| KCL Limited | ||||||
| Rating outlook revised to 'Positive'; Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| 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 revised its outlook on the long-term bank facilities of KCL Limited (KCL) to 'Positive' from 'Stable' while reaffirming the rating at 'CRISIL BBB'; it also reaffirmed its 'CRISIL A3+' rating on the short-term bank facilities of the company.
Revision in the outlook reflects an improvement in the business risk profile of KCL, supported by healthy revenue growth and sustained operating margin. Revenue grew approximately 41% to Rs 379 crore in fiscal 2022, driven by growth in volume and better realisation prices. Further, the diversified product portfolio, successful ramp up of operations at the Andhra Pradesh plant and established relation with clients lead to repetitive orders and continuous addition of new customers. Revenue stood at Rs 227 crore in the first half of fiscal 2023 and is projected at Rs 400-425 crore for the fiscal. Operating margin was steady at 8-9% over the five fiscals through 2022, even though raw material prices were on a rise in fiscal 2022, due to ability of the company to pass on the increased raw material prices to customers. The margin is expected at 8.5-9.0% over the medium term, supported by stablisation in the cost of kraft paper.
The ratings also consider comfortable financial risk profile of KCL, driven by strong networth of Rs 107.30 crore and low gearing of 0.35 time as on March 31, 2022, along with healthy debt protection metrics. Financial risk profile is likely to remain strong owing to low reliance on external debt.
The ratings continue to factor in the extensive experience of the promoters and the established market position of KCL in the organised packaging segment, comfortable financial risk profile and efficient working capital management. These strengths are partially offset by average scale of operations amid intense competition and susceptibility to industry cycles and volatility in kraft paper prices. |
Analytical Approach Unsecured loan (Rs 8.34 crore as on March 31, 2022) extended by the promoters has been treated as neither debt nor equity and the remaining as debt. That is because the loan is likely to be retained in the business over the medium term. |
Key Rating Drivers & Detailed Description Strengths: Established market position in the organised packaging segment The three-and-half-decade-long experience of the promoters in the organised packaging segment, their strong understanding of market dynamics and healthy relationships with customers and suppliers should continue to support the business. The diversified clientele and geographic reach also strengthen the market position. The company has healthy relationship with Nestle India Ltd ('CRISIL AAA/Stable/CRISIL A1+'), Mondelez India Foods Pvt Ltd, Hindustan Unilever Ltd ('CRISIL AAA/Stable'), ITC Ltd ('CRISIL AAA/Stable/CRISIL A1+'), LG Electronics India Pvt Ltd; it has added Amber Enterprises India Ltd ('CRISIL AA-/Stable/CRISILA 1+') and Milton during fiscals 2022 and 2023.
Comfortable financial risk profile Financial risk profile should remain supported by continuous healthy accretion to reserve and low reliance on external debt to meet the incremental working capital requirement and fund any regular capital expenditure (capex) over the medium term. Networth was strong at Rs 107.30 crore and gearing low at 0.35 time as on March 31, 2022, these are expected at around Rs 121 crore and 0.23 time, respectively, as on March 31, 2023. Debt protection metrics were strong, with interest coverage ratio of 7.69 times and net cash accrual to adjusted debt ratio of 0.84 time in fiscal 2022; the metrics are projected at 9.80 times and 1.50 times, respectively for fiscal 2023.
Efficient working capital management The working capital cycle may continue to be prudently managed. Gross current asset (GCAs) have been 90-120 days for the three fiscals through March 2022 and are expected at 103 days as on March 31, 2023, and 100-110 days over the medium term. GCAs were 101 days as on March 31, 2022, driven by debtors of 58 days and inventory of 35 days. The strong clientele ensures secured payments. Raw material (kraft paper) is procured locally, and inventory is backed by orders and, hence, comfortable at 30-40 days.
Weaknesses: Susceptibility to industry cycles and volatility in kraft paper prices As the end product is used for secondary and tertiary packaging, offtake depends on industrial production and other macroeconomic factors such as gross domestic product growth and disposable income (given the high link of these variables with spending on consumer durables and fast moving consumer goods [FMCG]). The operating margin has been steady at 8-9%, despite the volatility in raw material prices, as the company is able to pass on changes in the raw material prices. However, the FMCG industry, being largely resilient in the current times, may generate stable demand for packaging, and the new plant (with upgraded technology) is likely to arrest decline in revenue or margin in fiscal 2023.
Exposure to intense competition The domestic packaging industry (which accounts for a bulk of the paper industry) is intensely competitive owing to low entry barriers and unfavourable government policies. Thus, competition from large and well-established players, and limited product differentiation may continue to constrain scalability, pricing power and profitability. |
Liquidity: Adequate Cash accrual (Rs 24.25 crore in fiscal 2022) is projected at more than Rs 14 crore per annum, against repayment obligation (Rs 12.60 crore) of Rs 9-10 crore over the medium term. Bank limit of Rs 11 crore was utilised at 63.92% on average during the 12 months through September 2022. Unencumbered cash and bank balance stood at Rs 2.5 crore as on September 30, 2022. Timely, need-based funding support extended by the promoters should continue to support liquidity. |
Outlook: Positive KCL will continue to benefit from the extensive experience of the promoters and its efficient working capital management. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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About the Company KCL (formerly, Khemka Containers Ltd), incorporated in 1983, manufactures packing materials such as printed duplex boards, boxes and cases, corrugated cartons, boards and rolls. The first unit was set up in Faridabad, Haryana, across 1,200 square yards. The company now has units in Noida, Nalagarh in Himachal Pradesh, Chayyar in Tamil Nadu, and Sri City. It also makes food supplements under the Murginns brand and gourmet cheese under the Mooz brand at its unit in Paonta Sahib, Himachal Pradesh. Mr Rajeev Khemka and his family members manage the operations. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of instrument(s)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | |||
| Facility | Amount (Rs.Crore) | Name of Lender | Rating |
| Bank Guarantee | 1 | HDFC Bank Limited | CRISIL A3+ |
| Cash Credit | 8.1 | HDFC Bank Limited | CRISIL BBB/Positive |
| Letter of Credit | 0.95 | HDFC Bank Limited | CRISIL A3+ |
| Non-Fund Based Limit | 4.7 | The Hongkong and Shanghai Banking Corporation Limited | CRISIL BBB/Positive |
| Term Loan | 25 | HDFC Bank Limited | CRISIL BBB/Positive |
| Term Loan | 11.45 | The Hongkong and Shanghai Banking Corporation Limited | CRISIL BBB/Positive |
| Working Capital Facility | 4 | The Hongkong and Shanghai Banking Corporation Limited | CRISIL BBB/Positive |
This Annexure has been updated on 20-Apr-2023 in line with the lender-wise facility details as on 13-Apr-2023 received from the rated entity.
Criteria Details
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