Rating Rationale
November 23, 2023 | Mumbai
Jaipan Industries Limited
Ratings downgraded to 'CRISIL B+/Stable/CRISIL A4'
 
Rating Action
Total Bank Loan Facilities RatedRs.5 Crore
Long Term RatingCRISIL B+/Stable (Downgraded from 'CRISIL BB-/Stable')
Short Term RatingCRISIL A4 (Downgraded from 'CRISIL A4+')
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 downgraded the ratings on the bank facilities of Jaipan Industries Limited (JIL) to CRISIL B+/Stable/CRISIL A4 from CRISIL BB-/Stable/CRISIL A4+

 

The downgrade in the ratings reflects deterioration of the business profile of the company in H1 of fiscal 2024. The company reported a decline in revenues to Rs. 9.3 crore and operating loss in H1 of fiscal 2024 (as compared to Rs. 39.5 crore and Rs.1 crore in fiscal 2023 respectively). The decline in revenues is due to lower export demand while margins are affected due to an increase in prices of the raw material as well as lower economies of scale. This has further led to deterioration in liquidity as net cash accruals are expected to remain insufficient against repayment obligations in fiscal 2024. Liquidity is supported by cushion in bank limits, cash and bank balances and unsecured loans from the promoters. Improvement of the operating margins over the medium term would remain a key monitorable. 

 

The rating continues to reflect extensive experience of JIL’s promoters in the home appliances industry and its comfortable capital structure. These rating strengths are partially offset by modest scale of operations amidst intense competition, its working capital-intensive nature of operations and below average debt protection metrics.

Analytical Approach

Unsecured loans of Rs 17 Lakhs as on March 31, 2023 has been treated as debt

Key Rating Drivers & Detailed Description

Weakness:

  • Decline in scale of operations amidst intense competition and volatile operating margins: Revenues of the company have declined in H1 FY2024 to Rs. 9.3 crore as compared to Rs. 39.2 crore in fiscal 2023. This is due to lower demand in the export market. Further, operating margins have remained volatile in the range of 2.4-4.4% for the past few fiscals. This is due to fluctuation in raw material prices. However, the margins have been significantly impacted in H1 FY23 with operating loss due to significant increase in raw material prices and lower economies of scale due to decline in revenues. JIL is yet to establish presence in other product segments, besides mixer grinder, resulting in a small scale of operations. Intense competition in the home appliances segment dominated by large, branded players, will constrain scalability. Improvement in revenues and operating margins would be a key monitorable over the medium term.

 

  • Working capital-intensive operations: The operations of the company remain working capital intensive as highlighted by gross current asset of around 230 days as on March 31, 2023. This is majorly driven by high debtors as well as inventory of 116 and 91 days respectively. This is because the company offers a high credit period to its customers. The company also maintains an average inventory of around 90 to 100 days due to the business requirements. The overall working capital cycle is expected to remain large.

 

  • Below average debt protection metrics: Due to the decline in scale of operations, the debt protections metrics have been significantly impacted in H1 FY2024 with negative interest coverage and is expected to remain subdued in fiscal 2024. Improvement in debt protection metrics with the increase in the scale of operations and operating margins would be a key monitorable over the medium term.

 

Strengths:

  • Extensive industry experience of promoter: The promoters have an experience of over 2 decades in the home appliance segment, this has enabled them to understand the business and industry dynamics and helped establish strong relationship with customers and suppliers. The company has wide range of product portfolio which includes mixers & grinders, air fryers, pressure cooker, toasters, irons, lunch boxes, dinnerware which would help in sustaining the revenue growth over the medium term.

 

  • Comfortable capital structure: Due to limited reliance on the outside borrowing the capital structure is marked by comfortable gearing and total outside liabilities to adjusted networth ratios  at 0.34 times and 0.79 times, respectively, as on March 31, 2023. In the absence of any debt funded capital expenditure and steady increase in the scale of operations the capital structure is expected to be at comfortable levels over the medium term.

Liquidity: Poor

Cash accruals are expected to remain under pressure in fiscal 2024 and would remain insufficient against annual repayment obligation of Rs 0.14 crore over the medium term. Liquidity is however supported by Bank limit was utilised at an average of 50% over the 12 months through October 2023. Cash and bank balance stood at Rs 0.87 crore as on Sept 30, 2023, while unsecured loans were of Rs. 0.17 crore as on March 31, 2023.

Outlook: Stable

CRISIL Ratings believes JIL will continue to benefit from the extensive experience of its promoters.

Rating Sensitivity factors

Upward factors

  • Significant improvement in revenue and sustenance of operating profitability leading to higher cash accruals.
  • Improvement in debt protection metrics with interest coverage of around 2 times.

 

Downward factors

  • Continued decline in revenue or profitability, impacting its debt servicing ability.
  • Further stretch in working capital cycle weakening financial risk profile and liquidity, with TOLANW above 2 times.

About the Firm

JIL, incorporated in 1981 by Mr J N Agrawal, markets various home appliance which includes products such as includes mixers & grinders, air fryers, pressure cooker, toasters, irons, lunch boxes, dinnerware under the Jaipan brand. It is based in Mumbai and is listed on the Bombay Stock Exchange.

Key Financial Indicators

As on / for the period ended March 31

 

H1 2024

2023

2022

Operating income

Rs crore

9.27

39.15

23.34

Reported profit after tax

Rs crore

-0.63

1.42

0.11

PAT margins

%

-6.81

3.6

0.5

Adjusted Debt/Adjusted Net worth

Times

0.35

0.34

0.31

Interest coverage

Times

-3.11

2.30

1.67

Status of non cooperation with previous CRA:

JIL has not co-operated with India Ratings and Research Private Limited which has marked it Non-cooperative vide its circular dated November 1, 2017. The reason provided by India Ratings and Research Private Limited is non furnishing of information by JIL.

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
instrument

Date of
allotment

Coupon
rate (%)

Maturity
date

Issue size
(Rs crore)

Complexity 
levels

Rating assigned
with outlook

NA

Cash Credit

NA

NA

NA

4

NA

CRISIL B+/Stable

NA

Packing Credit

NA

NA

NA

1

NA

CRISIL A4

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 LT/ST 5.0 CRISIL B+/Stable /CRISIL A4 14-02-23 CRISIL BB-/Stable / CRISIL A4+   -- 28-12-21 CRISIL BB-/Stable / CRISIL A4+ 25-09-20 CRISIL BB/Stable / CRISIL A4+ CRISIL BB/Stable / CRISIL A4+
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 4 Bank of Baroda CRISIL B+/Stable
Packing Credit 1 Bank of Baroda CRISIL A4
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
Assessing Information Adequacy Risk
Criteria for rating trading companies
Rating Criteria for Consumer Durable Industry
CRISILs Approach to Recognising Default
Understanding CRISILs Ratings and Rating Scales

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