Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil BBB+/Stable/Crisil A2’ ratings on the bank facilities and fixed deposits programme of Kores India Ltd (Kores).

 

The ratings continue to reflect the diverse revenue profile of the company and the extensive entrepreneurial experience of the promoters. These strengths are partially offset by average financial risk profile and exposure to risks posed by economic downturns, regulatory challenges in the pharmaceutical (pharma) industry, intense competition and volatility in raw material prices.

 

Revenue is expected to moderate ~3% in fiscal 2025 to Rs 945 crore (after reporting 3.2% growth in fiscal 2024) led by weaker performance of the company’s foundry business, amid subdued demand in the first half of fiscal 2025 from the automobile segment. The revenue for the foundry division is expected to be around Rs 380 crore in fiscal 2025, as against Rs 395 crore in fiscal 2024. The conventional segment (34% of revenue) is expected to remain flat in fiscal 2025, excluding loss of one-off tender business of inedible ink markers worth Rs 20 crore in fiscal 2024. The engineering division, which mainly caters to the mining sector, is expected to sustain strong revenue growth in fiscal 2025 and achieve revenue of Rs 70 crore given increase in the accessories business. The pharmaceuticals and chemicals division (PCD) is expected to report Rs 115 crore revenue in fiscal 2025, compared with Rs 123 crore in fiscal 2024, owing to normalisation in demand for some respiratory products.

 

Operating margin increased to 9.3% in fiscal 2024 owing to decline in raw material prices and operational costs. The operating margin in fiscal 2025 is projected at 7.1% in line with past expectations and should remain at 7-8% over the medium term as the Halol plant ramps up.

 

The financial risk profile will remain adequate, with net cash accrual expected over Rs 35 crore in fiscal 2025. Networth is projected at over Rs 210 crore as on March 31, 2025, vis-a-vis Rs 194 crore a year earlier. Though debt has increased due to debt-funded capital expenditure (capex), debt protection metrices remain comfortable, with interest coverage ratio expected over 3.5 times in the medium term. Increasing revenue and stable profitability should lead to improvement in the financial risk profile over the medium term.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of Kores and its subsidiaries, collectively referred to herein as Kores, as the entities are engaged in similar businesses and have operational and financial synergies. Promoter loans have been treated as debt as the loan may be repaid using excess cash flow.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation

Key Rating Drivers & Detailed Description

Strengths:

Diverse revenue profile

The company operates in four segments: conventional stationery, foundry, engineering and PCD. This mitigates the impact of slowdown or cyclicality in any segment on performance. For instance, while the PCD segment saw decline in net sales given the normalisation of demand post the Covid-19 pandemic, the company continues to report stable revenue in other divisions. The foundry division, with enhanced capacity at Halol plant, is expected to see an increase in revenue over the medium term. The conventional stationery division has seen improvement post the pandemic. Furthermore, the engineering division, which has reported revenue of Rs 40-50 crore, is expected to see growth in revenue over the medium term backed by higher product offerings.

 

Extensive experience of the promoters

The promoters have extensive experience in various businesses and established relationships with customers and suppliers. Under the Thirani family members, the company has diversified into various segments such as office automation, foundry, engineering, pharma, art materials and writing instruments. The management has taken timely decisions to exit unviable businesses, such as textiles and real estate.

 

Weaknesses:

Susceptibility to economic cycles and regulatory changes

Growth has been highly volatile due to challenges faced across business segments. The foundry and engineering divisions are dependent on the auto and mining industries, respectively, and slowdown in these sectors could impact growth. Apart from economic cyclicality, Kores remains vulnerable to changes in regulatory policies. The performance of the pharma division has weakened due to products not gaining market share and non-compliance with the European Directorate for the Quality of Medicines and HealthCare (EDQM) audit, affecting sales in European markets.

 

Exposure to intense competition in key segments and volatility in raw material prices

Intense competition in key business segments keeps the operating margin modest at 6-8%. In the pharma division, cheaper intermediates from China have added to the pricing pressure. In the stationery segment, competition from unorganised entities and large, reputed players in the organised sector restricts pricing power. This risk is partially offset by strong relationships with established customers. Volatility in raw material prices may constrain profitability as the company does not have the ability to pass on the hikes in prices to customers. That said, the company is able to pass on fluctuations in input prices in the engineering division and with lag of one quarter in the foundry division, which contributes to more than 50% of earnings before interest, tax, depreciation and amortisation (Ebitda), partially offsetting the impact of raw material price volatility.

 

Average financial risk profile

Total debt is projected at Rs 221 crore as on March 31, 2025, against Rs 161 crore a year earlier, on account of increase in debt undertaken for funding capex at the Halol plant and minimal capex requirement in other divisions. Gearing is expected to increase to 1.05 times as on March 31, 2025, from 0.83 time a year earlier due to increase in debt levels and interest coverage ratio likely to remain over 3.5 times in fiscal 2025 from 5.6 times in previous fiscal. That said, the financial risk profile is expected to remain comfortable in the medium term backed by adequate cash accruals.

Liquidity: Adequate

Liquidity will likely remain adequate over the medium term. Expected debt obligation, including net outflow of fixed deposits and intercorporate borrowing of around Rs 12 crore, Rs 20 crore and Rs 27 crore in fiscals 2025, 2026 and 2027, respectively, will be funded through expected cash accrual of Rs 35-50 crore each fiscal over the medium term. Also, the capex will be funded through a mix of debt and internal accrual. Bank limit of Rs 80 crore was utilised 61% on average for the 12 months through December 2024, and unencumbered cash surplus was around Rs 2 crore as on March 31, 2024. The company manages its liquidity proactively, and the promoters may infuse funds in case of any shortfall.

Outlook: Stable

The credit risk profile of Kores will remain supported by stable demand in key end-user industries, such as automobiles and conventional stationery. The financial risk profile will likely be comfortable with healthy cash accrual strengthening the capital structure and debt protection metrics.

Rating Sensitivity Factors

Upward Factors

• Continued healthy revenue growth and sustained profitability
• Strengthening of capital structure and improvement in interest coverage ratio to 4.0-4.5 times on a sustained basis

 

Downward Factors

• Decline in revenue and fall in operating margin below 5% leading to lower cash accrual
• Large, debt-funded capex or acquisition leading to increase in gearing and weakening of debt protection metrics

About the Company

Kores was incorporated in 1936 as a subsidiary of the Austrian company, Kores Holding Zug AG. The company initially manufactured office stationery. In 1956, it was acquired by late Mr K L Thirani and diversified into distribution of office and banking automation products, real estate, pharma and foundry, and fabrication of drilling-related equipment. Mr Anand Kumar Thirani is the managing director. In fiscal 2024, 34% of the revenue came from the conventional segment, 46% from the foundry division, 14% from pharma and 6% from engineering businesses.

Key Financial Indicators (Consolidated)

As on/for the period ended March 31*	Unit	2024	2023
Operating income	Rs crore	980	950
Reported profit after tax (PAT)	Rs crore	39	27
PAT margin	%	4.0	2.8
Adjusted debt / adjusted networth	Times	0.83	1.10
Interest coverage	Times	5.58	3.62

*Crisil Ratings-adjusted numbers

Any other information: Not Applicable