CRISIL has assigned its ‘BB+/Stable/P4+’ ratings to the bank facilities of Mahesh Merchandise Pvt Ltd (MMPL), which is part of the Mahesh group. The ratings reflect the Mahesh group’s below-average financial risk profile, marked by high gearing, weak debt protection metrics, and average net worth, large working capital requirements, the susceptibility of its margins to volatility in the value of the Indian rupee, and its dependence on imported timber. These rating weaknesses are partially offset by the experience of the Mahesh group’s promoters in the timber business, and its average scale of operations in the imported timber industry.

For arriving at its ratings, CRISIL has combined the business and financial risk profiles of five companies, MMPL, Mahesh Timber Pvt Ltd (MTPL), MTPL’s wholly owned subsidiary Mahesh Timber Singapore Pte Ltd, Singapore (MTSL), Mahesh Industries Pvt Ltd(MIPL), and Amazon Exports Pte Ltd, Singapore (AEPL), collectively referred to as the Mahesh group. This is because the three Indian entities, MIPL, MTPL, and MMPL, source their raw material requirements from AEPL, which, in turn, procures some of its requirements from MTSL. Furthermore, MTSL’s bank facilities are backed by a standby letter of credit from MTPL.

Outlook: Stable
CRISIL believes that the Mahesh group will continue to benefit from its promoters’ experience in the timber business, over the medium term. However, its financial risk profile will remain weak because of low profitability and large working capital requirements. The outlook may be revised to ‘Positive’ in case of a significant improvement in the group’s gearing and liquidity, most likely through more-than-expected cash accruals, or large, fresh equity infusion. Conversely, the outlook may be revised to ‘Negative’ in case the group’s liquidity weakens further, most likely because of large incremental working capital requirements, or if it undertakes large, debt-funded capital expenditure programme, thereby weakening its capital structure.

About the Group
Set up in 1952, the Mahesh group trades in, and undertakes sawing of, imported timber of varieties of hardwood and softwood. Mr. Ashok Mittal, his brother Mr. Shish Pal Mittal, and nephew Mr. Raman Singhal, looks after the overall management of the group.

MIPL saws and trades in softwood imported from Europe. The company procures timber logs from AEPL and sells the sawed timber to traders and retailers in India. The company operates ten sawmills with a capacity of 5000 cubic metres per month in Gandhidham (Gujarat).

Incorporated as a private limited company in 1998, MTPL trades in hardwood timber imported from Malaysia. The company has 18 sawmills in Gandhidham, where timber logs imported at the Kandla Port (Gujarat) are sawed and then sold to timber traders in Haryana, Delhi, Punjab, Uttar Pradesh, and other states. MTSL is a wholly owned subsidiary of MTPL.

MMPL saws and trades in softwood imported from New Zealand. The company procures timber logs from AEPL and sells the sawed timber to traders and retailers in India. The company operates 12 (taken on lease from MIPL) sawmills with capacity of about 5000 cubic metres per month in Gandhidham.

The Mahesh group reported a profit after tax (PAT) of Rs.32.5 million on net sales of Rs.3.3 billion for 2008-09 (refers to financial year, April 1 to March 31), against a PAT of Rs.23.2 million on net sales of Rs.1.6 billion for 2007-08.