Detailed Rationale

Crisil Ratings has reaffirmed its ratings on the bank loan facilities of Kabra Extrusiontechnik Ltd (KEL) at ‘Crisil A/Negative/Crisil A1’.

 

The continuation of negative outlook takes into account subdued operational performance of the company in the first half of fiscal 2026. Battery division continues to book operating losses, though a recovery in revenue was observed during the period. This, along with a slight decline in profitability from the traditional extrusion business due to a changes in the product mix, has led to an overall decline in the profitability of the company during the first half of fiscal year 2026. Despite moderation in the business risk, the financial risk profile and liquidity position of KEL remain adequate amid negligible long-term debt, moderate capex obligation, and free cash and equivalents of Rs 44 crore as on September 30, 2025.

 

Revenue growth was flat on year in the first half of fiscal 2026, primarily due to a 10% decline in the extrusion division (66% of total revenue in H1FY26), even as revenue from the battery division (34% of total revenue in H1FY26) grew by 39% year on year. The recovery in the Battery division is due to an expansion in product offerings – KEL entered into the manufacturing of battery packs for 3W-4W electric vehicles including high voltage (HV) applications, telecom batteries, energy storage systems (ESS), and direct-to-customer (D2C) segments through the inverter segment. Moderation in the extrusion division is due to subdued demand from PVC (polyvinyl chloride) pipe players amid elongated monsoons and weak progress under the Jal Jeevan mission project. For the full year fiscal 26, revenue growth is expected to be 3-5%, and operating margins are expected to decline to 7-8% compared to 11.1% in fiscal 2025 due to continued losses from the battery division.

 

The working capital cycle is elongated to 230-240 days on account of higher inventory due to a higher gestation period of around 6 months in the extrusion division and carrying some strategic inventory, leading to an increase in debt to Rs 138 crore as on September 2025 from March 2025 (Rs 126 crore). Also, ~38% of the receivables, i.e., Rs 30 crore as on December 2025, was from one customer facing liquidity challenges. Any provisioning for the same will be monitorable.

 

The financial risk profile of the company is expected to remain adequate, despite an increase in debt, due to a healthy net worth and limited long-term debt and capex obligations. Liquidity remains comfortable with free cash and liquid investment of Rs 44 crore as on Sep 30, 2025, which would be sufficient for repayment of debt obligations of remaining Rs 2.67 crore during the remaining half of fiscal 2026. Net cash accrual is expected to be in the range of Rs 28-30 crore, which will be sufficient for the annual capex plans of Rs 20-22 crore for fiscal 2026.

 

The ratings continue to reflect KEL’s established market position in the extrusion machinery business and its adequate financial risk profile. These strengths are partially offset by exposure to intense competition in the extrusion machinery segment, working capital-intensive operations, and susceptibility to changes in government policies and customer concentration in the battery division.

Analytical Approach

For arriving at the rating, Crisil Ratings has evaluated the business and financial risk profiles of KEL on a standalone basis.

Key Rating Drivers - Strengths

• Established market position in the extrusion machinery business: KEL has an established track record of more than four decades in manufacturing and commissioning of extrusion machinery. The company is among the largest manufacturers of extrusion machinery in India, with a market share of 30-40% in the organised space. KEL also caters to overseas markets especially in Africa, West Asia and South-East Asia. The revenue growth in the extrusion division depends on the capex cycles of original equipment manufacturers (OEMs) and any improvement in private capex cycle over the medium term should continue to support this segment. During first half of fiscal 2026, the revenue from the extrusion division declined by 10% year on due to revision in capex schedule of some of the larger PVC pipe manufacturing companies amid elongated monsoons during the period and weak progress under Jal Jeevan mission project. This is expected to impact the revenue generation from the extrusion division in fiscal 2026.

 

• Adequate financial risk profile: Financial risk profile remained adequate despite slight increase in working capital debt in the first half of fiscal 2026. Total debt increased to Rs 138 crore as on September 30, 2025 compared to Rs 126 crore as on March 31, 2025 mostly in the form of working capital short term debt. Debt protection metrics also expected to remain adequate however interest coverage ratio is expected to moderated to 3.5-4 times in the near term compared to 5.64 times in fiscal 2025 due to moderation in operating profitability in fiscal 2026. Over the medium term, with improvement in operating profitability, interest coverage ratio is expected to improve to above 5 times over the medium term.  Financial risk profile is expected to remain adequate as the debt is expected to remain in the range of Rs 150-160 crore over the medium term keeping the leverage ratios like gearing and TOL/ATNW (total outside liability to adjusted tangible net-worth) at lower than 0.5 times and 1 time respectively.

Key Rating Drivers - Weaknesses

• Continuous weak performance in battery business division and competition in the extrusion division: Battery division was struggling to take off since FY2024 after loss of business from Hero Electric in the 2W segment. Since then, the company has expanded its product offering from 2W to 3W & 4W battery, high voltage applications, energy storage systems, telecom batteries and Li-ion invertor batteries. With the offering of Li-ion invertor batteries, the company has entered into D2C business for the first time in H1FY26. The division continues to book operating losses due to higher employee and sales and marketing expenses, though recovery in revenue is witnessed during first half of fiscal 2026 and it is expected that the division will break even from fiscal 2027 onwards. The extrusion division is highly fragmented and presence of various small and micro players limits pricing power. KEL faces competition from domestic players as well as imported extrusion machinery. Also, the segment is technology-intensive and is susceptible to the risk of technological obsolescence. However, this risk is mitigated by KEL’s technological tie-ups and strategic collaborations with international players such as Battenfeld-Cincinnati (Germany) and Mecanor Oy (Finland). The demand for extrusion machinery is linked to the capex cycle of PVC and plastic products manufacturers, rendering KEL vulnerable to investment plans of its customers, especially during an economic slowdown when many companies defer or postpone their capex plans.

 

• Working capital intensive operations: The working capital cycle of the company remains elongated at 230-240 days in fiscal 2025 and H1FY26. It is expected to remain elevated at 200-220 days over the medium term as inventory days remain high. The high inventory is due to high gestation period of around 6 to 8 months for the complex & high-end extrusion machinery and 4-5 months for other extrusion machinery. Majority of the inventory (60-65%) is towards extrusion division. Receivables remained in line with previous levels and is expected at 70-80 days. However, ~38% of the outstanding debtors as on September 30, 2025 was from one customer which is facing liquidity challenges. Any provisioning towards this outstanding and further stretch in the working capital cycle will be key monitorable.

Liquidity Adequate

Expected cash accrual of Rs 30-40 crore per annum over the medium term along and unencumbered cash surplus of around Rs 44 crore as on September 30, 2025, will be sufficient to cover debt obligation of Rs 2.67 crore in the 2nd half of the fiscal 2026 and capex of Rs 25-30 crore per annum. Any incremental working capital requirement will likely be managed through internal accruals, bank limits and internal resources. Furthermore, the utilisation of fund-based limits was 79% on average over the 12 months through October 2025.

Outlook Negative

Slower-than-expected ramp-up and continued losses in battery division, along with elongated working capital cycle, may impact the overall credit risk profile of KEL over the medium term.

Rating sensitivity factors

Upward Factors:

• Increase in scale of operations through business diversification with sustained operating margins sustained above 11-12% and improvement in the overall net-working capital cycle.
• Sustenance of strong financial risk profile.

 

Downward Factors:

• Decline in overall revenue with operating margins falling below 7% with continued losses in battery division impacting overall cash generation
• Large, debt-funded capex or major liability arising from warranty claims or sizeable stretch in the working capital cycle, constraining the debt protection metrics or adjusted gearing on a sustained basis

About the Company

Incorporated in 1982, KEL is a part of the Kolsite group of companies. It manufactures plastic extrusion machinery and mono and multilayer blown film plants, used in industries such as pipes and packaging. Its manufacturing facilities are in Daman. During fiscal 2020, KEL also entered the EV battery packs segment, with a new manufacturing facility in Pune. The company has technological tie-ups with Battenfeld Extrusiontechnik GmbH, Germany, which is valid till 2026. KEL also has a R&D division, which enables the launch of new models and upgrade of existing models.

 

For the six months ended September 30, 2025, operating income was Rs 221 crore and loss was Rs 6 crore, against Rs 216 crore and profit after tax of Rs 15 crore, respectively, during the corresponding period of the previous fiscal.

Any other information: Not applicable