Detailed Rationale

Crisil Ratings has revoked the suspension of its ratings on the bank facilities of ARC Insulation and Insulators Limited (ARCIIL) and has assigned its 'Crisil BB/Stable/Crisil A4+’ ratings to the bank facilities of ARCIIL. Crisil Ratings had suspended the ratings on August 26, 2014 on account of non-cooperation by ARCIIL with Crisil Ratings efforts to undertake a review of the ratings. ARCIIL has now shared the requisite information enabling Crisil Ratings to assign its ratings.

 

The rating reflects the extensive industry experience of the promoters, diverse product portfolio and end user industry base and healthy financial risk profile. These strengths are partially offset by its vulnerability to cyclicality in end-user industry, moderate working capital operations and susceptibility of operating margin to volatility in raw material prices.

Analytical Approach

Crisil Ratings has evaluated the standalone business and financial risk profiles of ARCIIL.

Key Rating Drivers & Detailed Description

Strengths:

Extensive industry experience of the promoters: The key promoter Mr. Manish Bajoria has an experience of more than a decade in the Glass Fiber Reinforced Polymer (GFRP) manufacturing industry. This has given them an understanding of the dynamics of the market and enabled them to establish relationships with suppliers and customers. The company recorded a turnover of Rs 28.34 crore in fiscal 2024, at a sales growth of 18% as against the previous fiscal owing to increased demand for the GFRP products with increased application of the products in renewable energy and infrastructural projects and healthy capacity utilization. On the back of running orders from the company’s established customer base and healthy demand scenario, the company has recorded a turnover of around Rs 32 crore in fiscal 2025. Going forward, while on the back of addition of new customers and revival of demand leading to increased order flow, business risk profile is expected to remain steady over the medium term, any adverse impact of regulatory changes or demand scenario in the export market on scale of operations and operating profitability shall remain a key monitorable.

 

Diverse product portfolio and end user industry base: ARCIIL has long-standing relationships with its customers and suppliers. The company offers a broad selection of GFRP products, including GFRP rebars, GFRP grating walkway, GFRP tubes, GFRP fencing for transformer, GFRP cable trays, fiberglass pipe for flue gas, fiberglass spray pipe, fiberglass trench cover catering to a diversified end user industry base which includes infrastructure, power, cooling tower, chemical, composite, electrical substation, metal & mining and others.

 

As ARCIIL’s product basket is diversified, mitigating  it to risk of obsolescence in case of any new technology coming into the market. Also a diversified end user industry base allows it in overcoming the risk of slowdown in a particular industry and achieving higher growth. As such, operating margin was at 32% for fiscal 2024 and remains estimated at over 35% for fiscal 2025. Sustenance of healthy operating profitability backed by healthy economies of scale and stable raw material prices shall remain a key monitorable.

 

Healthy financial risk profile: Capital structure is also robust marked by moderate reliance on working capital debt. Capital structure, going forward, shall remain supported by nil debt funded capital expenditure (capex) plans, negligible term debt and moderate reliance on external working capital debt yielding gearing and Total Outside Liabilities to Tangible Networth (TOL/TNW) ratio of below unity over the medium term. Debt protection metrics also remain comfortable marked by expected interest coverage and net cash accruals to adjusted debt (NCA/AD) around at comfortable level over the medium term. With no new debt funded capex plans and steady accretion to reserves, financial risk profile is expected to improve further going forward. Networth of the company remains moderate estimated at around Rs 20 crore as on March 31st, 2025, nevertheless, networth is expected to increase backed by steady accretion to reserves over the medium term

 

Weakness:

Vulnerability to cyclicality in end-user industry: ARCIIL's performance is closely linked with the investment climate in its end-user industry which is cyclical in nature.

 

Susceptibility of operating margin to volatility in raw material prices: The prices of key raw material such as fiber, polyester resin, woven roving, pigments, standard chopped mat, milo film, glass woven roving, fabric catalysts, and fiber glass cloth etc. change with global supply and demand. As raw material costs comprise over 55-60% of operating income, operating profit margin is susceptible to sharp adverse movement in input prices. The price of the key raw materials, tend to be volatile and driven by global trends and movements, thus remains moderately susceptible to volatility in raw material cost and forex rates with majority of the raw materials being imported. Sustenance of healthy scale of operations and operating profitability amid volatility in raw material prices and forex rates, global demand trends and stiff competition shall remain a key monitorable.

 

Moderately Large working capital requirement: The working capital cycle is likely to remain moderate and hence, a key monitorable. Gross current assets (GCAs) stood at 183 days as on March 31, 2024.Credit of 90-120 days is extended to customers to procure large orders, amidst intense competition from other overseas players. The group holds raw material inventory of 120 days and finished goods stock of about 30-60 days. Any large unprecedented stretch in working capital operations shall remain a key monitorable.

Liquidity: Adequate

Bank limit utilisation is low at around 38 percent for the past 12 months ended March 2025. Cash accrual are expected to be over Rs 8-10 crore which are sufficient against term debt obligation of Rs 0.40-0.50 crore over the medium term. In addition, it will be act as cushion to the liquidity of the company.

 

Current ratio is healthy at 1.88 times on March 31, 2024. Low gearing and moderate net worth support its financial flexibility, and provides the financial cushion available in case of any adverse conditions or downturn in the business

Outlook: Stable

Crisil Ratings believes ARCIIL will continue to benefit from the extensive experience of its promoter, and established relationships with clients.

Rating Sensitivity Factors

Upward factors

• Substantial improvement in scale of operations with turnover above Rs 75 cr and sustenance of healthy profitability with earnings before interest, tax, depreciation and amortization (EBITDA) margins of over 15% leading to high cash accruals.
• Improvement in working capital cycle and sustenance of healthy financial risk profile.

 

Downward factors

• Substantial decline in scale of operations and operating profitability thereby leading to cash accruals below Rs 3 crore
• Any large debt funded capital expenditure (capex) and/or large unprecedented increase in working capital operations adversely impacting the financial and liquidity risk profile

About the Company

ARCIIL, formerly known as ARC Insulation & Insulators Private Limited, was incorporated in 2008. Subsequently, the company was converted into a public limited company under current name in 2024. ARCIIL is engaged in the manufacturing and supply of Glass Fiber Reinforced Polymers (GFRP)/Fiber Reinforced Polymers Products (FRP) composite/constituency products which provides corrosion-resistant, tensile strength and insulating GFRP solutions which can be used as a substitute for steel bars/rebars. ARCIIL’s offerings include GFRP rebars, GFRP granting walkways, GFRP pipelines, GFRP tubes, GFRP fencing for transformers, GFRP cable trays, and other related products designed for industrial, energy and marine’s sectors construction and industrial applications. ARCIIL’s manufacturing plant is located at Ramdevpur Village, Parganas South (West Bengal).

 

ARCIIL is owned & managed by Mr. Manish Bajoria, Ms. Neelam Bajoria and Mr. Ashish Bajoria

Key Financial Indicators

As on / for the period ended March 31	Unit	2024	2023
Operating income	Rs crore	28.37	23.98
Reported profit after tax	Rs crore	6.09	2.63
PAT margins	%	21.51	11.00
Adjusted Debt/Adjusted Networth	Times	0.19	0.84
Interest coverage	Times	21.94	8.11

 

Any other information: Not Applicable