Rating Rationale
May 06, 2020 | Mumbai
Hamilton Writing Instruments Private Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.54.04 Crore
Long Term Rating CRISIL A-/Stable (Reaffirmed)
Short Term Rating CRISIL A2+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL A-/Stable/CRISIL A2+' ratings on the bank facilities of Hamilton Writing Instruments Pvt Ltd (HWIPL; part of the Hamilton group).
 
CRISIL believes that the outbreak of Covid-19, and the nation-wide lockdown imposed to contain further spread of the pandemic, may have a milder impact on HWIPL, as sales should pick up once the lockdown is lifted, and schools and offices start functioning. Normalisation of demand, continued focus on exports and launch of new products will aid growth over the medium term. Operating margin should remain healthy at 11-12% over the medium term.
 
The ratings continue to reflect HWIPLs' moderate albeit improving revenue profile, supported by increased exports, an enhanced product mix, and the modest financial risk profile. Besides, the ratings also factor in the need-based financial support expected from the Hamilton group and its promoters. These strengths are partially offset by working capital-intensive operations, susceptibility to volatility in raw material prices, and exposure to intense competition in the writing instruments and stationery markets.

Analytical Approach

The ratings factor in operational, technical and managerial support expected from the promoter group. CRISIL believes HWIPL will receive distress support from its promoters, in case of exigencies, for servicing debt obligations in a timely manner.

Key Rating Drivers & Detailed Description
Strengths: 
* Improving revenue profile: Despite operating amidst intense competition, HWIPL has been able to generate a higher EBITDA margin as compared to its peers, and scale up operations in fiscal 2018. Moreover, the company has also managed to scale up its exports, which form about 60% of the sales. Gradual exit from the low-margin stationery segment, and focus on the high-margin writing instruments segment should drive revenue growth over the medium term.
 
* Moderate financial risk profile: Though cash accrual is modest due to subdued scale of operations, debt protection metrics and liquidity are adequate. Capital expenditure (capex) over the medium term will be largely funded through internal accrual, ensuring steady debt protection metrics.
 
* Financial support from Hamilton group and promoters: CRISIL believes HWIPL will receive need-based support from the Hamilton group and its promoters, in line with the group's stated stance, even in case of an exigency. Presently, HWIPL's financial risk profile is also supported by the corporate guarantee extended by Hamilton Housewares Pvt Ltd (HHPL; rated CRISIL AA-/Positive/A1+) to the existing loans.
 
Weaknesses:
* Working capital-intensive operations: Operations are moderately working capital intensive, as reflected in gross current assets of 104 days as on March 31, 2019. The company has to hold large finished goods inventory to meet demand for 2-3 months. Additionally, customers are offered a credit period of 30-60 days. Since fiscal 2018, HWIPL has adopted the super-stockist method of inventory management, and has been able to reduce its inventory and receivable days.
 
* Susceptibility to volatility in raw material prices and intense competition: Prices of polypropylene, key raw material used to manufacture the plastic outer bodies of pens and refills, depend on international prices and the domestic demand-supply situation. This is compounded by moderate bargaining power, against large suppliers. However, HWIPL's operating margin in fiscal 2020, should partially benefit by lower polymer prices.
Liquidity Adequate

Liquidity is adequate, driven by expected cash accrual of over Rs 10-13 crore per annum, over the medium term. Fund-based limit of Rs 27 crore was unutilised for the 10 months through February 29, 2020. These should suffice to cover the modest capex of Rs 5-6 crore per fiscal, and the incremental working capital requirement. Promoters too are expected to provide timely, need-based funds as demonstrated in the past.

Outlook: Stable

CRISIL believes HWIPL will continue to benefit from its increasing market reach with rising exports, and significant operational and financial support from promoters.

Rating Sensitivity factors
Upward factors
* Sustained revenue growth of 10-12%, driven by higher demand for writing instruments and products, and improvement in operating margin over 15%
* Better working capital management, with gross current assets below 120 days

Downward factors
* Sharp decline in revenue by over 15-20%, and fall in operating margin, most likely due to weaker business conditions including the prolonged slowdown in demand adversely impacting cash flows
* Stretch in working capital cycle, or debt-funded capex, resulting in gearing beyond 1.2 time during fiscal 2021
About the Company

HWIPL was incorporated in 2005, as Hamilton Networks Pvt Ltd, and got its current name in 2007. It began commercial operations in 2009. The company manufactures writing instruments such as ballpoint pens, gel pens, and refills, and files and folders. It also trades in stationery products, including files and folders, and office stationery such as tapes, glue and adhesives, correction products, cutters, and markers. Production unit is at Piparia in Dadra and Nagar Haveli. HWIPL has presence across India, and derives around 60% of revenue from export to Africa, South-East Asia, Europe, and the Middle East.
 
About the group
The Hamilton group primarily comprises of two operating companies, HHPL and HWIPL.
 
HHPL sells plastic-ware, thermo-ware, glassware, and melamine-ware under the Milton and Treo brands. It also sells household cleaning articles under the SpotZero brand. It was set up as a proprietorship firm named DG Glass in 2000 by Mr Ajay Vaghani, and reconstituted as a private limited company with the current name in 2003. It is one of the largest players in the household plastic-ware and glassware segments in India. It has production units at Silvassa (Dadra and Nagar Haveli), Guwahati (Assam) and at Haridwar (Uttarakhand).

Key Financial Indicators
Particulars Unit 2019 2018
Operating income Rs. crore 116 69
Profit after tax (PAT) Rs. crore -15 -4
PAT margin % -12.7 -5.6
Adjusted debt/Adjusted net worth Times 2.07 2.31
Interest coverage Times 1.15 -2.10

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 crore)		 Rating assigned with outlook
NA Cash Credit## NA NA NA 21.0 CRISIL A-/Stable
NA Cash Credit* NA NA NA 6.0 CRISIL A-/Stable
NA Letter of Credit and Bank Guarantee NA NA NA 9.0 CRISIL A2+
NA Long Term Loan NA NA Mar-2022 18.04 CRISIL A-/Stable
## Includes sublimit of Rs 13 crore for export packing credit
*Fully interchangeable with working capital demand
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  45.04  CRISIL A-/Stable      29-03-19  CRISIL A-/Stable      27-12-17  CRISIL A-/Stable  CRISIL A+/Stable 
Non Fund-based Bank Facilities  LT/ST  9.00  CRISIL A2+      29-03-19  CRISIL A2+      27-12-17  CRISIL A2+  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## 21 CRISIL A-/Stable Cash Credit## 21 CRISIL A-/Stable
Cash Credit* 6 CRISIL A-/Stable Cash Credit* 6 CRISIL A-/Stable
Letter of credit & Bank Guarantee 9 CRISIL A2+ Letter of credit & Bank Guarantee 9 CRISIL A2+
Long Term Loan 18.04 CRISIL A-/Stable Long Term Loan 18.04 CRISIL A-/Stable
Total 54.04 -- Total 54.04 --
## Includes sublimit of Rs 13 crore for export packing credit
*Fully interchangeable with working capital demand
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
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Companies based on Group Support

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