Rating Rationale
September 22, 2017 | Mumbai
Kaira Can Company Limited
Rating outlook revised to 'Stable'; ratings reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.51.5 Crore
Long Term Rating CRISIL A-/Stable (Outlook Revised from 'Negative' and rating reaffirmed)
Short Term Rating CRISIL A2+ (Reaffirmed)
 
Rs.4.84 Crore Fixed Deposit Programme FA/Stable (Reaffirmed; Outlook Revised from 'Negative')
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 and fixed deposits programme  of Kaira Can Company Limited (KCCL) to 'Stable' from 'Negative', and reaffirmed the ratings at 'CRISIL A-/FA'; the rating on the company's short-term bank facilities has been reaffirmed at 'CRISIL A2+'.
 
The outlook revision reflects KCCL's stronger business risk profile: revenue and operating margin improved in fiscal 2017, following a decline of 14% and 2.3%, respectively in the previous fiscal. The revenue is expected to grow by around 10-12% per annum over the medium term, driven by a good mango season and increased demand for cans and cones in other segments. Furthermore, in the three months through June 2017, operating margin improved to 8.6% and turnover increased by around 10% over the corresponding period of the previous fiscal due to a good mango season. Correction in operating margin and moderate revenue growth will be driven by revival in production of dry milk products and addition of customers.
 
The ratings continue to reflect KCCL's established market position in the tin can industry, 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 modest scale of operations, and susceptibility to volatile input prices and foreign exchange (forex) rates.

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 the largest tin can manufacturers in India. Products include open-top sanitary, general-line, and aerosol cans and rolled sugar cones.
 
* Strong association with GCMMF: Sales to GCMMF, the largest food products marketing organisation in India, contributes 55-60% to KCCL's revenue. KCCL has been supplying tin cans to GCMMF since inception, and meets 90-95% of its can requirement.
 
* Healthy financial risk profile: Financial risk profile is supported by networth of Rs 52 crore and low total outside liabilities to adjusted networth (TOLANW) ratio of 0.8 time as on March 31, 2017. Interest coverage and NCATD ratios were also healthy, at 6.8 times and 0.67 time, respectively, in fiscal 2017.
 
Weakness
* Modest scale of operations: Scale of operations remains small, with net sales of Rs 120.87 crore in fiscal 2017, constraining the credit risk profile, and limiting benefits from economies of scale and bargaining power with customers and suppliers.
 
* Exposure to volatility in input prices and forex rates: Price of tin plate, the key raw material, tends to be volatile. Moreover, absence of long-term supply contracts, increases vulnerability to sharp price fluctuations. The company is also exposed to volatility in forex rates, as the bulk of sales is in rupees, while around 75% of raw material is imported.
Outlook: Stable

CRISIL believes KCCL will continue to benefit over the medium term from its established customer relationships and healthy financial risk profile. The outlook may be revised to 'Positive' in case of significant and sustained increase in revenue, while profitability remains stable and financial risk profile is comfortable. The outlook may be revised to 'Negative' if decline in revenue or profitability, stretch in working capital cycle, or any large capital expenditure weakens financial risk profile significantly.

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
Particulars Unit 2017 2016
Revenue Rs. Cr. 131.01 125.58
Profit After Tax Rs. Cr. 2.74 1.58
PAT Margins % 2.1 1.3
Adjusted Debt/Adjusted Net worth Times 0.20 0.43 
Interest coverage Times 6.8 3.3

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 Cr) Rating assigned with outlook
NA Bank guarantee NA NA NA 0.5 CRISIL A2+
NA Cash credit NA NA NA 12.5 CRISIL A-/Stable
NA Letter of credit NA NA NA 19.0 CRISIL A2+
NA Overdraft facility NA NA NA 2.5 CRISIL A2+
NA Export packing credit & export bills negotiation/ foreign bill discounting NA NA NA 2.0 CRISIL A2+
NA Working capital facility NA NA NA 15.0 CRISIL A-/Stable
NA Fixed Deposit Programme NA NA NA 4.84 FA/Stable
Annexure - Rating History for last 3 Years
  Current 2017 (History) 2016  2015  2014  Start of 2014
Instrument Type Quantum Rating Date Rating Date Rating Date Rating Date Rating Rating
Fixed Deposits  FD  4.84  FA/Stable    No Rating Change  29-09-16  FA/Negative  17-11-15  FA/Stable    --  -- 
Fund-based Bank Facilities  LT/ST  32  CRISIL A-/Stable/ CRISIL A2+    No Rating Change  29-09-16  CRISIL A-/Negative/ CRISIL A2+  08-10-15  CRISIL A-/Stable/ CRISIL A2+    --  -- 
Non Fund-based Bank Facilities  LT/ST  19.5  CRISIL A2+    No Rating Change    No Rating Change  08-10-15  CRISIL A2+    --  -- 
Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee .5 CRISIL A2+ Bank Guarantee .5 CRISIL A2+
Cash Credit 12.5 CRISIL A-/Stable Cash Credit 12.5 CRISIL A-/Negative
Export Packing Credit & Export Bills Negotiation/Foreign Bill discounting 2 CRISIL A2+ Export Packing Credit & Export Bills Negotiation/Foreign Bill discounting 2 CRISIL A2+
Letter of Credit 19 CRISIL A2+ Letter of Credit 19 CRISIL A2+
Overdraft 2.5 CRISIL A2+ Overdraft 2.5 CRISIL A2+
Working Capital Facility 15 CRISIL A-/Stable Working Capital Facility* 15 CRISIL A-/Negative
Total 51.5 -- Total 51.5 --
*Sub-limit for overdraft facility of Rs 7.5 crore, working capital demand loan of Rs 6.0 crore, letter of credit of Rs 15.0 crore, buyer's credit of Rs 15.0 crore, packing credit of Rs 5.0 crore, and export bill purchase of Rs 5.0 crore
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
Rating Criteria for Fast Moving Consumer Goods Industry
CRISILs Bank Loan Ratings
Criteria for rating Short-Term Debt (including Commercial Paper)
The Rating Process
Understanding CRISILs Ratings and Rating Scales

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