Rating Rationale
December 06, 2018 | Mumbai
Krypton Industries Limited
Ratings upgraded to 'CRISIL BB-/Stable/CRISIL A4+'
 
Rating Action
Total Bank Loan Facilities Rated Rs.20.1 Crore
Long Term Rating CRISIL BB-/Stable (Upgraded from 'CRISIL B+/Stable')
Short Term Rating CRISIL A4+ (Upgraded from 'CRISIL A4')
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has upgraded its ratings on the bank facilities of Krypton Industries Limited (KIL) to 'CRISIL BB-/Stable/CRISIL A4+' from 'CRISIL B+/Stable/CRISIL A4'.

The upgrade reflects improvement in liquidity driven by cash accrual of Rs 1.63 crore in fiscal 2018 against a cash loss of Rs 2.12 crore in fiscal 2017. The cash loss was primarily due to disruption related to an export order in the rehabilitation care division, which also led to an operating loss of 1.2% in fiscal 2017. However, the operating margin has improved to 10.4% in fiscal 2018 on account of reduction of overhead cost and higher revenue driven by favourable market demand. Though liquidity may improve further, it is likely to remain constrained because of large working capital requirement resulting in an almost fully utilised bank limit and significant maturing debt obligation.

The ratings reflect the established relationship with customers in the polyurethane (PU) tyre segment. This rating strength is partially offset by susceptibility of operating profitability to volatility in raw material prices and large working capital requirement.

Key Rating Drivers & Detailed Description
Strengths
* Experienced management and established customer relationship: The promoters' experience of over 27 years in the PU tyre industry has helped bag big-ticket contracts. The company has long-term relationships with PU tyre customers, who are mostly overseas, which have helped to consistently secure repeat orders. The company is likely to be able to leverage this relationship to market its products in the global market.

Weakness
* Susceptibility of operating profitability to volatility in raw material prices
: Raw material costs account for a major portion of operating expenses. The prices of key raw materials, such as synthetic chemicals, have remained volatile in the past. Raw material inventory holding period was around 200 days during fiscal 2018. High raw material inventory further exposes the company to risks of volatility in raw material prices.

* Working capital-intensive operations: Gross current assets increased to 337 days as on March 31, 2018, from 329 days a year earlier, mainly because of higher inventory of 240 days against 200 days to counter price fluctuations. Debtors, however, reduced to 84 days from 100 days.
Outlook: Stable

CRISIL believes KIL will continue to benefit from its established relationship with customers. The outlook may be revised to 'Positive' in case of sustained increase in revenue and profitability. The outlook may be revised to 'Negative' if a steep decline in revenue or profitability, large debt-funded capital expenditure, or a stretched working capital cycle weakens the capital structure.

Liquidity Risk Profile
* High bank limit utilisation: Bank limit is fully utilised as for the last twelve months ended November 30, 2018. Crisil believes that bank limit utilisation is expected to remain high on account of large working capital requirement.

* Cash accrual sufficient to meet debt obligation: The cash accrual are expected to be over Rs.1.63 crore which is sufficient against term debt obligation of Rs.1.00 crore over the medium term. In addition, it will act as a cushion to the liquidity of the company.

* Moderate current ratio: Current ratio is moderate at 1.59 times as on March 31, 2018.

About the Company

KIL was established 1991 and had set up units for manufacturing of tyres at Falta Export Processing Zone, Sadhurhat, Diamond Harbour Road in West Bengal. The company currently manufactures tubeless PU tyres, tubes, wheels, castors, shoe soles, military shoes, safety shoes, and footwear, and wheelchairs and components for rehabilitation care.

Key Financial Indicators
As on/for the period ended March 31 Unit 2018 2017
Revenue Rs crore 29.73 33.58
Profit After Tax (PAT) Rs crore (0.04) (3.87)
PAT Margins % (0.01) (11.5)
Adjusted debt/adjusted networth Times 0.59 0.68
Interest coverage Times 1.5 (0.2)

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.Crore) Rating assigned with outlook
NA Bank Guarantee NA NA NA 0.45 CRISIL A4+
NA Cash Credit NA NA NA 8.3 CRISIL BB-/Stable
NA Import Letter of Credit Limit NA NA NA 1.5 CRISIL A4+
NA Letter of Credit NA NA NA 4 CRISIL A4+
NA Packing Credit NA NA NA 4 CRISIL A4+
NA Proposed Long Term Bank Loan Facility NA NA NA 1.7 CRISIL BB-/Stable
NA Term Loan NA NA Mar-2019 0.15 CRISIL BB-/Stable
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  14.15  CRISIL BB-/Stable/ CRISIL A4+      08-11-17  CRISIL B+/Stable/ CRISIL A4  18-03-16  CRISIL BB-/Stable/ CRISIL A4+  28-04-15  CRISIL BB-/Stable/ CRISIL A4+  CRISIL BB-/Stable/ CRISIL A4+ 
Non Fund-based Bank Facilities  LT/ST  5.95  CRISIL A4+      08-11-17  CRISIL A4  18-03-16  CRISIL A4+  28-04-15  CRISIL A4+  CRISIL A4+ 
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 .45 CRISIL A4+ Bank Guarantee .45 CRISIL A4
Cash Credit 8.3 CRISIL BB-/Stable Cash Credit 8.3 CRISIL B+/Stable
Import Letter of Credit Limit 1.5 CRISIL A4+ Import Letter of Credit Limit 1.5 CRISIL A4
Letter of Credit 4 CRISIL A4+ Letter of Credit 4 CRISIL A4
Packing Credit 4 CRISIL A4+ Packing Credit 4 CRISIL A4
Proposed Long Term Bank Loan Facility 1.7 CRISIL BB-/Stable Proposed Long Term Bank Loan Facility 1.38 CRISIL B+/Stable
Term Loan .15 CRISIL BB-/Stable Term Loan .47 CRISIL B+/Stable
Total 20.1 -- Total 20.1 --
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 Auto Component Suppliers
CRISILs Criteria for rating short term debt

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