Rating Rationale
January 31, 2024 | Mumbai
Archidply Industries Limited
Rating reaffirmed at 'CRISIL BBB/Stable'; rated amount enhanced for Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.80.5 Crore (Enhanced from Rs.74.5 Crore)
Long Term RatingCRISIL BBB/Stable (Reaffirmed)
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL BBB/Stable’ rating on the bank loan facilities of Archidply Industries Limited (AIL).

 

The company reported operating income of Rs 421 crore in fiscal 2023 as against Rs 306 crore in fiscal 2022, driven by volume growth. Further, during the current fiscal the company generated operating income of Rs 209 crore till September 2023. Despite the revenue growth, operating margin moderated to 5.65% in fiscal 2023 from 6.48% in last fiscal, primarily due to higher advertisement and selling expenses incurred amidst expansion plans over medium term. The operating margins are expected to improve with increased scale of operations expected from new unit, thus resulting in better absorption of fixed costs.

 

The ratings continue to reflect AIL's established market position in the plywood and laminates business supported by the extensive experience of the promoters, geographical diversity in revenue with an established dealership network and above-average financial risk profile. These strengths are partially offset by moderate working capital intensity of operations, susceptibility to volatility in raw material prices, and intense competition and exposure to project related risks associated with the upcoming medium density fiberboard (MDF) project.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of AIL and its newly set up subsidiary, Archidpanel Industries Pvt Ltd (AIPL).

 

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:

  • Established market presence supported by the extensive experience of the promoters: Supported by promoter’s industry experience of over four decades, AIL has established itself as a leading player in the plywood and laminates industry. The promoter’s strong understanding of local market dynamics has helped the company to develop a comprehensive range of products and widen its geographical reach. The company will continue to benefit from the experience and expertise of its management team and leverage its customer relationships.

 

  • Geographical diversification in revenue and established network: AIL has branches across the country and a wide distribution network. The northern and southern regions contribute 60-65% of revenue, while exports account for around 5-10%. AIL also benefits from its wide distribution network and established clientele. AIL caters to clients in different sectors such as state government, hospitals, corporates and retail segment. It has over 5 years of relationship with many of its customers/distributors. The top ten customers accounted for around 18% of revenue in fiscal 2023. Wide geographic reach and robust clientele should continue to support the business risk profile over medium term.

 

  • Above-average financial profile, likely to moderate amidst greenfield project capital expenditure (capex): Capital structure remains healthy due to lower reliance on external funds. Gearing stood at 0.8 time and total outside liabilities to adjusted networth ratio at 1.38 times as on March 31, 2023. AIL’s debt protection measures have also been adequate due to low leverage and steady profitability.  The interest coverage and net cash accrual to total debt ratios were 4.17 times and 0.18 times, respectively, for fiscal 2023.

 

AIL is undertaking a greenfield project for setting up manufacturing facility for MDF  and allied products. The capex of Rs. 115 crore is expected to be debt-funded to the tune of Rs 81 crore. With the debt funded capex and increasing working capital requirements the gearing should moderate in near term.

 

Weaknesses:

  • Moderate working capital intensity of operation: Gross current assets were in the range of 131-200 days over the three fiscals ended March 31, 2023. AIL maintains inventory of around 60-70 days which can rise during seasons. Also, it extends credit of around 90 days to its customers. Working capital cycle is supported by credit of around 2 months extended by suppliers along with working capital bank lines.

 

  • Susceptibility to volatility in raw material prices and intense competition: Intense competition in the plywood and laminates industry may continue to constrain scalability, pricing power and profitability. Further, as cost of procuring the major raw material (kraft paper) accounts for bulk of total operating revenue, an adverse variation in rates may impact profitability as price revision happens with a lag.

 

  • Exposure to project implementation risk: AIL’s subsidiary AIPL is undertaking a greenfield project at a cost of Rs 115 crore,. The project is still yet to be commercialized. The commercial operations are expected to start in Q4, 2024 which was earlier expected to start in Q2, 2024. Delay was on account of delay in supply of main plant by the vendor. Further total project size is large in relation to AIL’s net worth. Timely implementation of project entail risks. Also, adequate and profitable ramp up in sales post commercialisation will also remain a key monitorable.

Liquidity: Adequate

Expected annual cash accrual of Rs 17-33 crore should comfortably cover debt obligations of Rs 4.05-16.20 crore per year over medium term. Bank limit utilization is moderate at around 85 percent for the past twelve months ended Sep 2023. Current ratio was healthy at 1.31 times as on March 31, 2023

Outlook: Stable

CRISIL Ratings believes AIL will continue to benefit from the extensive experience of its promoter, and the company’s established presence in the industry.

Rating Sensitivity factors

Upward Factors:

  • More-than-expected increase in revenue driven by a sharp ramp-up in sales from new capacity and improvement in operating margin leading to sizeable cash accrual over Rs 20 cr on a sustained basis
  • Sustenance of Financial Risk Profile and liquidity at healthy levels.

 

Downward Factors:

  • Lower-than-expected revenue and operating margin resulting in net cash accrual of less than Rs 10 crore
  • Weakening in the financial risk profile and liquidity due to stretch in working capital cycle or larger-than-expected capex
  • Significant delay in project implementation and/or ramp up in operations.

About the Company

AIL was incorporated in 1995 and promoted by Mr Deen Dayal Daga and his family members. The company is engaged in manufacturing and exporting a comprehensive range of plywood and laminates. It has manufacturing unit located in Rudrapur-Uttarakhand, and having a network of branches, distributors and dealers across India.

 

Archidpanel industries Pvt Ltd (AIPL was formed as a 100% subsidiary of AIL in February 2022 to undertake a greenfield project (Medium Density Fiberbard), which is expected to commence commercial operations from the Q4, of fiscal 2024.

Key Financial Indicators

As on/for the period ended March 31

Unit

2023

2022

Operating income

Rs.Crore

421.75

306.28

Reported profit after tax (PAT)

Rs.Crore

12.25

8.46

PAT margin

%

2.90

2.76

Adjusted debt/Adjusted networth

Times

0.80

0.59

Interest coverage

Times

4.17

4.31

 

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

SIN

Name of the
instrument

Date of
Allotment

Coupon
Rate (%)

Maturity
Date

Issue size
(Rs.Crore)

Complexity
Level

Rating assigned
with outlook

NA

Cash Credit

NA

NA

NA

80.5

NA

CRISIL BBB/Stable

 

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Archidply Industries Limited

Full

AIPL is the subsidiary of AIL. They will be operating in the same line of business and are under common management.

Archidpanel Industries Private Limited

Full

 

Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 80.5 CRISIL BBB/Stable 10-01-24 CRISIL BBB/Stable   -- 13-10-22 CRISIL BBB/Stable   -- --
Non-Fund Based Facilities ST   --   --   -- 13-10-22 CRISIL A3+   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 40 State Bank of India CRISIL BBB/Stable
Cash Credit 6 HDFC Bank Limited CRISIL BBB/Stable
Cash Credit 34.5 HDFC Bank Limited CRISIL BBB/Stable
Criteria Details
Links to related criteria
CRISILs Bank Loan Ratings
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Approach to Financial Ratios
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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