Press Release

Shaily Engineering Plastics Limited

September 25, 2019
Ratings
Amount 1
Facilities Rating Rating Action
(Rs. crore)
187.65 CARE A-; Stable
Long-term Bank Facilities Reaffirmed
(enhanced from 106.40) [Single A Minus; Outlook: Stable]
CARE A2+
Short-term Bank Facilities 30.00 Reaffirmed
[A Two Plus]
217.65
Total (Rupees Two hundred seventeen
crore and sixty five lakh only)
Details of facilities in Annexure-1

Detailed Rationale & Key Rating Drivers

The ratings assigned to the bank facilities of Shaily Engineering Plastics Ltd. (SEPL) continue to derive strength from its
established track record in the plastic injection molding business, its experienced promoters and reputed clientele across
diverse end-use industries, established relationship with some of its key customers, regular addition of new customers as
well as products translating into growth in its total operating income (TOI), sustenance of healthy operating profitability,
its comfortable leverage, debt coverage indicators as well as liquidity and growing demand for plastics with its increased
applications in various industries.
The ratings, however, continue to remain constrained by SEPL’s high customer concentration, its moderate bargaining
power with its large sized customers, susceptibility of its profitability to raw material price volatility and exposure to
foreign exchange rate fluctuations and risks associated with its ongoing large sized capex in carbon steel products which is
largely debt funded.
SEPL’s ability to grow its scale of operations along with diversification of its customer base while retaining its existing
customers and sustenance of its capital structure with improvement in its profitability would be the key rating sensitivities.
Timely completion & stabilization of its new project for manufacturing of carbon steel products which is a different
operating segment for SEPL shall be crucial from the credit perspective.

Detailed description of the key rating drivers

Key Rating Strengths
Experienced promoters with established track record of operations
SEPL is managed by its promoter and Executive Chairman, Mr. Mahendra Sanghvi, who has experience of over four
decades in the plastic industry. His son, Mr. Amit Sanghvi, is the Managing Director of SEPL and has around a decade of
industry experience. SEPL has an established track record of operations of more than three decades, during which it has
developed a wide range of quality products.

Reputed clientele with addition of new customers and products

SEPL has long-standing relationship with reputed global and domestic clients across a wide range of end-user industry
including home furnishing, FMCG, automobile and pharmaceuticals. Over the last few years, SEPL has regularly added
new customers and new products (for existing customers), which has translated into growth in its scale of operations.
Also, recently it has announced its foray in to toy manufacturing for one of the large global toy manufacturers.

Marginal growth in TOI during FY19 with largely stable operating profit margin
After witnessing significant growth in its TOI during the past few years ended FY18, TOI of SEPL grew by ~6% during FY19
which was lower than its estimates mainly due to change in inventory holding policy by its key customer in home
furnishing segment along-with delay in fructification of few inquiries due to change in designs & other issues. However,
SEPL continued to operate with a healthy operating profitability marked by PBILDT margin of 16.14% during FY19 (FY18:
17.44%) which has remained healthy over the years as it operates in the niche segment of precision molding and caters to
demand from global industry leaders in their respective segments.

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Complete definitions of the ratings assigned are available at www.careratings.com and in other CARE publications.
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 Press Release

Comfortable capital structure and debt coverage indicators

SEPL’s capital structure continued to remain comfortable with an overall gearing of 0.89x as on March 31, 2019 vis-à-vis
0.87 times as on March 31, 2018. In-spite of availment of higher term debt to fund its carbon steel project, its overall
gearing largely remained steady upon effective working capital management leading to lower utilization of working
capital bank borrowings as on March 31, 2019. SEPL’s debt coverage indicators also remained comfortable during FY19 on
the back of largely steady cash accruals with only marginal increase in its debt level.

Growing demand for plastic products with increased application in various industries
There has been rapid increase in consumption of plastic material in recent years on account of newer application areas
for plastics such as automotive, rail, defence & aerospace, medical & healthcare, electrical & electronics,
telecommunication, building & infrastructure and furniture. In the domestic market as well, government’s initiatives to
boost investment in water & sanitation management, irrigation, building & construction, transport and retail is expected
to increased consumption of plastic products over the coming years.

Liquidity analysis
SEPL has comfortable liquidity marked by largely stable operating cycle of 70-80 days for last three years even with its
growth in its scale of operations. SEPL has got sanctioned fund based working capital limit of Rs.60 crore whereby average
utilization stood comfortable at ~68% for the trailing twelve months ended July 2019.
Key Rating Weaknesses

High customer concentration with moderate bargaining power

Home furnishing is the largest segment for SEPL with more than 60% of its TOI in FY19 being contributed by it wherein it
caters to a single industry player which leads to high customer concentration. Further, SEPL supplies primarily to leading
global & domestic players across diversified industries which restricts its bargaining power vis-à-vis its larger clients.
Susceptibility of profitability to raw material price volatility and exposure to foreign exchange rate fluctuations
The key raw material of SEPL is derivative of crude oil and hence profitability of SEPL is susceptible to any sharp volatility
in crude oil prices. Though SEPL has cost pass-through mechanism with most of its customers, price revision happens only
with a time lag. Also, SEPL’s profitability is susceptible to fluctuation in foreign exchange rates to the extent of its net un-
hedged position.
Sizeable capex over the medium term including that in carbon steel segment
Over the medium term, SEPL has plans to incur sizeable capex for expanding its existing manufacturing facilities for plastic
products as well as for establishing a new facility for carbon steel products. SEPL had already achieved financial closure
for the same with NBFC which is now being refinanced with bank loans for which it has received sanction for part of the
debt. Commencement of production from the project for carbon steel products is expected to commence from February
2020; albeit with some delay from its initial estimates. While SEPL has significant experience in various types and quality
of plastic products, carbon steel is a relatively new domain for the company. The company has hired experienced
professional for the same; however, stabilization of the new capex and realizing adequate returns from the same would
be crucial from the credit perspective.

Analytical Approach: Standalone

Applicable Criteria
Criteria on assigning Outlook to Credit Ratings
CARE's Policy on Default Recognition
Criteria for Short Term Instruments
Rating Methodology-Manufacturing Companies
Financial ratios - Non- Financial Sector

About the Company

SEPL, incorporated in 1980, is engaged in manufacturing of high precision injection molded plastic components and sub-
assemblies for various requirements of Original Equipment Manufacturers (OEM). It also offers secondary operations in
plastics like vacuum metalizing, hot stamping and ultrasonic welding. The company caters to a wide range of industries
including home furnishing, FMCG, pharmaceuticals, switchgear components, auto components, electronics and electrical
appliances. Currently, SEPL has five manufacturing facilities - four in Savli (Gujarat) and one in Halol (Gujarat), out of
which two are Export Oriented Unit (EOU) while others cater to both domestic and export markets.

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Brief Financials (Rs. crore) FY18 (A) FY19 (A)

Total operating income 320.36 339.86
PBILDT 55.88 54.86
PAT 23.90 19.28
Overall gearing (times) 0.87 0.89
Interest coverage (times) 7.42 5.35
A: Audited
As per Q1FY20 provisional results, SEPL reported a TOI of Rs.80.66 crore with a PAT of Rs.4.73 crore as against a TOI of
Rs.89.43 crore with a PAT of Rs.5.74 crore during Q1FY19.
Status of non-cooperation with previous CRA: Not Applicable
Any other information: Not Applicable
Rating History (Last three years): Please refer Annexure-2

Annexure-1: Details of Facilities

Name of the Date of Coupon Maturity Size of the Rating assigned along
Instrument Issuance Rate Date Issue with Rating Outlook
(Rs. crore)
Fund-based - LT-Term Loan NA NA April 30, 2025 92.65 CARE A-; Stable

Fund-based - LT-Term Loan NA NA NA 35.00 CARE A-; Stable

(Proposed)
Fund-based - LT-Cash NA NA NA 40.00 CARE A-; Stable
Credit
Fund-based - LT-Cash NA NA NA 20.00 CARE A-; Stable
Credit
Non-fund-based - ST-BG/LC NA NA NA 30.00 CARE A2+

Annexure-2: Rating History of last three years

Sr. Name of the Current Ratings Rating history
No. Instrument/Bank Type Amount Rating Date(s) & Date(s) & Date(s) & Date(s) &
Facilities Outstanding Rating(s) Rating(s) Rating(s) Rating(s)
(Rs. crore) assigned in assigned in assigned in assigned in
2019-2020 2018-2019 2017-2018 2016-2017
1. Fund-based - LT-Term LT 127.65 CARE A-; - 1)CARE A-; 1)CARE A-; 1)CARE
Loan Stable Stable Stable BBB+;
(05-Oct-18) (11-Jan-18) Positive
2)CARE A-; (13-Jan-17)
Stable 2)CARE BBB+
(25-Sep-17) (16-Aug-16)
2. Fund-based - LT-Cash LT 40.00 CARE A-; - 1)CARE A-; 1)CARE A-; 1)CARE
Credit Stable Stable Stable BBB+;
(05-Oct-18) (11-Jan-18) Positive
2)CARE A-; (13-Jan-17)
Stable 2)CARE BBB+
(25-Sep-17) (16-Aug-16)
3. Fund-based - LT-Cash LT 20.00 CARE A-; - 1)CARE A-; 1)CARE A-; 1)CARE
Credit Stable Stable Stable BBB+;
(05-Oct-18) (11-Jan-18) Positive
2)CARE A-; (13-Jan-17)
Stable 2)CARE BBB+
(25-Sep-17) (16-Aug-16)
4. Non-fund-based - ST- ST 30.00 CARE A2+ - 1)CARE A2+ 1)CARE A2+ 1)CARE A2
BG/LC (05-Oct-18) (11-Jan-18) (13-Jan-17)

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2)CARE A2+ 2)CARE A2

(25-Sep-17) (16-Aug-16)

Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity.
This classification is available at www.careratings.com. Investors/market intermediaries/regulators or others are welcome
to write to [email protected] for any clarifications.

Contact us
Media Contact
Name: Mradul Mishra
Contact no. : +91-22-6837 4424
Email ID – [email protected]

Analyst Contact
Name: Hardik Shah
Contact Number: +91-79-4026 5620
Email ID- [email protected]

Business Development Contact

Name: Deepak Prajapati
Contact no. +91-79-4026 5656
Email ID - [email protected]

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