Rating Rationale
May 27, 2021 | Mumbai
K. K. Nag Private Limited
Long-term rating outlook revised to 'Positive'; Ratings reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.24.75 Crore
Long Term RatingCRISIL BBB/Positive (Outlook revised from 'Stable' and rating reaffirmed)
Short Term RatingCRISIL A3+ (Reaffirmed)
 
Rs.0.86 Crore Fixed DepositsF A-/Stable (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed rationale

CRISIL Ratings has revised its rating outlook on the long-term bank facilities of K. K. Nag Private Limited (KKNPL) to 'Positive' from 'Stable' and reaffirmed the 'CRISIL BBB’ rating. CRISIL Ratings has reaffirmed its ‘CRISIL A3+' rating on the short-term bank facilities and 'FA-/Stable' rating on the fixed deposits of the company.

 

The outlook revision factors in the expectation of improvement in the company’s operating performance in fiscal 2022 driven by addition of customers, steady demand and limited impact of the second wave of Covid-19. The financial risk profile should remain healthy with limited reliance on debt.

 

Revenue was severely impacted in the first quarter of fiscal 2021, but the company was able to ramp up sales in the subsequent quarters and sustained revenue for the fiscal over Rs 185 crore. Operating margin remained healthy estimated at 8-9% leading to cash accrual of over Rs 6 crore. Revenue is expected to grow 12-15% and operating margin should remain steady in fiscal 2022 given the ability to pass on raw material price fluctuations. The financial risk profile has also improved as indicated by healthy capital structure and adequate debt protection metrics. The company plans modest capital expenditure (capex) and the financial risk profile should remain healthy, supported by steady increase in accretions.

 

The ratings continue to reflect the company’s healthy financial risk profile, the extensive experience of its promoter in the expanded polystyrene (EPS) packaging industry and longstanding relationships with reputed customers. These strengths are partially offset by susceptibility to volatility in raw material prices and sectoral concentration in revenue.

Key rating drivers and their detailed description

Strengths

  • Extensive industry experience of the promoter: The promoter’s experience of over three decades in the EPS and expanded polypropylene (EPP) businesses and established relationships with customers such as Whirlpool of India Ltd (‘CRISIL AA+/Stable/CRISIL A1+’), LG India, Godrej and Boyce Manufacturing Company Ltd (‘CRISIL AA/Stable/CRISIL A1+’) should continue to support the business.

 

  • Healthy financial risk profile: Networth and gearing are estimated at Rs 35-36 crore and 0.25 time, respectively, as on March 31, 2021. The company plans debt-funded capex in fiscal 2022 to set up a unit in Tirupathi or to operate a unit at Chennai for a prospective customer. Nevertheless, gearing is expected to remain comfortable over the medium term with efficient working capital management and limited external debt. The interest coverage ratio, over 3.5 times in the past four fiscals, should remain adequate over the medium term.

Further the fixed deposits availed by company from promoters stood at Rs 60.37 lacs as on 31st March 2021.

Weaknesses

  • Susceptibility to fluctuations in input prices and segmental concentration in revenue: Key raw materials, polypropylene and polystyrene, are petrochemical derivatives, and their prices are volatile. Though there is pass through mechanism, a sudden increase in raw material prices can impact the operating margin of the company. Also, the consumer durables segment accounts for a majority of the revenue. Though the company caters to blue chip customers, its performance remains susceptible to demand from the end-user segment.

Liquidity: Adequate

Liquidity is adequate. Cash accrual is estimated at Rs 9-10 crore in fiscal 2021 against debt obligation Rs 3-4 crore. Fund-based limit of Rs 6.5 crore was utilised just 5.6% on average during the 12 months through April 2021. Capex of Rs 10-12 crore in fiscal 2022 is to be funded through a term loan and internal cash accrual. Despite the capex, the gearing should be comfortable around 0.5 time, providing sufficient financial flexibility.

Outlook: Positive

CRISIL Ratings believes KKNPL will continue to benefit from its steady revenue growth, established market position and customer base.

 

Outlook (for fixed deposit programme): Stable

The rating on the fixed deposit programme will remain unchanged even if the rating on the bank facilities is revised upwards by up to one notch.

Rating Sensitivity factors

Upward Factors

  • Sustained increase in revenue and stable operating margin resulting in annual cash accrual of Rs 12-13 crore
  • Sustained financial risk profile and adequate liquidity

Downward Factors

  • Dip in revenue or operating margin resulting in lower cash accrual
  • Large debt-funded capex or stretch in the working capital cycle weakening the financial risk profile with total outside liabilities to tangible networth ratio over 2.5 times

About the Company

Incorporated in 1965 and promoted by Mr Milon Nag, KKNPL manufactures packaging material and insulation products for the electronics industry and automobile components from EPS and EPP. It also manufactures roto-moulded products such as disposable lavatories and tanks.

Key Financial Indicators

As on/for the period ended March 31

Unit

2020

2019

Operating income

Rs crore

183.35

169.98

Reported profit after tax (PAT)

Rs crore

6.83

4.10

PAT margin

%

3.7%

2.4%

Adjusted debt/adjusted networth

Times

0.52

0.52

Interest coverage

Times

5.51

3.64

 

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)

Complexity

Levels

Rating assigned with outlook

NA

Bank guarantee

NA

NA

NA

1

NA

CRISIL A3+

NA

Cash credit

NA

NA

NA

6.5

NA

CRISIL BBB/Positive

NA

Letter of credit

NA

NA

NA

5.25

NA

CRISIL A3+

NA

Proposed long-term bank loan facility

NA

NA

NA

7

NA

CRISIL BBB/Positive

NA

Standby line of credit

NA

NA

NA

0.95

NA

CRISIL BBB/Positive

NA

Term loan

NA

NA

Feb-2024

4.05

NA

CRISIL BBB/Positive

NA

Fixed deposit

NA

NA

NA

0.86

Simple

FA-/Stable

 

Annexure - Rating History for last 3 Years
  Current 2021 (History) 2020  2019  2018  Start of 2018
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 18.5 CRISIL BBB/Positive   -- 29-05-20 CRISIL BBB/Stable 31-05-19 CRISIL BBB/Stable 31-12-18 CRISIL BBB-/Stable CRISIL BBB-/Stable
      --   --   -- 08-05-19 CRISIL BBB/Stable   -- --
      --   --   -- 30-01-19 CRISIL BBB/Stable   -- --
      --   --   -- 08-01-19 CRISIL BBB-/Stable   -- --
Non-Fund Based Facilities ST 6.25 CRISIL A3+   -- 29-05-20 CRISIL A3+ 31-05-19 CRISIL A3+ 31-12-18 CRISIL A3 CRISIL A3
      --   --   -- 08-05-19 CRISIL A3+   -- --
      --   --   -- 30-01-19 CRISIL A3+   -- --
      --   --   -- 08-01-19 CRISIL A3   -- --
Fixed Deposits LT 0.86 F A-/Stable   -- 29-05-20 F A-/Stable 31-05-19 F A-/Stable 31-12-18 F A-/Stable F A-/Stable
      --   --   -- 08-05-19 F A-/Stable   -- --
      --   --   -- 30-01-19 F A-/Stable   -- --
      --   --   -- 08-01-19 F A-/Stable   -- --
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
Bank Guarantee 1 CRISIL A3+ Bank Guarantee 1 CRISIL A3+
Cash Credit 6.5 CRISIL BBB/Positive Cash Credit 6.5 CRISIL BBB/Stable
Letter of Credit 5.25 CRISIL A3+ Letter of Credit 5.25 CRISIL A3+
Proposed Long Term Bank Loan Facility 7 CRISIL BBB/Positive Proposed Long Term Bank Loan Facility 7 CRISIL BBB/Stable
Standby Line of Credit 0.95 CRISIL BBB/Positive Standby Line of Credit 0.95 CRISIL BBB/Stable
Term Loan 4.05 CRISIL BBB/Positive Term Loan 4.05 CRISIL BBB/Stable
Total 24.75 - Total 24.75 -
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

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