| Ebullient Packaging Private Limited | ||||||
| Ratings upgraded to '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 upgraded its ratings on the bank facilities of Ebullient Packaging Private Limited (EPPL; part of the Ebullient group) to ‘CRISIL BBB/Stable/CRISIL A3+’ from 'CRISIL BBB-/Positive/CRISIL A3'.
The upgrade reflects sustained improvement in the group’s operating performance, which is expected to be maintained over the near term. Revenue increased to Rs 187.1 crore in fiscal 2021 from Rs 84.15 crore in fiscal 2017, with moderate operating margins. This led to higher cash accruals and improvement in overall financial risk profile. With planned capacity expansion and steady demand, revenues will continue to grow and support the group’s credit profile.
The ratings continue to reflect the extensive experience of the promoters in the packaging industry, a diversified product portfolio, increasing scale of operations and an above-average financial risk profile. These strengths are partially offset by exposure to intense competition, large working capital requirement, and susceptibility to fluctuations in raw material prices and foreign exchange (forex) rates. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of EPPL and Unovel Industries Pvt Ltd (UIPL). Both the companies, collectively referred to as the Ebullient group, operate in similar businesses, have a common management team, and have significant operational linkages.
Unsecured loans of Rs 5.9 crore and preference shares of Rs 4 crore, as on March 31, 2020, both from promoters, have been treated as neither debt nor equity as they are expected to remain in the business over the medium 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:
The promoters' experience of 25 years in the packaging industry has helped develop a strong understanding of market dynamics and establish a healthy relationship with customers across geographies. The group has a diversified customer base with over 150 customers catering to more than 20 industries. Steady capacity addition and repeat orders have led to steady growth in revenue to Rs 187.1 crore in fiscal 2021 from Rs 84.15 crore in fiscal 2017.
The group manufactures various products such as flexible intermediate bulk container (FIBC) bags, high density polyethylene (HDPE) drums and barrels, mild steel (MS) drums and barrels, fibre drums, and woven small bags; while also reconditioning old barrels and drums. The diversified product portfolio reduce the risk of dependence on any single product and industry.
Networth is adequate at Rs 46.55 crore, with moderate gearing and total outside liabilities to adjusted networth ratio, at 1.07 times and 1.79 times, respectively, as on March 31, 2021. The capital structure is expected to remain at a similar level over the medium term, despite planned debt funded capital expenditure, backed by steady accretion to reserves and repayment of debt. Debt protection metrics are adequate, as indicated by interest coverage and net cash accrual to total debt ratios of 4.19 times and 0.25 time, respectively, for fiscal 2021, and are likely to remain at similar levels in fiscal 2022.
Weaknesses:
The FIBC and drums manufacturing business is fragmented due to low entry barriers in the industry and limited product differentiation leading to significant competition among players in the industry. As a result, individual players have modest bargaining power, which restricts their ability to pass on increases in input cost entirely to customers or retain any benefit of lower input cost. CRISIL Ratings believes that the groups pricing flexibility will remain restricted by competition.
The price of the major raw material, plastic granules, is linked to the price of crude oil and is hence volatile. Any sharp increase or decrease in raw material price could impact profitability, as passing on the increase to customers is restricted by intense competition. The operating margin was hence between 8-10% in the past three fiscals through 2021.
The working capital-intensive operations are reflected in gross current assets of 149 days as on March 31, 2021. The inventory ranged from 42 to 51 days, and receivables ranged from 75-90 days, in past three fiscals ended March 2021. The group extends credit of 60-90 days to domestic customers. This, along with increase in revenues, led to increase in incremental working capital requirement. The working capital is partly supported by credit from suppliers (payables at 71 days as on March 31, 2021). |
Liquidity: Adequate Ebullient Group has adequate liquidity driven by expected cash accruals of Rs 12-15 crores annually in fiscal 2022 and fiscal 2023, against repayment obligations of around Rs.5 crores and Rs.8 Crores, respectively. Ebullient Group's fund based limits have been utilized to the tune of 11% on an average over the 12 months ended March 2021. Cash and cash equivalents of Rs.1.7 crores as on March 31, 2021. Further, liquidity is supported by unsecured loans from promoters. CRISIL Ratings expects internal accruals, cash & cash equivalents and unutilized bank lines to be sufficient to meet its repayment obligations and incremental working capital requirements. The group had availed moratorium as per RBI Guidelines for the months of March 2020 to May 2020. |
Outlook: Stable CRISIL believes the Ebullient group will benefit from the extensive industry experience of its management, established relationships with customers, and diversified product basket.
Rating sensitivity factors Upward factors
Downward factors
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About the Group EPPL, incorporated in 2003, is owned and managed by Mr Uday Ramniklal Mehta, Mr Shailesh Ramniklal Mehta and Mr Pramod Parmar. The company manufactures industrial bulk packaging such as FIBC, MS drums and barrels, fibre drums, HDPE drums and barrels, and polypropylene bags. It has five manufacturing facilities: three in Silvassa, one at Bhavnagar (Gujarat), and one at Bhiwandi (Maharashtra).
UIPL, incorporated in 2016, is a 50% subsidiary of EPPL, with the remaining stake being owned by Mr Udit Mehta. The company manufactures food-grade FIBC at its facility in Silvassa. |
Key Financial Indicators: Consolidated
*Provisional |
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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Criteria Details
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