Detailed Rationale

Crisil Ratings has upgraded its rating on bank facilities of Astron Zircon Pvt Ltd (AZPL; part of the Astron group) to ‘Crisil BBB+/Stable/Crisil A2’ from ‘Crisil BBB/Positive/Crisil A3+’.

 

The rating upgrade factors in the healthy business risk profile reflected in the continuous healthy revenue growth at a compound annual growth rate (CAGR) of 21% over the last three years, to Rs 1,362.4 crore in fiscal 2024. The topline is further expected to grow moderately at 5-10% over the medium term driven by addition of manufacturing capacities in the glass division. The operating margin for the Astron group has been sustained at a healthy level, above 11%, in the last three fiscals through 2024 and is expected to remain healthy at 11-13% over the medium term. The financial risk profile will remain comfortable backed by healthy accretion to reserve, despite debt-funded capital expenditure (capex) planned over the medium term. Liquidity will remain adequate driven by healthy cash accrual against modest debt obligation, moderate utilisation of bank limit and unsecured loans from the promoters.

 

The ratings reflect the established market position of the Astron group, extensive experience of its promoters in the ceramic raw material industry, comfortable capital structure and strategic location of plants, leading to steady availability of raw materials and proximity to clients. These strengths are partially offset by large working capital requirement, volatile operating profitability and exposure to stabilisation risk.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of Sunrise Silichem Industries Pvt Ltd (SSIPL), Astron International Pvt Ltd, AZPL, Axolo Ceramic Pvt Ltd, Comfia Industries Pvt Ltd (CIPL), Quantas Glass and Ceramic Pvt Ltd, Shree Shakti Ceramics - Mehsana, Shreenath Ceramics Industries, Sunfrio Chemicals Pvt Ltd (SCPL), Spire Cera-Frit Pvt Ltd, Sunrise Glass Industries Pvt Ltd (SGIPL), Superking Glass and Ceramic Pvt Ltd, Welsuit Glass and Ceramics Pvt Ltd and Zirconia Cera Tech Pvt Ltd. All these entities, collectively referred to as the Astron group, are engaged in the same business, under a common management, with significant operational linkages.

 

Also, Crisil Ratings has treated unsecured loan of Rs 197.3 crore from the promoters as 75% equity and 25% debt, as the loan is subordinate to bank debt and is expected to remain in the business over the long term.

 

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 position and extensive experience of the promoters:

Presence of more than three decades in the ceramics industry has enabled the Astron group to become a large player in Gujarat. The group has established various entities resulting in a value chain for ceramic raw material (such as zircon products, frit and zinc oxide) and container glass bottles. Diversified product profile and addition of capacity for liquid glass bottles have led to a healthy turnover. Also, the promoters have established relationships with customers and suppliers, which will continue to support the business. The management of the group is in the process of consolidating three companies of glass division namely SSIPL, SGIPL and CIPL and has already filed with the National Company Law Tribunal (NCLT), awaiting order for merger and hence, the same will remain monitorable.

 

Comfortable capital structure backed by promoter funding:

The gearing and total outside liabilities to tangible networth (TOLTNW) ratio are estimated to have been comfortable at 0.79 time and 0.99 time, respectively, as on March 31, 2024. Need-based funding support from the promoters in the form of unsecured loan (Rs 197.3 crore as on March 31, 2024) will continue to aid operations. Despite the debt-funded capex, the gearing and TOLTNW ratio are expected to be 0.65 time and 0.82 time, respectively, as on March 31, 2025.

 

Advantageous location of plants

The manufacturing facilities are in Himmatnagar, Kadi, Ankleshwar, Surat and Vadodara in Gujarat. The Hazira, Kandla and Mundra ports are in proximity, which helps reduce transportation cost. Availability of labour from nearby regions aids the operating performance. The group manufactures ceramic frit, which is a key raw material for ceramic tiles. As Morbi and Himmatnagar are hubs for ceramic tile manufacturing, this further reduces transportation cost and provides a ready market.

 

Weaknesses:

Large working capital requirement

Gross current assets were sizeable at 190-220 days over the three fiscals through 2024 driven by moderate inventory of 50-70 days and large receivables of 90-130 days, in line with the ceramic industry cycle. The working capital cycle is supported by payables and short-term loans. Further stretch in the working capital cycle or significant increase in short-term borrowing will remain monitorable over the medium term.

 

Volatile operating profitability

Even after strong integration, the profitability has remained volatile. Though the operating profitability has remained comfortable over the past three years, it has been volatile division-wise. This is because the profitability of ceramic products has moderated in fiscals 2024 and 2025 due to moderation in realisation. However, this has been offset by improved margin of the glass division, which has stabilised the overall operating margin. Sustenance of the improved profitability and its further enhancement driven by increased proportion of the glass division having comparatively better margin and the capex for additional solar power generation capacity for captive consumption will be monitorable over the medium term.

 

Exposure to stabilisation risk

The group completed capex in fiscal 2023 (for manufacturing dye and dye intermediates) at SCPL at capital outlay of around Rs 75 crore. The unit became operational in May 2022. However, SCPL was not able to scale up operations in fiscal 2024 because of higher manufacturing cost than imported finished product. The company has scaled up its operations in fiscal 2025, however, further growth and sustenance, with healthy profitability ensuring comfortable financial health, and the company’s ability to meet its debt obligations, will remain monitorable.

 

Furthermore, the glass division is planning to undertake capex to increase glass bottle manufacturing capacity by 200 tonne per day, with revised capital outlay of Rs 160 crore while entering into coloured glass bottle segment catering mainly to beer and wine segment. This is expected to operationalise with a revised timeline in July 2025 due to change in technicalities involved. Furthermore, a 20-MW captive hybrid power generation capacity, with capital outlay of Rs 80 crore, is expected to be completed in fiscal 2026 because of change in capex plan. Ceramic Division will also be undertaking capex of Rs 28 crore for forward integration in compound business catering to upcoming ceramic GVT slab market. Timely stabilisation of the capex and steady offtake remain monitorable. Additional debt-funded capex will also be monitorable.

Liquidity: Adequate

Bank limit utilisation was moderate at 52.65% on average for the 12 months through December 2024. Annual cash accrual is expected to be Rs 95-125 crore against yearly term debt obligation of Rs 35-70 crore over the medium term, and will cushion liquidity.

 

The current ratio was healthy at 1.88 times as on March 31, 2024. The promoters are likely to extend equity and unsecured loans to meet the working capital requirement and debt obligations.

Outlook Stable

The Astron group will continue to benefit from its established market position and the extensive experience of its promoters.

Rating sensitivity factors

Upward factors

• Growth in revenue and stable operating margin above 12% leading to accrual above Rs 130 crore
• Consolidation and integration of companies with a more structured approach
• Efficient working capital management
• Sustenance of comfortable capital structure and timely start of operations for planned capacities

 

Downward factors

• Decline in revenue or operating margin (below 9%) resulting in low cash accrual
• Significant capital withdrawal or debt-funded capex weakening the capital structure
• Further stretch in the working capital cycle weakening liquidity

About the Group

The Astron group is promoted by Himmatnagar-based Mr Upesh Thakkar, Mr. Gaurav Thakkar and their family members. It commenced operations by setting up a manufacturing facility for Hindustan Cera (now merged with Astron Zircon Pvt Ltd) in 1993. The group manufactures ceramic frit (raw material used to make ceramic tiles) and liquid glass bottles through various entities.

Any other information: Not applicable