No Instrument Name Date of Issuance Coupon Maturity Date Amount Rated Current Rating and
/ Sanction Rate (RS Crore) Outlook

NA Term Loan Nov 2018 7.89% Nov 2023 10.00 [ICRA]A- (Stable)
NA Term Loan Mar 2020 7.89% Mar 2025 6.50 [ICRA]A- (Stable)
NA Term Loan Nov 2020 7.25% Oct 2025 7.00 [ICRA]A- (Stable)
NA Cash Credit 25.00 [ICRA]A- (Stable)
NA Letter of Credit 1.50 [ICRA]A2+
NA WCDL Nov 2020 7.25% 5.00 [ICRA]A2+
NA Long Term / Short NA NA NA 10.00 [ICRA]A- (Stable)/
Term – Unallocated [ICRA]A2+
Source: Company

Annexure-2: List of entities considered for consolidated analysis: Not Applicable

www.icra .in
Page | 5
 ANALYST CONTACTS
Shamsher Dewan Srikumar K
+91 12 4454 5300 +91 44 4596 4318
shamsherd@icraindia.com ksrikumar@icraindia.com

Nithya Debbadi Nareshkumar N

+91 40 4067 6515 +91 95972 60257
Nithya.Debbadi@icraindia.com nareshkumar.n@icraindia.com

RELATIONSHIP CONTACT
Jayanta Chatterjee
+91 80 4332 6401
jayantac@icraindia.com

MEDIA AND PUBLIC RELATIONS CONTACT

Ms. Naznin Prodhani
Tel: +91 124 4545 860
communications@icraindia.com

Helpline for business queries

+91-9354738909 (open Monday to Friday, from 9:30 am to 6 pm)

info@icraindia.com

About ICRA Limited:

ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and financial services
companies as an independent and professional investment Information and Credit Rating Agency.

Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited Company,
with its shares listed on the Bombay Stock Exchange and the National Stock Exchange. The international Credit Rating Agency
Moody’s Investors Service is ICRA’s largest shareholder.

For more information, visit www.icra.in

www.icra .in
Page | 6
ICRA Limited

Registered Office
B-710, Statesman House, 148, Barakhamba Road, New Delhi-110001
Tel: +91 11 23357940-45

Branches

© Copyright, 2021 ICRA Limited. All Rights Reserved.

Contents may be used freely with due acknowledgement to ICRA.
ICRA ratings should not be treated as recommendation to buy, sell or hold the rated debt instruments. ICRA ratings are subjec t to a process of surveillance,
which may lead to revision in ratings. An ICRA rating is a symbolic indicator of ICRA’s current opinion on the relative capabi lity of the issuer concerned to
timely service debts and obligations, with reference to the instrument rated. Please visit our website www.icra.in or contact any ICRA office for the latest
information on ICRA ratings outstanding. All information contained herein has been obtained by ICRA from sources believed by it to be accurate and reliable,
including the rated issuer. ICRA however has not conducted any audit of the rated issuer or of the information provided by it. While reasonable care has been
taken to ensure that the information herein is true, such information is provided ‘as is’ without any warranty of any kind, a nd ICRA in particular, makes no
representation or warranty, express or implied, as to the accuracy, timeliness or completeness of any such information. Also, ICRA or any of its group
companies may have provided services other than rating to the issuer rated. All information contained herein must be construed solely as statements of
opinion, and ICRA shall not be liable for any losses incurred by users from any use of this publication or its contents.