| Kaira Can Company Limited | ||||||
| Rating outlook revised to 'Negative'; 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 loan facilities of Kaira Can Company Limited (KCCL) to ‘Negative’ from ‘Stable’ and has reaffirmed the rating at ‘CRISIL A-’. The Short-term rating has been reaffirmed at ‘CRISIL A2+’.
The change in outlook reflects moderation in the business risk profile of the company. Company’s scale of operations has declined on account of subdued demand to Rs ~118 crores for H1FY24 from Rs 147 crores for H1FY23. Consequently, operating margins have also been impacted and have declined to 3.5% for H1FY24. Company’s accrual is expected to moderate in fiscal 2024. Improvement in business risk profile with revival in demand will remain key monitorable over medium term.
Financial risk profile continues to remain strong on account of nil debt and availability of healthy cash and cash equivalents.
The ratings continue to reflect KCCL's established market position in the tin can industry, its strong association with Gujarat Co-operative Milk Marketing Federation Ltd (GCMMF; rated 'CRISIL AAA/Stable/CRISIL A1+'), and healthy financial risk profile. These strengths are partially offset by moderate scale of operations, and moderate working capital cycle. |
Key Rating Drivers & Detailed Description Strengths: Established market position in the tin can manufacturing industry: Over the past five decades, KCCL has established its market position as one of India’s largest tin can manufacturers. Products include open-top sanitary, general-line, and aerosol cans and rolled sugar cones. The company clientele includes reputable players in the dairy, food processing and FMCG segment.
Long standing association with GCMMF: Sales to GCMMF, the largest food products marketing organization in India, account for 85-90% of KCCL’s revenue. KCCL has been supplying tin cans to GCMMF since inception and meets around 90-95% of its ‘can’ requirement. The proximity of the company’s manufacturing operations to GCMMF also provides added advantage to company.
Healthy financial risk profile: Capital structure was strong, as reflected in networth and total outside liabilities to tangible networth ratio of Rs 84 crore and 0.35 times, respectively, as on March 31, 2023. Debt protection metrics were comfortable, as indicated by interest coverage and net cash accrual to adjusted debt ratios of 78.2 times and 0 times, respectively, in fiscal 2023 this is on account of nil external debt. Company having capital expenditure (capex) which will be funded through free cash & cash equivalent available and internal accruals, the capital structure will remain comfortable over the medium term. Although the financial risk profile is expected to be comfortable, any large debt or cost overruns in the planned capex would remain closely monitorable.
Weakness: Moderate scale of operations: Revenue of Rs 254 crore in fiscal 2023, reflects the moderate scale of operations, which curtails benefits from economies of scale and bargaining power with customers and suppliers. Due to lower demand, the scale has declined in H1FY24 to Rs 118 crores. Its improvement over the medium term will remain key monitorable.
Working capital intensive operations: The Company’s operations are working capital intensive with GCA days ranging between 109-140 days in the past 3 fiscals on the back of higher inventory days. GCA days have been on a declining trend over the past years, GCA days have been 108 days as on March 31,2023 and it is expected to be in the same range over medium term. |
Liquidity- Adequate Bank limit utilization is nil for the past 13 months ending October 2023. Cash accrual is expected to be over Rs 7 crores against which there is no term debt obligation over the medium term. Current ratio is also healthy at 2.7 times as on March 31, 2023. Company has capex plans which will be funded through internal accruals and available cash and bank balances. |
Outlook: Negative CRISIL Ratings believes that KCCL’s overall business risk profile will face moderation amid lower demand for the products. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company KCCL, incorporated in 1962, manufactures metal tin cans and sugar cones. It has one manufacturing unit for cans at Kanjari, and one for sugar cones in Vitthal Udyog Nagar, in Gujarat. The company is promoted by the Kapadia family, and its operations are managed by professionals. It is listed on the Bombay Stock Exchange. |
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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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||
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Criteria Details
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