Rating Rationale
February 22, 2018 | Mumbai
Kokuyo Camlin Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.144.65 Crore
Long Term Rating CRISIL A/Stable (Reaffirmed)
Short Term Rating CRISIL A1 (Reaffirmed)
 
Rs.20 Crore Commercial Paper CRISIL A1 (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its ratings on the bank facilities and commercial paper of Kokuyo Camlin Limited (Camlin) at 'CRISIL A/Stable/CRISIL A1'.

The ratings continue to reflect the significant benefits derived from business and financial linkages with the parent, Kokuyo & Co Ltd, Japan (Kokuyo). The ratings also factor in a strong brand in the stationery segment and an adequate financial risk profile. These strengths are partially offset by susceptibility to intense competition and to volatility in input prices, leading to pressure on profitability.

For the nine months through December 2017, revenue was Rs 442 crore and the operating profitability margin 5.5%; the margin is expected to sustain over the medium term. Revenue will be supported by improving demand and introduction of new products. While business will be susceptible to intense competition, the financial risk profile should remain adequate over this period because of modest capital expenditure (capex) plans, steady cash accrual, and prudent funding of working capital requirement.

Analytical Approach

For arriving at its ratings, CRISIL has combined the financial and business risk profiles of Camlin and its wholly owned subsidiary, Camlin International Ltd till fiscal 2017. That's because the two companies, together referred to as the Camlin group, are in the same business and under a common management, and have financial linkages with each other. However, Camlin has decided to wind up Camlin International Limited in fiscal 2018 and going forward standalone financial and business risk profile will be considered for arriving at the ratings.

CRISIL has also applied its parent notch-up framework to factor in support from Kokuyo.

Key Rating Drivers & Detailed Description
Strengths
* Strong operational and financial support from the parent
Kokuyo is a leading company in office stationery products in Japan, particularly in notebooks and office supplies. Product offerings of the Camlin have widened as a result of technical collaboration for new product development with the parent. Strong financial support from the parent is reflected in the rights issue of Rs 103 crore in fiscal 2014, primarily for expansion.

* Strong brand in the stationery segment
Camlin is one of India's strongest brands across stationery products. The group has a wide variety of stationery products such as pencils, geometry boxes, and scholastic colours. The strong distribution network with more than 300,000 retail outlets and over 2500 stock-keeping units aids sales growth.

* Adequate financial risk profile
The gearing and networth were healthy, at 0.44 time and Rs 226 crore, respectively, as on September 30, 2017. The gearing is likely to be sustained at a similar level in the absence of any large, debt-funded capex over medium term. Sustenance of profitability and return on capital employed (RoCE) will remain key rating monitorables.

Weakness
* Susceptibility to intense competition and volatility in raw material prices
Intense competition from both organised and unorganised players leads to pricing and margin pressures. However, the operating margin is expected to sustain over the medium term supported by cost and operational efficiencies. The margin is also vulnerable to volatility in raw material prices.
Outlook: Stable

CRISIL believes the Camlin group will maintain its business risk profile over the medium term, supported by an established brand and a strong distribution network, and continue to benefit from business and financial linkages with Kokuyo. The ratings will also be sensitive to any change in the credit risk profile of the parent.

Upside scenario:
* Sustenance of improvement in profitability over the medium term
* Maintenance of the financial risk profile, backed by no major debt-funded capex

Downside scenario:
* Lower-than-expected revenue or profitability
* Increase in working capital requirement, thereby putting pressure on liquidity.

About the Company

Camlin was set up as Dandekar & Company in 1931 by Mr Digambar Dandekar and Mr Govind Dandekar and was reconstituted as a public limited company in 1946 and was listed in 1988. The Camlin group manufactures a variety of stationery products at its plants in Tarapur, Taloja, and Vasai in Maharashtra, and in Jammu. It has set up a new unit in Patalganga, Maharashtra. After the rights issue in fiscal 2014, Kokuyo's stake went up to 70.66% from 50.74%. Currently, Kokuyo holds 73.75% stake.

On a provisional basis, profit after tax (PAT) was Rs 4 crore on net sales of Rs 442 crore for the nine months ended December 31, 2017; net loss was Rs 2 crore on net sales of Rs 446 crore for the corresponding period of the previous fiscal.

Key Financial Indicators^
As on/for the period ended March 31, Unit 2017 2016
Revenue Rs. crore 640 615
Profit After Tax (PAT) Rs. crore 0.2 5
PAT margin % 0.03 0.9
Adjusted debt/adjusted net worth Times    0.45 0.45
Interest coverage Times 2.17 2.78
^CRISIL adjusted numbers

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 Working Capital Demand Loan NA NA NA 51 CRISIL A1
NA Cash Credit NA NA NA 4.34 CRISIL A/Stable
NA External Commercial Borrowings NA LIBOR+ 0.50 Mar-2021 18.7 CRISIL A/Stable
NA Buyer`s Credit NA NA NA 0.64 CRISIL A1
NA Bill Discounting NA NA NA 30.00 CRISIL A1
NA Auto loans NA NA Aug-2022 0.33 CRISIL A/Stable
NA Proposed Long Term Bank Loan Facility NA NA NA 39.64 CRISIL A/Stable
NA Commercial Paper NA NA 7-365 days 20 CRISIL A1
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Quantum Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  20  CRISIL A1    No Rating Change    No Rating Change    No Rating Change    No Rating Change  CRISIL A1 
Fund-based Bank Facilities  LT/ST  144.65  CRISIL A/Stable/ CRISIL A1    No Rating Change    No Rating Change    No Rating Change    No Rating Change  CRISIL A/Stable/ CRISIL A1 
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
Auto loans .33 CRISIL A/Stable Auto loans .11 CRISIL A/Stable
Bill Discounting 30 CRISIL A1 Bill Discounting 30 CRISIL A1
Buyer`s Credit .64 CRISIL A1 Buyer`s Credit 2.4 CRISIL A1
Cash Credit 4.34 CRISIL A/Stable Cash Credit 32 CRISIL A/Stable
External Commercial Borrowings 18.7 CRISIL A/Stable External Commercial Borrowings 27.91 CRISIL A/Stable
Proposed Long Term Bank Loan Facility 39.64 CRISIL A/Stable Proposed Long Term Bank Loan Facility 1.23 CRISIL A/Stable
Working Capital Demand Loan 51 CRISIL A1 Working Capital Demand Loan 51 CRISIL A1
Total 144.65 -- Total 144.65 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Criteria for rating instruments backed by guarantees
Rating criteria for manufaturing and service sector companies
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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