Rating Rationale
June 19, 2019 | Mumbai
Kabra Extrusiontechnik Limited
Long-term rating downgraded to 'CRISIL A/Stable'; short-term rating reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.54 Crore
Long Term Rating CRISIL A/Stable (Downgraded from 'CRISIL A+/Negative')
Short Term Rating CRISIL A1 (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has downgraded the long term rating of Kabra Extrusiontechnik Limited (KEL) to 'CRISIL A/Stable' from 'CRISIL A+/Negative'. The rating on the short term bank loan facilities has been reaffirmed at 'CRISIL A1'.
 
The rating action reflects CRISIL's belief that KEL's business risk profile will remain constrained over the medium term on account of the company's entry into a new segment manufacturing Lithium-ion battery packs for electric vehicles. KEL has a planned capex of Rs 60 crores towards the new segment, part of which has already been incurred till fiscal 2019. CRISIL believes KEL will remain exposed to project risks in the new segment, till the volumes ramp up and the operations stabilize.
 
KEL's financial risk profile is likely to moderate over the medium term as the capex for the battery packs segment will be partly debt funded. As a result, net debt levels are likely to increase; however, they will remain comfortable for the rating category.
 
For fiscal 2019, operating income declined by 6% year-on-year. Working capital cycle continue to remain elongated with gross current asset (GCA) days of 244 days as on March 2019 with increase in inventory days to 173 days (156 days during previous year) despite improvement in the debtor days to 53 days (60 days during previous year).
 
The ratings continue to reflect Kabra's established market position in the plastic extrusion machinery business and comfortable financial risk profile. These strengths are partially offset by exposure to intense competition, susceptibility to cyclicality in the plastic products industry and exposure to project risks in the battery packs segment.

Key Rating Drivers & Detailed Description
Strengths
* Established market position in plastic extrusion machinery segment:
KEL 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%.

* Comfortable financial risk profile: Comfortable financial risk profile is marked by low gearing and robust debt protection metrics owing to low debt levels and moderate margins. Despite increase in the working capital intensity over the last two years, the debt has remained at low levels. Interest coverage ratio and net cash accruals to total debt are at 16 and more than 3 times respectively during fiscal 2019. Debt levels are expected to increase on account of the capex for the batter packs segment; however, debt protection metrics are expected to remain comfortable for the rating. 

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, KEL 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 KEL'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 mainly linked to the capital expenditure (capex) programmes of plastic products manufacturers, rendering KEL vulnerable to investment plans of its customers, especially during an economic slowdown when many companies may defer or postpone their capex plans.

* Exposure to project risks in the battery packs segment: KEL is entering a new segment of manufacturing of Lithium-ion battery packs for electric vehicles. CRISIL believes the company will remain exposed to project risks, till the volumes ramp up and operations stabilize.
Liquidity

Liquidity is adequate with cash and cash equivalents of over Rs. 15 crore as on March 31, 2019 and low average bank limit utilization of 32% over the 12 months period ended April 2019. Company has no long term debt as on March 31, 2019 and expected cash accruals of more than Rs. 20 crores will remain adequate for meeting the incremental working capital requirements in fiscal 2020.

Outlook: Stable

CRISIL believes that KEL's credit risk profile will benefit from its established market position in the plastic extrusion machinery segment and comfortable financial risk profile.

Upside scenario:
* Substantial and sustainable improvement in revenue and profitability
* Significant improvement in the working capital intensity leading to strengthening of financial risk profile
* Faster than expected stabilization of KEL's battery packs segment, leading to ramp up in revenues and cash generation.
 
Downside scenario:
* Higher than expected debt-funded capex or stretch in working capital intensity thereby weakening the financial risk profile
* Decline in revenue or profitability thereby leading to lower-than-expected cash accruals

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.

Key Financial Indicators
As on/for the period ended March 31 Unit 2019 2018
Operating Income Rs Crore 252 268
Profit after tax (PAT) Rs Crore 24 20
PAT Margins % 9.7 7.5
Adjusted Debt/Adjusted Net worth Times 0.04 0.02
Interest Coverage Times 16.22 19.89

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/Stable
NA Cash credit** NA NA NA 40 CRISIL A/Stable
NA Letter of credit NA NA NA 1 CRISIL A1
NA Bank Guarantee NA NA NA 3 CRISIL A1
NA Proposed Long Term Bank Loan Facility NA NA NA 1 CRISIL A/Stable
*Interchangeable up to Rs 7.5 crore with export packing credit, fully interchangeable with bill discounting, interchangeable up to Rs 7.5 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, bank guarantee (Rs 10 Crs) and letter of credit (Rs 30 Crs).
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  50.00  CRISIL A/Stable  10-01-19  CRISIL A+/Negative  23-02-18  CRISIL A+/Stable  18-05-17  CRISIL AA-/Negative  16-02-16  CRISIL AA-/Negative  CRISIL AA-/Negative 
        08-01-19  CRISIL A+/Negative               
Non Fund-based Bank Facilities  LT/ST  4.00  CRISIL A1  10-01-19  CRISIL A1  23-02-18  CRISIL A1+  18-05-17  CRISIL A1+  16-02-16  CRISIL A1+  CRISIL A1+ 
        08-01-19  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 3 CRISIL A1 Bank Guarantee 3 CRISIL A1
Cash Credit* 9 CRISIL A/Stable Cash Credit* 9 CRISIL A/Negative
Cash Credit** 40 CRISIL A/Stable Cash Credit** 40 CRISIL A+/Negative
Letter of Credit 1 CRISIL A1 Letter of Credit 1 CRISIL A1
Proposed Long Term Bank Loan Facility 1 CRISIL A/Stable Proposed Long Term Bank Loan Facility 1 CRISIL A+/Negative
Total 54 -- Total 54 --
* Interchangeable up to Rs 7.5 crore with export packing credit, fully interchangeable with bill discounting, interchangeable up to Rs 7.5 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 (Rs 30 Crs); interchangeable up to Rs 10 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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