Rating Rationale
December 26, 2019 | Mumbai
Alpha Packaging Private Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.40 Crore
Long Term Rating CRISIL BBB+/Stable (Reaffirmed)
Short Term Rating CRISIL A2 (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL BBB+/Stable/CRISIL A2' ratings on the bank facilities of Alpha Packaging Private Limited (APPL; part of the Alpha group).

The ratings continue to reflect the group's healthy financial risk profile, strong presence in the rigid packaging industry, and extensive experience of the promoters in the plastic packaging industry. These strengths are partially offset by the modest scale of operations coupled with moderation in operating margin and moderately large working capital requirement.

Analytical Approach

For arriving at the ratings, CRISIL has combined the business and financial risk profiles of APPL, Alpha Pure Pack Pvt Ltd (APPPL), and Viva Pack Pvt Ltd (VPPL). This is because these entities, together referred to as the Alpha group, have common promoters and management, are in the same business, and have fungible cash flow. CRISIL has treated unsecured loans from promoters as NDNE as these do not carry interest and are expected to be retained in the group.

Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description
Strengths:
* Healthy financial risk profile:
Networth was healthy at Rs 79 crore, gearing low at 0.73 time, and total outside liabilities to tangible networth comfortable at 1.11 times as on March 31, 2019. Despite the significant capital expenditure the gearing levels have remained at about 0.5-0.7 times due to prudent mix of promoter funding, internal accruals and external debt. Debt protection metrics are robust, as reflected in interest coverage and net cash accrual to total debt ratios of 5.97 times and 0.31 time, respectively, in fiscal 2019. It is on account of moderate operating profitability and low bank interest rate.
 
Going forward with moderate accretion to reserves and no major debt funded capex plan, the financial risk profile is expected to remain healthy. 
 
* Extensive experience of promoters coupled with strong market position:
Presence of more than 25 years in the plastic packaging industry has enabled the group to expand capacities and scale up rapidly in the last couple of years. The group's strong market presence is reflected in its reputed clientele, which includes Patanjali Ayurved, Marico Ltd, Hygienic Research Institute Pvt Ltd, and The Himalaya Drug Company. The established clientele base is backed by developing products as per customers' requirements and setting up capacities closer to clients' manufacturing units.
 
Weaknesses:
* Moderate scale of operations coupled with moderation in operating margin:
Despite significant growth, scale remains moderate at about Rs 156 crore in fiscal 2019 in a highly fragmented industry. Also, operating margin has declined in the four fiscals ended 2019 amidst implementation of reform i.e. GST, demonetization and change in policies from supplier. Any further sharp decline in profitability will be a key monitorable factor
 
* Large working capital requirement:
Alpha Group's operations are moderately working capital-intensive, as reflected in gross current assets of more than four months, driven by receivables of around three months and inventory of one month.
Liquidity Adequate

The group's net cash accrual, expected at Rs 16-17 crore per fiscal, should cover yearly debt obligation three-fold over the medium term. Utilisation of fund-based limit of Rs 29 crore averaged 87% percent over the 10 months through October 2019. The group has registered positive cash flow from operations over past several years, supporting capital expenditure and the incremental working capital requirement. The current ratio remains moderate at about 1.26 times as on 31st, March, 2019. Liquidity is partially supported by need-based unsecured loans provided by the promoters in case of any exigencies.

Outlook: Stable

CRISIL believes the Alpha group will continue to benefit from the promoters' extensive experience and strong clientele.

Rating Sensitivity factors
Upward factors
* Sustained revenue growth of 25-30%, coupled with increase in profitability
* Stable capital structure
 
Downward factors
* Decline in cash accrual by more than 20%
* Large, debt-funded capital structure weakening the financial risk profile
About the Group

Incorporated in 1988 and promoted by Mr Shyam Agarwal and Mr Nilaksh Agarwal, APPL manufactures polypropylene (PP), polyethylene terephthalate (PET), and polyethylene (PE) bottles and preforms and caps and closures used predominantly in the fast-moving consumer goods (FMCG) and cosmetics, pharmaceuticals, and dairy products segments.
 
APPPL (formerly SRB Vanijya Pvt Ltd) was incorporated on July 10, 2006. The name was changed to the current one with effect from November 12, 2012. The company manufactures PET bottles for the pharma, FMCG, and liquor industries.
 
VPPL (formerly Special Lamps & Components Pvt Ltd) was incorporated on June 16, 2006. Promoters acquired the company in 2010 and renamed it with effect from October 10, 2014. It manufactures PP, PE, and PET bottles used predominantly in FMCG, pharma, and dairy products sectors.

Key Financial Indicators
As on / for the period ended March 31   2019 2018
Operating income Rs crore 117.6 67.5
Reported profit after tax Rs crore 2.72 1.69
PAT margin % 2.32 2.51
Adjusted Debt/Adjusted Networth Times 0.60 0.56
Interest coverage Times 5.26 4.91
 

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
ISIN Name of instrument Date of allotment Coupon
rate (%)		 Maturity date Issue size
(Rs crore)		 Rating assigned 
and outlook
NA Term Loan NA NA Dec-23 16 CRISIL BBB+/Stable
NA Cash Credit NA NA NA 17.00 CRISIL BBB+/Stable
NA Bank Guarantee NA NA NA 1.80 CRISIL A2
NA Proposed Long Term
Bank Loan Facility		 NA NA NA 5.20 CRISIL BBB+/Stable
 
Annexure - List of entities consolidated
Names of Entities Consolidated Type of Consolidation
Alpha Packaging Pvt Ltd Full
Alpha Pure Pack Pvt Ltd Full
Viva Pack Pvt Ltd Full
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  38.20  CRISIL BBB+/Stable      07-09-18  CRISIL BBB+/Stable/ CRISIL A2    --    --  -- 
            06-08-18  CRISIL BBB+/Stable           
Non Fund-based Bank Facilities  LT/ST  1.80  CRISIL A2      07-09-18  CRISIL A2    --    --  -- 
            06-08-18  CRISIL A2           
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee 1.8 CRISIL A2 Bank Guarantee 1.8 CRISIL A2
Cash Credit 17 CRISIL BBB+/Stable Cash Credit 17 CRISIL BBB+/Stable
Proposed Long Term Bank Loan Facility 5.2 CRISIL BBB+/Stable Foreign Exchange Forward .2 CRISIL A2
Term Loan 16 CRISIL BBB+/Stable Proposed Long Term Bank Loan Facility .35 CRISIL BBB+/Stable
-- 0 -- Term Loan 20.65 CRISIL BBB+/Stable
Total 40 -- Total 40 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings
CRISILs Criteria for Consolidation
Criteria for rating entities belonging to homogenous groups
The Rating Process
Understanding CRISILs Ratings and Rating Scales

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