Rating Rationale
February 29, 2024 | Mumbai
Emmbi Industries Limited
Rating outlook revised to 'Stable'; Ratings reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.194.29 Crore
Long Term RatingCRISIL BBB+/Stable (Outlook revised from 'Positive'; Rating reaffirmed)
Short Term RatingCRISIL A2 (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 revised its outlook on the long-term bank facilities of Emmbi Industries Limited (EIL) to ‘Stable’ from ‘Positive’ while reaffirming the rating at ‘CRISIL BBB+’. The short-term rating has been reaffirmed at ‘CRISIL A2’.

 

The outlook revision reflects the moderation in the business risk profile. Slowdown in end-user segment affected operating performance in the nine months of fiscal 2024, leading to plateau revenue growth to Rs 318 crore from Rs 317 crore during the corresponding period in fiscal 2023; operating margin also remained plateau at 10.16% from 10.49%. The weakened performance was due to subdued demand, mainly from the US and European markets, and continued cost pressure. Debt protection metrics for this fiscal are also likely to moderate. Overall improvement in operating margin and debt protection metrics will remain key monitorable.

 

The rating continues to reflect extensive experience of promoters in flexible packaging industry, diversified business profile supported by a vast product profile presence across geographies and low customer concentration, and comfortable financial risk profile. These strengths are partially offset by working capital intensive nature of operations and exposure to competition leading to pressure on profit margins.

Key Rating Drivers & Detailed Description

Strengths:

  • Established market position: The EIL has been operating in the flexible packaging segment for more than three decades. It supplies different types of FIBC (Flexible Intermediate Bulk Container) bags and jumbo bags to reputed and diversified clients in India and abroad (Europe, the US, UK etc).

 

Customers include players in the fast-moving consumer goods, automobile pharmaceuticals, food and beverages, chemicals and construction businesses. The ability of the EIL to sustain revenue growth and profitability will be key monitorable. Company have also launched Reclaim30 which is the world’s first certified recycled FIBC bag.

 

 

Weaknesses:

  • Exposure to competition leading to pressure on margins: The flexible intermediate bulk container (FIBC) industry is fragmented because of low entry barriers, such as limited capital and technology requirements, small gestation period, and easy availability of raw materials. Operating margins have been range bounded between 10-12% over past four years ending fiscal 2023. However, with the expected improvement in sales performance, the margin is expected to improve.

 

  • Working capital intensive nature of operations: The company’s operations are working capital intensive, as indicated by gross current assets (GCAs) of around 188 days as on March 31, 2023, because of inventory of 114 days. However, the working capital cycle is supported by extended credit offered by suppliers. The inventory requirements are high due to batch manufacturing process followed by EIL for all its products to achieve maximum efficiency. Also, the company keeps raw material of around 30-45 days to support continuous production cycle. GCA days are expected to remain in the same range over the medium term.

 

  • Susceptibility to fluctuations in raw material prices: The operating margin is susceptible to fluctuations in the price of polymer, which depends on crude oil prices. Around 58% of revenue comes from export. The ability of the group to pass on any price’s variation remains a key monitorable.

Liquidity: Adequate

Bank limit utilisation is moderate at around 79 percent for the past twelve months ended Oct 2023. Cash accruals are expected to be over Rs 21 crore which is sufficient against term debt obligation of Rs 9-10 crore over the medium term. In addition, it will act as cushion to the liquidity of the company. Current ratios are healthy at 1.48 times on March 31, 2023. No major capex plans over medium term.

Outlook: Stable

CRISIL Ratings believes that EIL business risk profile will continue to benefit, over the medium term, from its longstanding relationships with suppliers & customers, and experience of the management.

Rating Sensitivity factors

Upward factors

  • Sustained healthy growth in revenue and improved operating margin above 13% resulting in higher accruals on sustained basis.
  • Sustenance of improved working capital cycle.
  • Sustained improvement capital structure and liquidity position.

 

Downward factors

  • Lower than expected growth in revenue or operating margins remaining below 9% resulting in lower-than-expected net cash accruals, impacting liquidity position especially net cash accruals to repayment obligation ratio.
  • Increase in working capital requirements, larger-than-expected, debt-funded capital expenditure (capex) or acquisition or dividend payout, weakening the financial risk profile.

About the Company

EIL was incorporated in 1994 by Mr. Makrand Appalwar and Mrs. Rinku Appalwar. EIL is engaged in manufacturing and sale of FIBC, woven sacks and various polymer-based packaging products like Container Liners, Protective Irrigation System, Pond Liners, Canal Liners, Flexi Tanks, Car Covers, Mulch Films, etc. EIL has 2 mother units which manufacture basic parts and 8 satellite units which manufacture the final product based on specific industry requirement.

Key Financial Indicators

As on / for the period ended March 31

 

2023

2022

Operating income

Rs crore

371.08

435.62

Reported profit after tax

Rs crore

9.55

20.53

PAT margins

%

2.23

4.37

Adjusted Debt/Adjusted Net worth

Times

1.01

1.04

Interest coverage

Times

2.39

3.35

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)

ISIN

Name of instrument

Date of

allotment

Coupon

rate (%)

Maturity

date

Issue size

(Rs cr)

Complexity

Levels

Rating assigned with outlook

NA

Cash Credit

NA

NA

NA

127

NA

CRISIL BBB+/Stable

NA

Term Loan

NA

NA

Dec-2028

30

NA

CRISIL BBB+/Stable

NA

Term Loan

NA

NA

Sept-2030

6.09

NA

CRISIL BBB+/Stable

NA

Letter of credit & Bank Guarantee

NA

NA

NA

31.2

NA

CRISIL A2

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 163.09 CRISIL BBB+/Stable   --   -- 07-12-22 CRISIL BBB+/Positive 30-10-21 CRISIL BBB+/Stable CRISIL BBB+/Stable
      --   --   --   -- 27-09-21 CRISIL BBB+/Stable --
Non-Fund Based Facilities ST 31.2 CRISIL A2   --   -- 07-12-22 CRISIL A2 30-10-21 CRISIL A2 CRISIL A2
      --   --   --   -- 27-09-21 CRISIL A2 --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 62 Axis Bank Limited CRISIL BBB+/Stable
Cash Credit 40 Saraswat Bank CRISIL BBB+/Stable
Cash Credit 15 DBS Bank India Limited CRISIL BBB+/Stable
Cash Credit 10 Standard Chartered Bank Limited CRISIL BBB+/Stable
Letter of credit & Bank Guarantee 7 Saraswat Bank CRISIL A2
Letter of credit & Bank Guarantee 5 DBS Bank India Limited CRISIL A2
Letter of credit & Bank Guarantee 5 Standard Chartered Bank Limited CRISIL A2
Letter of credit & Bank Guarantee 14.2 Axis Bank Limited CRISIL A2
Term Loan 30 Bajaj Finance Limited CRISIL BBB+/Stable
Term Loan 6.09 Saraswat Bank CRISIL BBB+/Stable
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Understanding CRISILs Ratings and Rating Scales
CRISILs Criteria for rating short term debt

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