| Amazon Wood Private Limited | ||||||
| Ratings reaffirmed at 'CRISIL BBB / Stable / CRISIL A3+ ' | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed rationale CRISIL Ratings has reaffirmed its 'CRISIL BBB/Stable/CRISIL A3+' ratings on the bank facilities of Amazon Wood Pvt Ltd (AWPL; a part of the Amazon group).
The ratings continue to reflect the extensive experience of the promoter in the particle boards industry and the Amazon group’s moderate financial risk profile. These strengths are partially offset by exposure to fluctuations in raw material prices and large working capital requirement.
The Amazon group’s operations were significantly impacted during the first quarter of fiscal 2021 from the lockdowns imposed by the government to curb the spread of Covid-19. However, subsequent recovery has been moderately healthy, supported by established customer relationship and strong demand. Thus, gross revenue was Rs 154 crore as of January 2021, thereby limiting the impact of the subdued first quarter on the entire fiscal; revenue decline for fiscal 2021 is estimated at less than 10%. |
Analytical approach: For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of AWPL and Millennium Boards Pvt Ltd (MBPL). That is because the two companies, together referred to as the Amazon group, are managed by the same promoter and have business linkages.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key rating drivers and detailed description Strengths * Extensive experience of promoter Benefits derived from the promoter’s experience of three decades, his strong understanding of market dynamics and healthy relations with suppliers and customers should continue to support the business. Further, with MBPL manufacturing bagasse boards, the Amazon group has presence across the particle wood segment.
* Moderate financial risk profile Networth has been adequate at Rs 62.40 crore as on March 31, 2020, with gearing comfortable at 0.69 time. Debt protection metrics were also adequate, with interest coverage and net cash accrual to total debt ratios of 3.22 times and 0.27 time, respectively, in fiscal 2020. Additionally, the group undertook a capex worth Rs 9-10 crore in AWPL for adding a plywood unit in fiscal 2021. However, this capex was funded from internal sources and no debt was availed.
Weaknesses * Large working capital requirement The working capital cycle may remain elongated over the medium term due to the sizeable credit period offered to customers, the seasonal availability of the raw material (bagasse) and also maintaining a portion of inventory on account of lead time while importing raw material. Gross current assets were 167 days as on March 31, 2020, driven by inventory and debtors of 84 days and 71 days, respectively. Further, the ongoing pandemic led to a significant stretch in working capital cycle during the first quarter of fiscal 2021; however, things resumed normalcy in a few months. Going forward, management of the working capital will remain closely monitored.
* Exposure to volatility in raw material prices Availability of bagasse (a seasonal product) and import of other raw materials plays a vital role in market pricing. Since cost of procuring the raw material accounts for a bulk of the production cost, even a slight variation in input price owing to availability or import regulations can drastically impact overall profitability. |
Liquidity risk profile: Adequate Liquidity continues to remain adequate with cash accruals expected at Rs 10-12 crore per annum over the medium term, sufficient to meet the yearly repayment obligation of Rs 5-6 crore; the surplus cash will aid financial flexibility. Bank limit utilisation was moderate and averaged around 68% during the 12 months through January 2021. Current ratio was healthy at 1.59 times as on March 31, 2020. Further, the group availed of the Reserve Bank of India-approved moratorium during March-August 2020. The promoters are likely to extend support in the form unsecured loans in case of any exigencies. |
Outlook: Stable The Amazon group will continue to benefit from the extensive experience of the promoter. |
Rating sensitivity factors Upward factors * Revenue growth of around 20% per annum and steady profitability, leading to higher-than-expected cash accrual * Significant and sustained improvement in working capital cycle
Downward factors * Further sizeable stretch in working capital cycle * Steep decline in revenue and/or operating margin dropping by over 200 basis points |
About the Group AWPL, established in 2006 by Mr Rakesh Verma, manufactures pre-laminated particle boards and medium-density fibreboard. It has two manufacturing units, one each in Pune and Chennai.
MBPL is a 77.42% subsidiary of AWPL and has been operational since February 2016. It manufactures bagasse boards at its unit in Tembhruni (Solapur in Maharashtra). |
Key financials (consolidated)
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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)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||
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