Rating Rationale
January 08, 2019 | Mumbai
Kabra Extrusiontechnik Limited
Rating outlook revised to 'Negative'; short-term rating downgraded to 'CRISIL A1'
 
Rating Action
Total Bank Loan Facilities Rated Rs.21 Crore
Long Term Rating CRISIL A+/Negative (Outlook revised from 'Stable' and rating reaffirmed)
Short Term Rating CRISIL A1 (Downgraded from 'CRISIL A1+')
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has revised its outlook on the long term bank facilities of Kabra Extrusiontechnik Limited (Kabra) to 'Negative' from 'Stable' and reaffirmed the rating at 'CRISIL A+'. Short term rating has been downgraded to 'CRISIL A1' from 'CRISIL A1+'.

The rating action reflects CRISIL's belief that Kabra's business risk profile may weaken and working capital intensity may remain high over the medium-term.

Kabra's operating profitability was at 0.5% over the first six months of fiscal 2019, as compared to an average of 5.9% over the corresponding period of the previous three fiscals. While the business is cyclical in nature and operating performance picks up in the second half of the fiscal; however, the cash accruals in fiscal 2019 may be weaker as compared to the past. 

Further, Kabra's working capital intensity may remain elongated as compared to CRISIL's earlier expectations. Inventory days increased to 156 days as on March 31, 2018 (as compared to 97 days as on March 31, 2016). Inventory has further increased to 250 days as on September 30, 2018, leading to increase in borrowings to Rs 27 crore from Rs 4 crore as on March 31, 2018. While the inventory levels are expected to correct partially as operations pick up in second half, it may remain higher than erstwhile levels of 3-4 months.

The ratings continue to reflect Kabra's established market position in the plastic extrusion machinery business, healthy financial risk profile driven by strong debt protection metrics and low gearing. These strengths are partially offset by exposure to intense competition and susceptibility to cyclicality in the plastic products industry.

Key Rating Drivers & Detailed Description
Strengths
* Established market position in plastic extrusion machinery segment: Kabra has an established track record of more than 25 years in manufacturing and commissioning of plastic extrusion machinery. It has a healthy market position in India, particularly in the pipes extrusion machinery market, wherein it has a market share of around 35%.

* Healthy financial risk profile: Healthy financial risk profile is marked by low gearing and robust debt protection metrics owing to low debt levels and moderate margins. Although, working capital intensity increased in first half of fiscal 2019 with gross current asset days increasing to 410 days as on September 30, 2018 from 223 days as on March 31, 2018, leading to increase in debt levels, the capital structure remains healthy with gearing at 0.12 times as on September 30, 2018.

Weaknesses
* Exposure to intense competition: Domestic extrusion machinery segment is highly fragmented, characterized by presence of various small and micro players which limits pricing power. Therefore, Kabra is exposed to competition from domestic players and imported extrusion machinery. Also, the segment is technology-intensive and is susceptible to the risk of technological obsolescence. However, the same is mitigated partly through Kabra's technological tie-ups and strategic collaborations with international players such as Battenfeld-cincinnati (Germany), Unicor Gmbh, Extron Mecanor (Finland), Penta Srl (Italy).

* Cyclicality in plastic products industry: The demand for extrusion machinery is linked to the capital expenditure (capex) programmes of plastic products manufacturers, rendering Kabra vulnerable to investment plans of its customers, especially during an economic slowdown when many companies may defer or postpone their capex plans.
Outlook: Negative

CRISIL believes that Kabra's business risk profile may weaken if the operating performance does not improve or the working capital cycle remain elongated over the medium term. The rating may be downgraded if the cash accruals are weaker than expected or the debt remains elevated on account of debt-funded capex or elongated working capital cycle. Conversely, the outlook may be revised to 'Stable' if Kabra achieves a substantial and sustainable improvement in cash accruals and working capital cycle, while maintaining a healthy financial risk profile.

Liquidity
Kabra has adequate liquidity driven by expected cash accruals of more than Rs 20 crore per annum in fiscal 2019 and fiscal 2020 and cash and cash equivalents of Rs 26 crore as on September 30, 2018. Kabra also has access to fund based limits of Rs 59 crore utilized to the tune of 31% on an average over the 10 months ended November 2018. The company has no long term debt and moderate capex plan of Rs 5 - 10 crore per annum in fiscal 2019 and in fiscal 2020. CRISIL expects internal accruals, cash & cash equivalents and unutilized bank lines to be sufficient to meet its capex as well as incremental working capital requirements.

About the Company

Kabra, was set up in 1982 and is 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. It has technological tie-ups with Battenfeld Extrusiontechnik GmbH, Germany which is valid till 2026 and Unicor Gmbh. Kabra also has DSIR (GoI) approved an in-house research and development (R&D) division, which enables the launch of new models and upgrade of existing models. The R&D division facilitates continuous innovation.

For the 6 months ended September 2018, the company reported a PAT of Rs 6.7 crore on operating income of Rs 90 crore, as against a loss after tax of Rs 1.1 crore on operating income of Rs 99 crore for the same period of previous fiscal.

Key Financial Indicators
As on/for the period ended March 31 2018 2017
Revenue Rs Crore 268 276
Profit After Tax (PAT) Rs Crore 20 20
PAT Margins % 7.5 7.4
Adjusted Debt/Adjusted Networth Times 0.02 0.05
Interest Coverage Times 19.9 21.2

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 (Rs Cr) Rating outstanding with Outlook
NA Cash credit* NA NA NA 9 CRISIL A+/Negative
NA Cash credit** NA NA NA 10 CRISIL A+/Negative
NA Letter of credit NA NA NA 1 CRISIL A1
NA Bank Guarantee NA NA NA 1 CRISIL A1
*Interchangeable up to Rs 2.5 crore with export packing credit, fully interchangeable with bill discounting, interchangeable up to Rs 5 crore with export bill discounting/negotiation.
**Fully interchangeable with packing credit, working capital demand loan, foreign bills purchase/discounting/negotiation, post-shipment credit in foreign currency, buyer's credit, and letter of credit; interchangeable up to Rs 5 crore with bank guarantee
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  19.00  CRISIL A+/Negative      23-02-18  CRISIL A+/Stable  18-05-17  CRISIL AA-/Negative  16-02-16  CRISIL AA-/Negative  CRISIL AA-/Negative 
Non Fund-based Bank Facilities  LT/ST  2.00  CRISIL A1      23-02-18  CRISIL A1+  18-05-17  CRISIL A1+  16-02-16  CRISIL A1+  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
Bank Guarantee 1 CRISIL A1 Bank Guarantee 1 CRISIL A1+
Cash Credit* 9 CRISIL A+/Negative Cash Credit* 9 CRISIL A+/Stable
Cash Credit** 10 CRISIL A+/Negative Cash Credit** 10 CRISIL A+/Stable
Letter of Credit 1 CRISIL A1 Letter of Credit 1 CRISIL A1+
Total 21 -- Total 21 --
*Interchangeable up to Rs 2.5 crore with export packing credit, fully interchangeable with bill discounting, interchangeable up to Rs 5 crore with export bill discounting/negotiation.
**Fully interchangeable with packing credit, working capital demand loan, foreign bills purchase/discounting/negotiation, post-shipment credit in foreign currency, buyer's credit, and letter of credit; interchangeable up to Rs 5 crore with bank guarantee
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

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