Rating Rationale
July 31, 2019 | Mumbai
Emmbi Industries Limited
'CRISIL BBB+/Stable/CRISIL A2' assigned to bank debt
 
Rating Action
Total Bank Loan Facilities Rated Rs.174.61 Crore
Long Term Rating CRISIL BBB+/Stable (Assigned)
Short Term Rating CRISIL A2 (Assigned)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has assigned its 'CRISIL BBB+/Stable/CRISIL A2' ratings to the bank facilities of Emmbi Industries Limited (EIL).
 
The rating reflects extensive experience of promoters in flexible packaging industry, diversified business profile supported by a vast product profile presence across geographies, continuously improving operating profitability and healthy financial risk profile. These strengths are partially offset by working capital intensive nature of operations, moderate but improving scale of operations and susceptibility of operating profitability to change in raw material prices and forex rates.

Key Rating Drivers & Detailed Description
Strengths
* Extensive experience of promoters in flexible packaging industry

EIL was incorporated by Mr. Makrand Appalwar and Mrs. Rinku Appalwar, who have extensive experience of around 25 years in the flexible packaging industry. The promoters' business acumen and healthy customer relations has helped EIL in establishing its presence across various geographies and with a diversified product profile. CRISIL believes that with promoter's extensive experience will continue to support business risk profile of EIL over the medium term.

* Diversified business profile supported by a vast product profile, presence across various geographies and low customer concentration
EIL has a diversified product profile as is reflected by portfolio of more than 40 products with continuous addition
being supported by its R&D division. EIL markets its products in both B2B and B2C segments. Till FY19, B2B business contributed around 84.4% while remaining 15.6% was contributed by B2C business. EIL has continuously been growing its B2C business over the last 3 years ending March 2019 especially by focusing on selling products under its water conservation segment.

EIL sells these products in more than 56 countries with domestic sales contributing around 53% of total revenue of EIL till FY19 and remaining 47% being contributed from export market. With EIL's track record of maintaining such revenue bifurcation, CRISIL believes that EIL will continue to maintain geographical diversification over the medium term as well.

Further, EIL's top three customers only contribute around 20% of total revenue and none of the other customers contribute more than 3% to its total revenue, leading to significant customer diversification.

Thus CRISIL believes that EIL's business profile will continue to remain supported by a well-diversified product, geography and customer profile over the medium term.

* Continuously improving operating profitability
EIL's operating profitability has continuously been improving over the last 3 years ending March 2019. This has been majorly due to continuously increasing contribution from the sales of pond liner product under the water conservation segment in last 3 years. CRISIL believes that with a different brand and team dedicated towards increase of EIL's pond liner business, EIL's operating margin is expected to continue to improve over the medium term.

* Healthy financial risk profile
EIL's financial risk profile is healthy as is reflected by healthy networth of around Rs 106 crore as on March 31, 2019. Despite healthy networth, significant debt funded capital expenditure incurred in fiscal 2017 and 2018 and continuous dependence on external debt to fund incremental working capital requirements, EIL's gearing has remained around 1 times and is expected to remain around 1 times going ahead as well.

Debt protection metrics are adequate as reflected by interest coverage of 3.7 times and net cash accrual to adjusted debt of 0.25 times for fiscal 2019. CRISIL believes that debt protection metrics are expected to remain adequate over the medium term.

Weaknesses
* Working capital intensive nature of operations

EIL's operations are working capital intensive in nature as reflected by gross current assets (GCA) estimated to be around 170-180 days as on March 31, 2019. The intensity is majorly due to high inventory requirements as reflected by inventory estimated to be 107 days as on March 31, 2019. The inventory requirements are high due to batch manufacturing process followed by EIL for all its products to achieve maximum efficiency. This process leads to increase in production cycle which is expected to last around 50 days. Further, EIL keeps raw material inventory also of around 45 days to support any incoming order. Thus, CRISIL believes that inventory requirements are continue to remain high and consequently GCA days are also expected to remain high over the medium term.

* Moderate but improving scale of operations
EIL is estimated to have achieved revenue of Rs 289 crore for fiscal 2019. EIL has continuously been growing its scale at a CAGR of 12% for the last 3 periods ending March, 2019. CRISIL believes that despite continuous growth, scale continues to remain modest and any significant improvement in scale of operations will remain a key monitorable over the medium term.

* Susceptibility of operating margin to forex fluctuation
EIL is a net exporter as it annually achieves over 40% of its revenues from exports and its imports are minimal. But as EIL only partially hedges its open exposure, hence the operating profitability is exposed to any major forex fluctuation.
Liquidity

Liquidity is adequate as is reflected by net cash accrual generation of around Rs 24 crore in fiscal 2019 vis-à-vis repayments of around Rs 4 crore. Going ahead as well CRISIL expects EIL to generate healthy cash accruals vis-à-vis its repayment obligations.
 
EIL uses its remaining cash accruals for capex requirements and incremental working capital requirements. However, due to operations being working capital intensive there is significant dependence on external debt to fund its working capital requirements which is reflected in high average bank limit utilization of 88% for the last 12 months ending June, 2019 with peak level utilization of 92% in January, 2019. With enhancement already sanctioned in fund based limits, CRISIL believes that timely availability of limits and its utilization levels will remain key monitorable going ahead.

Outlook: Stable

EIL's business risk profile is expected to continue to benefit from extensive experience of its promoters over the medium term. The outlook may be revised to 'Positive' in case of significant improvement in scale of operations while maintaining profitability and working capital cycle improves cash accrual generation leading to improvement in liquidity profile of EIL. Conversely, the outlook may be revised to 'Negative' in case of decline in scale of operations or deterioration in working capital cycle leads to weakening of financial risk profile, especially liquidity.

About the Company

EIL was incorporated in 1994 by Mr. Markrand Appalwar and Mrs. Rinku Appalwar. EIL is into manufacturing and sale of flexible intermediate bulk container (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 in total 6 manufacturing units, out of which 2 are mother units which manufactures basic parts and remaining 4 are satellite units which manufacture the final product based on specific industry requirement.

Key Financial Indicators
As on / for the period ended March 31  Units 2019 2018
Operating income Rs crore 289.00 254.45
Reported profit after tax (PAT) Rs crore 17.79 15.26
PAT margins % 6.16 6.00
Adjusted Debt/Adjusted Net worth Times 0.98 1.06
Interest coverage Times 3.74 3.71

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)
ISIN Name of instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size
(Rs Cr)
Rating Assigned
with Outlook
NA Cash Credit NA NA NA  97 CRISIL BBB+/Stable 
NA Letter of Credit NA NA NA  23 CRISIL A2
NA Bank Guarantee NA NA NA  8 CRISIL A2
NA Corporate Loan NA NA Jan-2025 24.24 CRISIL BBB+/Stable 
NA Term Loan NA NA Feb-2025 2.82 CRISIL BBB+/Stable 
NA Term Loan NA NA Aug-2026 5 CRISIL BBB+/Stable 
NA Term Loan NA NA Jan-2024 3.53 CRISIL BBB+/Stable 
NA Term Loan NA NA Feb-2025 4.76 CRISIL BBB+/Stable 
NA Term Loan NA NA May-2023 1 CRISIL BBB+/Stable 
NA Term Loan NA NA Feb-2023 1.58 CRISIL BBB+/Stable 
NA Term Loan NA NA Feb-2024 3.68 CRISIL BBB+/Stable 
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  143.61  CRISIL BBB+/Stable    --    --    --    --  -- 
Non Fund-based Bank Facilities  LT/ST  31.00  CRISIL A2    --    --    --    --  -- 
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Term Loan 22.37 CRISIL BBB+/Stable -- 0 --
Letter of Credit 23 CRISIL A2 -- 0 --
Corporate Loan 24.24 CRISIL BBB+/Stable -- 0 --
Bank Guarantee 8 CRISIL A2 -- 0 --
Cash Credit 97 CRISIL BBB+/Stable -- 0 --
Total 174.61 -- Total 0 --
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings
The Rating Process
Understanding CRISILs Ratings and Rating Scales

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