Press Release

Sea Blue Limited January 29, 2021

Ratings Type of Rating Rating1 Rating Action CARE C (Is) Issuer rating Assigned [Single C (Issuer Rating) ] Details of instruments/facilities in Annexure-1

Detailed Rationale & Key Rating Drivers The issuer rating assigned to Sea Blue Shipyard Limited (SBS) are tempered by delays in debt servicing in the past, small scale of operations amidst stiff competition, working capital intensive nature of operations and stressed liquidity position. The issuer rating however derive strength from experienced promoter in ship building industry, well-established business relations with reputed customers and moderate order book position, turn around in net profits during FY20 (April 01 – March 31)along with comfortable capital structure and debt coverage indicators. Key Rating Sensitivities Positive Factors • Increase in the scale of operation with a total operating income exceeding Rs. 40 crore with and maintaining profitability margins from the present level on a sustained basis • Improvement in the liquidity position with current ratio exceeding 1.50x on a sustained basis Negative Factors • The Issuer Ratings would be subjected to overall gearing will remain below 0.75 times and debt coverage indicators with interest coverage ratio reaching below 2x and total debt to gross cash accruals exceeding 4x on a sustained basis. • Deterioration in the collection period and exceeding 120 days on a sustained basis Key rating weaknesses Delays in debt servicing in the past. SBI has classified SBS into NPA category on 04.07.2020 on account of delays in debt servicing. Despite cash losses reported during FY18 & FY19, the company was continued to repay its debt obligations with delays and irregularities through the realization of receivables from its debtors. In addition, during FY20, the company has reported cash profit of Rs. 6.10 Crore. All aforesaid facts enabled the entity to repay its debt obligations. Further, the company has closed all its liabilities with SBI through one time settlement scheme. The company has settle the loans by arranging the funds by the way of rights issues, unsecured loans from promoters, receivables from its clientele, and partial refinancing from NBFC. Small scale of operations amidst stiff competition The company has reported smaller size of operations, however scaling up during the review period i.e. FY18-FY20 at a CAGR of 24.58% .The total operating income stood small at Rs. 15.66 crore in FY20 however improved from Rs.3.97 Crore in FY19. SBS faces huge competition from strong industry major like Cochin Shipyard Limited located at with strong technical prowess and other small unorganized players for afloat repairs. Working capital intensive nature of operations Operations of the company are working capital intensive mainly on account of funds being blocked in receivables (avg. debtor’s period is 120 days in FY20 vis-à-vis 737 days in FY19). Normally a small ship building process takes around 18 months to complete and the payment is received stage wise from clients. For manufacturing and sale of products, SBS follow stage wise payment for projects with long tenure. Once the bill is raised its takes an average of 60 days tenure for collection from government entity and 30 days tenure from private entity. At times, the collection goes beyond 60 days from government entity due to inspection and delay in passage of bills. Due to long tenure and delay in payment of bills raised has resulted in elongation of average collection period which was 120 days in FY20; however the same has improved from previous year (737 days in FY19). As on March 31, 2020, out of the total debtors, 42% were due for more than 180 days. SBS follows Just-in-time (JIT) mechanism for ship building and manufacturing of goods, however the company is required to hold minimum set of inventory required for ship repair and other services, where the average inventory period stood at 47 days in FY20. The Company holds inventory of low value spares and consumables in its container mainly for repairing business and thus inventory period stood low. Furthermore, company receives credit period from creditors of two months which resulted in average creditor’s period of 66 days in FY20 vis-a-vis 70 days in FY19. On account of aforesaid fact, operations are relied highly on working capital bank borrowings, marked by the operating cycle of the company stood at 101 days in FY20 as against 762 days in FY19.

1Complete definitions of the ratings assigned are available at www.careratings.com and in other CARE publications. 1 CARE Ratings Limited

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Key Rating strengths Experienced promoter in ship building industry and long track record of operations The promoters have good experience in ship building and repairing industry. Mr. OC John, Promoter and Managing Director, is a post graduate in commerce and a graduate in law. He joined a ship building and repairing firm in in 1983 and resigned from the firm in 2002 as Chief Executive Officer and promoted SBS in 2003 along with four other technocrats. Mr. E Tojen, promoter and director, is a marine engineer by profession, has 21 years of experience in shipping industry and merchant navy. Further the entity derives support from well qualified professionals business viz Mr. Jilish G Kanippilly (Director HR & IT), Mr. P.G. Vinayan (Chief Finance Officer), Ms. R. Raji (Company Secretary with adequate experience relevant line of business. The entity is operating since 2003 and thereby registering long track record of operations. Well-established business relations with reputed customers and moderate order book position Over the last few years the company is able to registered as well established player in manufacturing of ship parts and other shipping equipments business for reputed clients such as Goa Ship Yard Ltd, Coast Guard, Shipping Corporation of , Dredging Corporation of India, Cochin Shipyard Limited among others. Furthermore the company is maintainaing long term with reputed customers as its operating more then a decade. SBSL has an order book of Rs.16.06 crore as of December 31, 2020 with average execution tenure from 1 month to 3 years. Some of the key orders are Improvement of Thottappally spillway, wooden deck renewal - Ins Tarangini, complete dry docking and Lay-up repairs, dry docking and allied repairs-SRP Balshil, Performing Dry docking of barge FACT Pragatiyan and expected to receive more orders in the remaining period of this fiscal year. Turn around in net profits during FY20 along with comfortable capital structure and debt coverage indicators The company has reported net losses for the two fiscals ended FY18 and FY19 due to high operational costs (material and employee costs). However the company has reported a net profit of Rs.4.57 crore during FY20 on account of revenue realized from new work orders received for ship repairments, and executed during said period coupled with offsetting operational costs. The company’s capital structure remained comfortable marked by the overall gearing stood at 0.26x as at March 31, 2020 as against 0.43x as at March 31, 2019. As on March 31, 2020, debt profile stood at 8.12 Crore as against good networth base of Rs. 31.69 Crore. The interest coverage stood negative during FY18 & FY19 on account of operating losses reported during the period by the company. The operating performance has improved in FY20, and has enabled the company to report sufficient operating profit to service the interest obligations of the company. The same stood at 16.49x during FY20. Similarly the TD/GCA though stood at negative during FY18 and FY19 owing to the cash losses reported, it improved and stood at comfortable at 1.33x during FY20 due to significant cash profits earned by the company coupled with y-o-y decline in total debt levels. Liquidity: stressed The current ratio and quick ratio stood weak at 0.69x and 0.61x respectively as on March 31, 2020 (vis-àvis 0.47x and 0.41x respectively as on March 31, 2019). The cash and bank balances stood at Rs.0.22 Crore as on March 31, 2020. However, the loan facilities with SBI has been closed and there are no bank borrowings. With the cash accruals envisaged to be generated to be satisfactory which will aqdequate to meet out the operations going forward. Company has not availed moratorium for its bank facilities amid COVID-19 announced by RBI. Analytical approach: Standalone Applicable Criteria: CARE’s Policy on Default Recognition Financial ratios (Non-Financial Sector) Rating Methodology - Service Sector Companies Liquidity Analysis of Non-Financial Sector Entities CARE’s Issuer Rating About the Company Sea Blue Shipyard Limited (SBS), incorporated on December 08, 2003, is an ISO:9001-2008 certified public limited company engaged in ship building, ship repairs, general engineering, wharfage and berthing, tug boat services and hire charges activities. Initially the company was established under the name of Sea Blue Marine Engineering (Pvt.) Ltd. and later converted into a Public Limited Company in 2009, with its new name SBS. SBS has a yard, located at , having necessary infrastructure facilities like 200 meters long wharfs, slipways and workshop for undertaking above works. SBS has a branch office in Goa, established during 2009 with a view to expand its business activities along the Western Coastal belt. It undertakes contractual work of Goa Ship Yard Ltd, Indian Navy Coast Guard, Shipping Corporation of India, Dredging Corporation of India, Cochin Shipyard Limited etc. and other private agencies operating in the Western region for specialized jobs. SBS is registered with Navel Ship Repair Yard, Kochi for undertaking all types of repairs of their vessels which extended upto November 2023.

Brief Financials (Rs. crore) FY19 (A) FY20 (A) Total operating income 3.97 15.66 2 CARE Ratings Limited

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PBILDT (7.66) 6.06 PAT (6.46) 4.58 Overall gearing (times) 0.26 0.15 Interest coverage (times) (27.36) 16.50 A: Audited, Prov.: Provisional

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 Instruments/Facilities Size of the Rating assigned Name of the Date of Coupon Maturity Issue along with Rating Instrument Issuance Rate Date (Rs. crore) Outlook Issuer Rating-Issuer CARE C (Is) - - - 0.00 Ratings

Annexure-2: Rating History of last three years Current Ratings Rating history Name of the Type Rating Date(s) & Date(s) & Date(s) & Date(s) & Sr. Amount Instrument/Bank Rating(s) Rating(s) Rating(s) Rating(s) No. Outstanding Facilities assigned in assigned in assigned in assigned in (Rs. crore) 2020-2021 2019-2020 2018-2019 2017-2018 1)Withdrawn 1)CARE D; 1)CARE D; 1)CARE D; (20-Jan-21) ISSUER NOT ISSUER NOT ISSUER NOT Fund-based - LT- 2)CARE D; 1. LT - - COOPERATING* COOPERATING* COOPERATING* Term Loan ISSUER NOT (23-Jul-19) (17-Jul-18) (05-May-17) COOPERATING*

(29-Sep-20) 1)Withdrawn 1)CARE D; 1)CARE D; 1)CARE D; (20-Jan-21) ISSUER NOT ISSUER NOT ISSUER NOT Fund-based - LT- 2)CARE D; 2. LT - - COOPERATING* COOPERATING* COOPERATING* Cash Credit ISSUER NOT (23-Jul-19) (17-Jul-18) (05-May-17) COOPERATING*

(29-Sep-20) 1)Withdrawn 1)CARE D; 1)CARE D; 1)CARE D; (20-Jan-21) ISSUER NOT ISSUER NOT ISSUER NOT Non-fund-based - 2)CARE D; 3. ST - - COOPERATING* COOPERATING* COOPERATING* ST-Letter of credit ISSUER NOT (23-Jul-19) (17-Jul-18) (05-May-17) COOPERATING*

(29-Sep-20) 1)Withdrawn 1)CARE D; 1)CARE D; 1)CARE D; (20-Jan-21) Non-fund-based - ISSUER NOT ISSUER NOT ISSUER NOT 2)CARE D; 4. ST-Bank ST - - COOPERATING* COOPERATING* COOPERATING* ISSUER NOT Guarantees (23-Jul-19) (17-Jul-18) (05-May-17) COOPERATING*

(29-Sep-20) Issuer Rating- Issuer CARE 5. 0.00 - - - - Issuer Ratings rat C (Is)

Annexure-3: Detailed explanation of covenants of the rated instrument / facilities- Information not available

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Annexure 4: Complexity level of various instruments rated for this Firm Sr. Name of the Instrument Complexity Level No. 1. Issuer Rating-Issuer Ratings Simple

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

Analyst Contact Group Head Name – P.Shanti Group Head Contact no.- 040-67937417 Group Head Email ID - [email protected]

Business Development Contact Name: Pradeep Kumar Contact no. : 044-28501001 Email ID : [email protected]

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