| Dev Priya Industries Private Limited | ||||
| Rating outlook revised to 'Negative'; Rating reaffirmed | ||||
| Rating Action | ||||
| ||||
| 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 revised its outlook on the long-term bank facilities of Dev Priya Industries Pvt Ltd (DPIPL; part of the Dev Priya group) to 'Negative' from 'Stable' while reaffirming the rating at 'CRISIL A-'.
The revision in the outlook reflects the decline in the operating margin of the group to 4.03% in fiscal 2022 from 8.2% in fiscal 2021. The operating margin is expected at a subdued 5-6% owing to increased prices of wastepaper and the group’s ability to pass on the increase with a lag of 2-3 months. Sustenance of the operating margin at 7-8% driven by the group’s ability to pass on the increased raw material prices and refabrication of plant and machinery, leading to improved operating efficiency, is a key monitorable. Consolidated revenue increased by around 22% in fiscal 2022 supported by improvement in realisations by 37%. The group’s revenue is expected above Rs 800 crore over the medium term aided by growth in volumes and better realisations supported by healthy demand and established market position in north India. The ratings continue to be supported by the group’s healthy financial risk profile and liquidity.
The rating continues to reflect the extensive experience of the promoters in the duplex board and kraft paper industry, and the company’s healthy financial risk profile. These strengths are partially offset by susceptibility to fluctuations in wastepaper prices and exposure to intense competition. |
Analytical approach CRISIL Ratings has combined the business and financial risk profiles of DPIPL and its group concern Dev Priya Papers Pvt Ltd (DPPPL), together referred to as the Dev Priya group, as these entities have significant managerial, operational and financial linkages.
Please refer Annexure - List of a Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key rating drivers and detailed description Strengths: Extensive experience of the promoters, and established distribution network The promoters’ experience of over two decades in the industrial paper industry, strong understanding of local market dynamics and healthy relationships with suppliers and customers will continue to support the business. Revenue growth has been steady, supported by successful capacity enhancement and growing distribution network. Leveraging on the technical expertise of the promoters, operations at enhanced capacities have been stabilised.
Healthy financial risk profile Networth was strong at Rs 186.77 crore as on March 31, 2022, and is expected over Rs 200 crore as on March 31, 2023, supported by steady accretion to reserve and no dividend payout from the profit. Also, gearing was 0.37 time as on March 31, 2022, and is expected to improve marginally to 0.34 time as on March 31, 2023. Because of decline in the operating profitability, debt protection metrics were impacted but remained comfortable, as reflected in interest coverage and net cash accrual to adjusted debt ratios of 4.94 times and 0.15 time, respectively, in fiscal 2022. In the absence of major debt-funded capital expenditure (capex), the financial risk profile will remain moderate over the medium term.
Efficient working capital management The working capital cycle will be managed efficiently over the medium term. Gross current assets (GCAs) were at 210 days as on March 31, 2022, and are expected around 107 days as on March 31, 2023. The group’s strong distribution network ensures 95% of the sales are closed through dealers. It sources 80% of its raw material (wastepaper) locally and the remaining is imported from the UK and the US. Inventory is order backed and hence comfortable at 30-40 days. Longstanding relationships with customers and suppliers helped keep receivables and payables at 147 days and 23 days, respectively, as on March 31, 2022.
Weaknesses: Susceptibility to volatility in raw material prices The operating margin declined to 4.03% in fiscal 2022 from 8.2% in fiscal 2021 driven by increase in raw material and fuel prices, the latter being particularly because of the ban of pet coke by the National Green Tribunal. The operating margin is expected at 6-7% over the medium term supported by price hikes taken by the company in the first half of fiscal 2023 and improved operating efficiency. The ban on pet coke led to higher dependence on expensive fuels such as coal, paddy and biomass to feed the in-house power plant. Increase in the cost of duplex paper over that of wastepaper is likely to be gradual, rendering profitability susceptible to variations in paper prices. Further decline in profitability may weaken the group’s credit risk profile and will be a key monitorable.
Exposure to intense competition Intense competition in the industrial paper segment (which accounts for the bulk of the paper industry) persists owing to low entry barriers and unfavourable government policies. The lead time to set up a unit is small at 12-18 months. Overcapacity and limited product differentiation add to the competitive pressure and will continue to constrain scalability, pricing power and profitability of players such as the Dev Priya group. |
Liquidity: Strong Cash accrual, expected above Rs 35 crore per annum, will comfortably cover yearly debt obligation of Rs 8-10 crore over the medium term, and the surplus will aid the working capital cycle. Average bank limit utilisation was 67% in the 12 months through September 2022. The group enhanced their working capital limit to Rs 70 crore in June 2022 from Rs 52crore. Current ratio was healthy at 1.95 times as on March 31, 2022, and is expected at 2.2-2.8 times over the medium term. The promoters will provide need-based support by way of unsecured loans. |
Outlook: Negative DPIPL will remain constrained by the decline in operating margin and lower cash accrual. |
Rating sensitivity factors Upward factors
Downward factors
|
About the group DPIPL (formerly, Dev Pulp Pvt Ltd) was incorporated in February 1990. The company manufactures virgin kraft paper used in packaging of televisions, refrigerators, medicines, food and breviary products. It commenced production in 1992 with installed capacity of 12,000 metric tonne per annum (MTPA). It has gradually enhanced its capacity to 200,000 MTPA. It markets its kraft paper under the brand Dev.
Incorporated in 1987 in Meerut, Uttar Pradesh, DPPPL manufactures duplex paper. It commenced operations in 1988. The company owns a 12-MW power plant, wherein the output is partly used for captive consumption and partly for consumption by DPPPL. Operations are managed by Mr Suresh Chand Gupta and Mr Anshul Gupta. |
Key financial indicators
|
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of instrument(s)
|
Annexure – List of entities consolidated
|
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
* - Issuer did not cooperate; based on best-available information
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||
|
This Annexure has been updated on 30-Nov-2022 in line with the lender-wise facility details as on 28-Jan-2022 received from the rated entity.
Criteria Details
|