`LAA` rating for Shanthi Gears
Rating agency ICRA assigned an `LAA` rating, indicating high credit quality, to theRs 430 million term loan facility, Rs 570 million fund based limits and Rs 50 million non-fund based limits of Shanthi Gears (SGL).ICRA also assigned an `A1+` rating, indicating highest credit quality, to the Rs 50 million fund-based limits and Rs 150 million non fund-based limits of SGL.The rating factors in SGL`s long standing presence as the second largest player in the domestic industrial gears market and its diversified and established customer base in India. SGL is protected to an extent from demand cyclicality in individual customer segment by virtue of its presence across various industries in the standard/non-standard gears segment, and replacement markets.The rating also reflects the company`s consistent growth in revenues and healthy profitability over the past five years. The rating is however constrained by SGL`s relatively moderate scale of operation and the growing competition in the industrial gears segment.Despite consistently healthy cash generation from operations, high capital expenditure and a stretched working capital cycle has resulted in moderately high leverage. The rating also factors in SGL`s plans to focus on lower margin-higher volume standard gears and exports, going forward.Company profileCommencing business as a gear manufacturer for the textile industry in 1969, SGL, over the years, diversified into manufacture of standard (off-the-shelf) and customized (non-standard) gears, catering to a number of industries including steel, compressors, power, earthmoving equipment, cement and textiles. SGL is currently the second largest player in the gear industry with market share of 20% and has a product portfolio which includes a range of customised gear boxes, loose gears, worm gear boxes and helical gear boxes. SGL has six manufacturing facilities (including a foundry) located in and around Coimbatore, Tamil Nadu.
Shanthi Precision Industries, a group concern of SGL, engaged in textile carding, was merged with SGL in 2003-04. In 2004-05, SGL`s investment in wholly-owned subsidiary, Shanthi Sales, engaged in marketing activities for SGL, was sold off, subsequent to which SGL recommenced its own marketing operations.Recent ResultsThe company ended nine months 2007-08 with a net profit of Rs 323 million on operating income of Rs 1,763 million, a growth of 26.5% over the corresponding period revenues of Rs 1,393 million.
