Rating Rationale
October 13, 2022 | Mumbai
Archidply Industries Limited
'CRISIL BBB/Stable/CRISIL A3+' assigned to Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.74.5 Crore
Long Term RatingCRISIL BBB/Stable (Assigned)
Short Term RatingCRISIL A3+ (Assigned)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has assigned its CRISIL BBB/Stable/CRISIL A3+ ratings to the bank facilities of Archidply Industries Limited (AIL).

 

The ratings 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 operation, susceptibility to volatility in raw material prices and intense competition and exposure to project related risks associated with the upcoming Medium Density Fiberboard 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 and detailed description

Strengths:

Established market presence supported by the extensive experience of the promoters: Supported by promoters 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 over 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 15% of revenue in fiscal 2022. 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 0.59 time and total outside liabilities to adjusted networth ratio at 1.16 time as on March 31, 2022. AIL 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 4.25 times and 0.23 time, respectively, for fiscal 2022.

-

AIL is undertaking Rs. 110 Crores greenfield project for setting up a Medium Density Fiberboard and allied products. The capex is expected to be debt-funded to the tune of 70%-75%. The debt funded capex and increasing working capital requirements meant the gearing should moderate in near term.

 

Weaknesses:

Moderate working capital intensity of operation: Gross current assets were in the range of 172-200 days over the three fiscals ended March 31, 2022. 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 110 crore, of which 70-75% will be funded through debt. The project is still in the initial stage and debt is being tied-up for the same. Further total project size is large in relation to AIL’s net worth. Tie-up of funds and timely implementation of project entail risks. Also, adequate and profitable ramp up in sales post commercialisation also remains a key monitorable.

Liquidity: Adequate

Expected annual cash accrual of Rs 15-20 crore should comfortably cover minimal debt obligations in fiscals 2023 and 2024 and support liquidity. Bank limit utilization is moderate at around 73 percent for the past twelve months ended August 2022. Current ratio was healthy at 1.44 times as on March 31, 2022. Low gearing and moderate networth support financial flexibility and provides the financial cushion available in case of any adverse conditions or downturn in the business

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 on a sustained basis
  • Sustenance of key financial metrics and interest coverage ratio of over 4.5 times on sustained basis

 

Downward Factors

  • Lower-than-expected revenue and operating margin resulting in net cash accrual of less than Rs 15 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

About the Company

AIL was iIncorporated 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 (AIPLwas 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 second half of fiscal 2024.

Key Financial Indicators

As on/for the period ended March 31

Unit

2022

2021

Operating income

Rs crore

306.28

230.84

Reported profit after tax (PAT)

Rs crore

8.47

2.26

PAT margin

%

2.77

0.98

Adjusted debt/Adjusted networth

Times

0.59

0.78

Interest coverage

Times

4.25

2.77

Status of non-cooperation with previous CRA

AIL has not cooperated with Brickwork Ratings India Pvt Ltd (BRICKWORKS), which has classified the company as non-cooperative through release dated September 23, 2022. The reason provided by BRICKWORKS is non-furnishing of information for monitoring of ratings.

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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)

Complexity

levels

Rating assigned with outlook

NA

Cash Credit

NA

NA

NA

70

NA

CRISIL BBB/Stable

NA

Letter of credit & Bank Guarantee

NA

NA

NA

4.5

NA

CRISIL A3+

Annexure - List of Entities Consolidated

Names of entities consolidated

Extent of consolidation

Rationale for consolidation

Archidply Industries Ltd

Full

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

Archidpanel Industries Pvt Ltd

Full

Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 70.0 CRISIL BBB/Stable   --   --   --   -- --
Non-Fund Based Facilities ST 4.5 CRISIL A3+   --   --   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 15 HDFC Bank Limited CRISIL BBB/Stable
Cash Credit 40 State Bank of India CRISIL BBB/Stable
Cash Credit 15 HDFC Bank Limited CRISIL BBB/Stable
Letter of credit & Bank Guarantee 4.5 HDFC Bank Limited CRISIL A3+

This Annexure has been updated on 13-Oct-2022 in line with the lender-wise facility details as on 13-Oct-2022 received from the rated entity.

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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