Rating Rationale
September 12, 2018 | Mumbai
Everest Industries Limited
Rating Action
Total Bank Loan Facilities Rated Rs.575.5 Crore
Long Term Rating CRISIL A+/Stable
Short Term Rating CRISIL A1+
Rs.30 Crore Commercial Paper Programme CRISIL A1+
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL ratings on bank facilities of Everest Industries Ltd (Everest) continue to reflect Everest's established position in the domestic AC roofing market, diversified revenue mix, and healthy 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 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).
On August 1, 2018, CRISIL had upgraded its rating on the short-term bank facilities and commercial paper programme of Everest to 'CRISIL A1+' from 'CRISIL A1', and reaffirmed the long-term rating at 'CRISIL A+/Stable'.
The upgrade reflects the company's healthy and improving cash flow of over Rs 100 crore per annum against minimal debt obligation over the medium term. Liquidity also benefits from prudent capital expenditure (capex) and working capital management, as well as largely unutilised bank limit of Rs 175 crore as on June 30, 2018.
Revenue grew 8.5% year-on-year in fiscal 2018, supported by 9.9% growth in the building products segment and around 6% growth in its pre-engineered building (PEB) segment. Business performance is likely to benefit over the medium term from improving rural demand for AC roofing products and lower price differential vis-à-vis the unorganised sector post introduction of GST. Furthermore, prices of competing roofing products such as steel sheets and aluminium sheets have increased sharply, rendering AC sheets more competitive.
Operating margin improved to 7.1% in fiscal 2018 from 3.6% in fiscal 2017 because of cost efficiencies, lower raw material prices, and higher capacity utilisation. Margin is expected to sustain at 7-8% over the medium term.
Besides healthy cash flow generation, financial metrics have benefitted from prudent capex and working capital management, leading to lower debt levels. For instance, gearing improved to 0.21 time as on March 31, 2018, from 0.57 time as on March 31, 2017, and is expected to improve further over the medium term on the back of healthy accrual of over Rs 100 crore per fiscal and negligible debt repayment. Debt protection metrics should remain healthy, while liquidity is improving.

Key Rating Drivers & Detailed Description
* Established position in the domestic AC roofing segment: With presence of around 75 years, Everest is the largest manufacturer of AC roofing sheets in India. It has a well-established brand, especially in the rural market, supported by a strong distribution network of about 6000 retail outlets. Strategically located plants across the country help increase market penetration and compete effectively with regional players.
* Diversified revenue mix
With healthy growth in the AC roofing and PEB business, revenue dependence on the AC roofing business has reduced; the share of building products contributed 100% to the total revenue in fiscal 2008, compared with 64% in fiscal 2018. However, AC roofing is likely to remain the mainstay of the business over the medium term.
* Healthy financial risk profile
Financial risk profile is improving because of robust cash generation and prudent capex and working capital spend. Its key credit metrics should improve gradually, supported by better business performance, continued modest capex, and control over working capital.

* Exposure to intense competition in the AC roofing market and volatile 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. This is compounded by limited ability to pass on input price increases to end users because of intense competition.
Key raw materials for AC roofing and PEBs, asbestos fibre and steel, respectively, account for over half of total input cost. Profitability in fiscal 2017 was also impacted by decline in exports due to reduced demand for board panels in the Middle East following a fall 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 contracts.
* Exposure to regulatory threat of ban on manufacture or use of asbestos
Around 51% of revenue is from the sale of all roofing products, which exposes the company to risk of ban on the use of asbestos in India or on mining of asbestos in Russia, Canada, Kazakhstan, or Brazil (largest exporters of asbestos). 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 Everest's business growth and operating margin will remain steady over the medium term, supported by improving rural demand and better operating efficiency. Financial risk profile is expected to remain strong 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%
*Sustaining comfortable capital structure and other key credit metrics, supported by prudent capex and working capital management
Downside scenario
* Lower-than-expected accrual due to weakening of business performance
* Significant increase in debt due to higher capex or stretched working capital cycle, leading to a sharp weakening of gearing

About the Company

Incorporated in 1934, Everest is one of India's largest manufacturers of AC roofing. The company has also diversified into non-asbestos building products (roofing sheets, flooring, cladding, and other boards); and design, manufacture, and erection of PEBs. It has eight plants across India.
Income from AC roofing and non-asbestos building products currently accounts for around 60% of total revenue, while the PEB segment accounts for the balance. The company has an installed production capacity of 0.88 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. Promoters held 48.13% stake as on June 30, 2018, followed by mutual funds with 2.75%, and foreign portfolio investors with 1.67%; the balance was with the public and others.
For the three months ended June 30, 2018, revenue was Rs 418 crore and PAT Rs 29.3 crore, against Rs 379 crore and Rs 16.9 crore, respectively, for the corresponding period of the previous fiscal.

Key Financial Indicators*
 As on March 31, Unit 2018 2017
Revenue Rs .Cr 1271 1160
Profit after tax Rs. Cr 53 3
PAT margins % 4.2 0.3
Adjusted debt/adjusted net worth Times 0.21 0.59
Interest Coverage Times 7.73 2.19
*CRISIL adjusted numbers

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 180.0 CRISIL A+/Stable
NA Letter of Credit* NA NA NA 265.0 CRISIL A1+
NA Long Term Loan NA NA Dec-20 17.31 CRISIL A+/Stable
NA Long Term Loan NA NA Sept-22 39.02 CRISIL A+/Stable
NA Commercial Paper NA NA 7-365 days 30 CRISIL A1+
NA Proposed Long Term Bank Loan Facility NA NA NA 74.17 CRISIL A+/Stable
*Fully Interchangeable with bank guarantee
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  30.00  CRISIL A1+  01-08-18  CRISIL A1+  21-12-17  CRISIL A1    --    --  -- 
            06-09-17  CRISIL A1           
Fund-based Bank Facilities  LT/ST  310.50  CRISIL A+/Stable  01-08-18  CRISIL A+/Stable  21-12-17  CRISIL A+/Stable  11-05-16  CRISIL A+/Stable  17-04-15  CRISIL A+/Stable  CRISIL A+/Negative 
            06-09-17  CRISIL A+/Negative           
            29-04-17  CRISIL A+/Negative           
Non Fund-based Bank Facilities  LT/ST  265.00  CRISIL A1+  01-08-18  CRISIL A1+  21-12-17  CRISIL A1  11-05-16  CRISIL A1  17-04-15  CRISIL A1  CRISIL A1 
            06-09-17  CRISIL A1           
            29-04-17  CRISIL A1           
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
Cash Credit 180 CRISIL A+/Stable Cash Credit 180 CRISIL A+/Stable
Letter of Credit* 265 CRISIL A1+ Letter of Credit* 300 CRISIL A1+
Long Term Loan 56.33 CRISIL A+/Stable Long Term Loan 58.45 CRISIL A+/Stable
Proposed Long Term Bank Loan Facility 74.17 CRISIL A+/Stable Proposed Long Term Bank Loan Facility 37.05 CRISIL A+/Stable
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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