Rating Rationale
November 20, 2023 | Mumbai
Exxaro Tiles Limited
Ratings reaffirmed at 'CRISIL BBB+/Stable/CRISIL A2'; Rated amount enhanced for Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.122 Crore (Enhanced from Rs.110 Crore)
Long Term RatingCRISIL BBB+/Stable (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 reaffirmed its ratings on the bank facilities of Exxaro Tiles Limited (ETL) at ‘CRISIL BBB+/Stable/CRISIL A2'.

 

On October 13, 2023, CRISIL Ratings had revised its rating outlook on the long-term bank facilities of ETL to ‘Stable’ from ‘Positive’ while reaffirming the rating at ‘CRISIL BBB+'. The short term rating has been reaffirmed at 'CRISIL A2’.

 

The outlook revision reflected CRISIL Rating’s belief that ETL's lower than expected revenue and profitability. The business risk profile with revenue reported at Rs 319 crore in FY23 indicated degrowth of 2% due to shut down of Talod plant for 2 months and transitioned to GVT from DC at Padra plant. Subsequently lower absorption of fixed cost and decline in operating margin from 14.6% in FY22 to 11.0% in FY23. At the same time, ROCE also sharply declined from 11% in FY22 to 5.8% in FY23. The ability of the company to raise revenue steadily along with operating margin over 13-14% remains key monitorable.

 

The rating reflects established market presence, sound operating efficiency and improved financial profile. These strengths are partially offset by improving, although moderate scale of operations, working capital intensive operations and susceptibility of its profitability to volatile raw material costs, fuel costs.

Key Rating Drivers & Detailed Description

Strengths:

  • Established market presence and sound operating efficiency: ETL has established a market presence benefiting from the promoters' extensive experience, their strong understanding of market dynamics, and healthy distribution network. The key promoters have experience of over 2 decades, which has enabled the company to grow over the years. ETL has a network of over 800 dealers and 2000+ touch points where its products are sold under “Exxaro” brand.

 

ETL’s sound operating efficiency is reflected in the operating margin around 11% in FY23 although had declined from 18-20% due to lower absorption of fixed cost and subsequent rise in prices of raw materials, power, and fuel cost. ETL benefits from its production being almost totally in house and sales in its own brand with presence in large sized tiles. Further, the lower gas prices at one of its two units supports the margin.

 

  • Comfortable financial profile: The financial risk profile of the company remains comfortable with a networth of Rs 274 crore and gearing of 0.3 times as on March 31, 2023. Debt protection metrics were also improved with interest coverage of 3.8 times and NCA/AD of 25% in FY23. In the absence of large debt funded capex, financial profile expected to strengthen over the medium term.

 

Weaknesses:

  • Moderate scale and working capital intensive operations: ETL had clocked a revenue of Rs 318 crore in FY23 (registering degrowth of 3% y-o-y), reflecting an average scale of operations. Further, its intensive working capital management is reflected in its gross current assets (GCA) of 293 days as on March 31, 2023. Over the last three GCA has ranged between 270-300 days. This is driven primarily by high inventory of around 5 months on account of wide range of designs, continuous changes in same with production being largely in-house. Also, the company had debtors around 3-4 months driven by extension of large credit to its dealers. The working capital requirements are partially supported by extended credit received from suppliers. While ETL is undertaking measures to control the working capital cycle, the extent and sustenance of improvement remains a key monitorable.

 

  • Susceptibility of its profitability to volatile raw material costs: Raw materials such as different types of clays, feldspar, silica, kaolin, and carbonates account for 40-45 per cent of the total cost of sales of ceramic tiles, while gas and power cost consist of 30-35 per cent of the total cost of sales. Therefore, operating margins to be susceptible to volatility in their prices. The risk is currently pronounced due to much increased volatility in the gas prices.

Liquidity: Adequate

Liquidity of company expected to remain adequate with expected generation of accruals over Rs 30-40 crore against term debt obligation of Rs 7-8 crore over the medium term; surplus funds would be sufficient to meet capex and incremental working capital requirement. Bank lines are utilized at less than 92% for the past six months ending August 2023.

Outlook: Stable

CRISIL Ratings believes that ETL’s will continue to benefit from its improved capital structure and established business presence.

Rating Sensitivity factors

Upward factors:

  • Considerable rise in revenue with operating margin over 13-14% leading to higher net cash accruals
  • Decline in working capital intensity and subsequently improvement in financial risk profile, especially liquidity

 

Downward factors:

  • Total outside liabilities to adjusted networth ratio deteriorating to 1.50 times
  • Decline in interest coverage ratio

About the Company

ETL is engaged in the manufacturing and marketing of vitrified tiles that primarily used as flooring solutions. It was established 2007-08 as a partnership firm that manufactured frit, a raw material used in tile manufacturing and have over the years, diversified, expanded and evolved into a manufacturer for vitrified tiles. It has 2 manufacturing units in Gujarat (Unit 1 -Padra in Vadodara and Unit 2- Talod in Sabarkantha) and has total installed capacity of 146 lakh sq.m. Company is listed on BSE and NSE.

Key Financial Indicators

Particulars

Unit

2023

2022

Revenue

Rs.Crore

318.54

326.15

Profit After Tax (PAT)

Rs.Crore

7.30

18.11

PAT Margin

%

2.29

5.55

Adjusted debt/adjusted networth

Times

0.34

0.20

Interest coverage

Times

3.79

4.98

Status of non-cooperation with previous CRA:

ETL had previously not cooperated with Brickwork Ratings India Private Limited, which had published its ratings as an issuer not cooperating vide a release since December 16, 2022. The reason provided by Brickwork Ratings India Private Limited was no furnishing of information by ETL for monitoring the ratings.

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 the instrument Date of
Allotment		 Coupon
Rate (%)		 Maturity
Date		 Issue size
(Rs. Crore)		 Complexity
Level		 Rating assigned
with outlook
NA Cash Credit NA NA NA 70 NA CRISIL BBB+/Stable
NA Term Loan NA NA Feb-28 24 NA CRISIL BBB+/Stable
NA Bank Guarantee NA NA NA 11.4 NA CRISIL A2
NA Letter of Credit NA NA NA 4.6 NA CRISIL A2
NA Term Loan NA NA Feb-28 6.5 NA CRISIL BBB+/Stable
NA Proposed Cash Credit Limit NA NA NA 5 NA CRISIL BBB+/Stable
NA Credit Exposure Limits / Loan Exposure Risk Limits NA NA NA 0.5 NA CRISIL A2
Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities ST/LT 106.0 CRISIL BBB+/Stable / CRISIL A2 13-10-23 CRISIL BBB+/Stable 10-08-22 CRISIL BBB+/Positive / CRISIL A2 12-11-21 CRISIL BBB+/Stable   -- Suspended
Non-Fund Based Facilities ST 16.0 CRISIL A2 13-10-23 CRISIL A2 10-08-22 CRISIL A2 12-11-21 CRISIL A2   -- Suspended
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 5 State Bank of India CRISIL A2
Bank Guarantee 6.4 State Bank of India CRISIL A2
Cash Credit 35 Axis Bank Limited CRISIL BBB+/Stable
Cash Credit 35 State Bank of India CRISIL BBB+/Stable
Credit Exposure Limits / Loan Exposure Risk Limits 0.5 State Bank of India CRISIL A2
Letter of Credit 4.6 State Bank of India CRISIL A2
Proposed Cash Credit Limit 5 Not Applicable CRISIL BBB+/Stable
Term Loan 6.5 Axis Bank Limited CRISIL BBB+/Stable
Term Loan 22 Axis Bank Limited CRISIL BBB+/Stable
Term Loan 2 Axis Bank Limited 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
CRISILs Criteria for rating short term debt
Understanding CRISILs Ratings and Rating Scales

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