Rating Rationale
December 21, 2017 | Mumbai
Everest Industries Limited
Rating outlook revised to 'Stable'; ratings reaffirmed
Rating Action
Total Bank Loan Facilities Rated Rs.575.5 Crore
Long Term Rating CRISIL A+/Stable (Outlook revised from 'Negative' and rating reaffirmed)
Short Term Rating CRISIL A1 (Reaffirmed)
Rs.30 Crore Commercial Paper Programme CRISIL A1 (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has revised its rating outlook on the long-term bank facilities of Everest Industries Limited (Everest) to 'Stable' from 'Negative' while reaffirming the rating at 'CRISIL A+'; the rating on the short-term facilities and commercial paper programme has been reaffirmed at 'CRISIL A1'.

The outlook revision reflects CRISIL's expectation of an improvement in the business risk profile over the medium term, led by steady revenue growth and sustenance of operating profitability at 7-8%. Revenue growth is recovering, led by steady rural demand for asbestos cement (AC) roofing products, post stabilisation of the goods and services tax (GST) scheme and steady raw material prices. Operating profitability has been supported by better utilisation rates in the six months through September 2017, and is expected to be sustained over the medium term.

The revision also factors in a stronger financial risk profile, as reflected in the improvement in the capital structure and debt protection metrics. Absence of any large, debt-funded capital expenditure (capex) and prudent working capital management are expected to keep debt moderate. This, coupled with better profitability, will lead to improved debt protection metrics over the medium term.

During the first half of fiscal 2018, the operating margin improved to 7.1% from 3.3% for the corresponding period of the previous fiscal, driven by cost efficiencies and a pass-through clause with customers in the steel building (pre-engineered building or PEB) segment. However, revenue growth remained flat in the AC roofing segment, while in the PEB segment there was a 11.9% year-on-year growth. The business performance is likely to benefit from improving rural demand for AC roofing products and reduction in taxes, during the remainder of fiscal 2018. This will support operating profitability, notwithstanding higher input prices in the PEB segment. 

The gearing improved to 0.47 time as on September 30, 2017, from 0.57 time as on March 31, 2017, due to part prepayment of  long-term debt and better working capital management. The gearing is expected to improve further over the medium term, aided by healthy cash accrual of Rs 30-35 crore per fiscal and progressive debt repayment. Debt protection metrics should remain healthy, while liquidity is adequate and supported by better cash generation and average bank limit utilisation of around 23% over the 11 months through October 2017.

The ratings continue to reflect an established position in the domestic AC roofing market, diversified revenue mix, and an adequate financial risk profile. These strengths are partially offset by exposure to intense competition in the AC roofing and PEB businesses in India, and volatility in the operating margin. Besides, the AC roofing business is subject to regulatory risks pertaining to the manufacture/use of asbestos in India as well as in key asbestos-producing nations (as asbestos is fully imported).

Key Rating Drivers & Detailed Description
* Established position in the domestic AC roofing market: The company has a presence of 75 years with a trusted and preferred brand, especially in the rural market. It is among the largest manufacturers of AC roofing in India. A strong distribution network of about 6000 retail outlets, coupled with strategically located plants across the country, helps increase market penetration and compete effectively with regional players. The business risk profile will benefit from the established market position over the medium term, given the favourable demand prospects for AC roofing in India.

* Diversified revenue mix
With healthy growth in the PEB business, revenue dependence on the AC roofing business has reduced; the share of asbestos-related products in the total revenue has come down to under 60% from 73% in fiscal 2008. However, AC roofing is likely to remain the mainstay of the business over the medium term.

* Adequate financial risk profile
The gearing was comfortable at 0.47 time as on September 30, 2017. That's because of prepayment of debt, moderate capex, and prudent working capital management. The key credit metrics should improve gradually, supported by a better business performance, continued modest capex, and control over working capital. Additionally, over fiscals 2016 and 2017, operating cash flows have improved, resulting in a reduction in total borrowing.

* Exposure to intense competition in the AC-roofing market resulting in need for capital expenditure (capex) at regular intervals and volatility in operating margin
The domestic market for AC roofing is fragmented, with 18 players in the fray. Players also face stiff competition from manufacturers of galvanised iron roofing sheets, as these are easily transportable and accessible. Players also have limited ability to pass on input price increases to end users because of intense competition.

The main raw materials for AC roofing and PEBs, asbestos fibre and steel, respectively, account for over 50% of the raw material cost. Profitability in the recent past was also impacted by a decline in exports due to reduced demand for board panels in the Middle East region following a decline in oil prices. Hence, any significant increase in input prices adversely impacts the operating margin. Input prices movements in the PEB business are passed on only when permitted by the contracts.

* Exposure to regulations related to Regulatory threat of ban on the manufacture or use of asbestos
Around 60% of revenue is from the sale of AC roofing. This exposes the company to the risk of a ban on use of asbestos in India or on mining of asbestos in Russia, Canada, Kazakhstan, or Brazil (which are the largest exporters of this mineral). In India, only white asbestos (known as crysotile) fibre is used, as blue and brown asbestos have been banned. Furthermore, all forms of asbestos mining are banned in the country.
Outlook: Stable

CRISIL believes the recovery in the business performance will be sustained over the medium term, supported by improving rural demand and better operating efficiency.  The financial risk profile is expected to remain adequate, because of steady cash generation, prudent working capital management, and moderate capex.

Upside scenario
* Sustained revenue growth of over 7-9% and improvement in operating profitability to over 8%
* Maintenance of a comfortable capital structure, supported by prudent capex and working capital management

Downside scenario
* Weakening of the business performance, leading to lower-than-expected cash accrual
* A significant increase in debt due to higher capex or a stretched working capital cycle, leading to a sharp increase in the gearing.

About the Company

Incorporated in 1934, Everest is a pioneer in the manufacture of AC roofing in India. It is one of India's largest manufacturers and sellers of AC roofing, and has diversified into non-asbestos building products (such as roofing sheets, flooring, cladding, and other boards) and the design, manufacture, and erection of PEBs; the company has eight plants across India.

Revenue from AC roofing and non-asbestos building products currently accounts for around 60% of revenue, while the PEB segment accounts for the balance. The company has an installed production capacity of 0.81 million tonne per annum (tpa) for conventional building products (including AC roofing) and 72,000 tpa for PEBs. In December 2014, Everest commissioned a 30,000-tpa capacity for its PEB business in Dahej, Gujarat. The promoters held 48.7% stake as on September 30, 2017, followed by mutual funds with 4.8% and foreign portfolio investors with 1.9%; the balance was with the public and others.

For the six months ended September 30, 2017, net profit was Rs 21 crore on net sales of Rs 638 crore, against a net profit of Rs 4 crore on net sales of Rs 617 crore for the corresponding period of the previous fiscal.

Key Financial Indicators
 As on March 31 Unit 2017 2016
Revenue Rs .Cr 1156 1299
Profit After Tax Rs. Cr 1 35
PAT Margins % 0.1 2.7
Adjusted debt/Adjusted Net worth Times 0.57 0.74
Interest Coverage Times 2.13 4.86

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 190 CRISIL A+/Stable
NA Letter of Credit* NA NA NA 300 CRISIL A1
NA Long Term Loan NA NA 18-Sept-22 38.4 CRISIL A+/Stable
NA Commercial Paper Programme NA NA 7-365 days 30 CRISIL A1
NA Proposed Long Term Bank Loan Facility NA NA NA 47.1 CRISIL A+/Stable
*Fully Interchangeable with bank guarantee
Annexure - Rating History for last 3 Years
  Current 2017 (History) 2016  2015  2014  Start of 2014
Instrument Type Quantum Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  30  CRISIL A1  06-09-17  CRISIL A1    --    --    --  -- 
Fund-based Bank Facilities  LT/ST  275.5  CRISIL A+/Stable  29-04-17  CRISIL A+/Negative    No Rating Change  17-04-15  CRISIL A+/Stable  26-02-14  CRISIL A+/Negative  CRISIL A+/Stable 
Non Fund-based Bank Facilities  LT/ST  300  CRISIL A1    No Rating Change    No Rating Change    No Rating Change    No Rating Change  CRISIL A1 
Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit 190 CRISIL A+/Stable Cash Credit 190 CRISIL A+/Negative
Letter of Credit* 300 CRISIL A1 Letter of Credit* 300 CRISIL A1
Long Term Loan 38.4 CRISIL A+/Stable Long Term Loan 54.8 CRISIL A+/Negative
Proposed Long Term Bank Loan Facility 47.1 CRISIL A+/Stable Proposed Long Term Bank Loan Facility 8.2 CRISIL A+/Negative
-- 0 -- Working Capital Term Loan 22.5 CRISIL A+/Negative
Total 575.5 -- Total 575.5 --
*Fully Interchangeable with bank guarantee
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Construction Industry
CRISILs Criteria for rating short term debt

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