| Lincon Polymers Private Limited | ||||||
| Ratings reaffirmed at 'CRISIL BBB / Positive / CRISIL A3+ '; rated amount enhanced for Bank Debt | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Rating has reaffirmed its ratings on bank facilities of Lincon Polymers Private Limited (LPPL) at ‘CRISIL BBB/Positive/CRISIL A3+’.
CRISIL Ratings had revised its rating outlook on the long-term bank facilities to ‘Positive’ from ‘Stable’ and reaffirmed the ratings on November 30, 2021.The ratings reflect LPPL's extensive experience of the promoters in manufacturing polypropylene (PP) and high-density polyethylene (HDPE) woven fabrics and bags and their funding support, healthy and established relationship with customers and suppliers, average financial risk profile and moderate working capital requirement. These strengths are partially offset by moderate project risk, vulnerability to volatility in raw material prices, and moderate working capital intensive operations. |
Analytical Approach Unsecured loans of over Rs 12.85 crore extended by the promoter and their relatives continue to treat as 75% equity and 25% debt as the loan are from promoter and expected to remain in the business over the medium term. |
Key Rating Drivers & Detailed Description Strengths: Extensive experience promoters and continuous focus on diversifying product mix Benefits from the extensive promoters' experience leading to healthy client relationship across various industries such as fertilisers, chemicals, agricultural commodities, and cement. The promoters have an experience of more than two decades in packaging industry. The product profile of company is diversified and includes PP woven bags, BOPP multi colour bag, block bottom bags, un laminated bags, etc. Further company is continuously diversifying its product portfolio. Currently company is in process of expanding capacity in unit 2 while adding new product line for Pinch bottom bag.
Average financial risk profile Financial risk profile is likely to remain improve over the medium term. Networth and gearing estimated at over Rs 69 crore and 1.08 time, respectively, as on March 31, 2021. Debt protection metrics were healthy, with estimated interest coverage and net cash accrual to adjusted debt ratios of 7.14 times and 32%, respectively, in fiscal 2021. Due to ongoing capex for expansion cum addition of new product line in unit 2, gearing is expected to increase to over 1.60 times as on March 31, 2022, however, expected to remain comfortable.
Moderate working capital requirement The operations of company are moderately working capital intensive as reflected in gross current assets of 104 days in fiscal year 2021, because of inventory of 46 days and receivables of 49 days. Over the medium term, GCA days is estimated in range of 90-110 days.
Weakness: Moderate project risk and scale of operations Company is expanding capacity and adding new product line for Pinch bottom bag in Unit 2, Borisna, Kadi, Gujarat, entailing capital expenditure (capex) of Rs 90 crore. Established technical expertise and track record of the LPPL, in successfully setting up such capex in past keeps exposure to technology and completion risk low to medium. Funding risk is low, as the company has already tied up funding. Demand risk too remains moderate as capex is in similar line of industry and have been operating at full capacity.
The operation of the company has steadily grown in past but remain moderate at Rs 252 crore in FY21 (against Rs 202 crore in FY20). During 5MFY22, company achieved Rs 122 crore and expecting to grow over Rs 270 crore in FY22. Furthermore, company is expecting benefit from incremental capacity from February 2022 and with ramp up in scale of operations, overall market position of company is expected to strengthen. Hence, timely completion of capex without cost escalation and the subsequent scale-up from incremental capacity would be key rating sensitivity factors.
Operating margin susceptible to volatile raw materials prices The operating margin is susceptible to fluctuations in the price of polymer, which depends on crude oil prices. The packaging industry is fragmented because of low entry barriers, such as limited capital and technology requirements, small gestation period, and easy availability of raw materials. This restricts substantial ramp-up of operations and exerts pricing pressure on players. |
Liquidity: Adequate Liquidity is adequate, backed by healthy expected cash accrual of over Rs 25-38 crore against yearly maturing term debt obligation of Rs 6.5-17 crore over the medium term; the surplus cash expected to deploy towards incremental working capital requirement and ongoing capex. The repayment of incremental term loan is expected to start from October 2022 (after completion of moratorium of 1 year) and expected to almost double in FY23. Hence, timely completion of ongoing capex and ramp up in scale of operation would be key monitorable. Operations were prudently managed with GCA of 104 days and as a result, bank lines were moderately utilised at 70% during the six months through September 2021. The current ratio was comfortable at 1.61 times as on March 31, 2021. |
Outlook Positive CRISIL Rating believes LPPL’s business risk profile would strengthen over the medium term driven by benefits derived from ongoing capacity expansion, while improving financial risk profile.
CRISIL Ratings expects LPPL’s business risk profile likely to strengthen over the medium term on the back of ongoing capacity expansion, extensive experience of promoters, and diversifying product portfolio, while average financial risk profile. |
Rating Sensitivity factors Upward factor
Downward factor
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About the Group Established in 1996 in Ahmedabad by Mr. Babu Bhai Patel and his two sons Mr Paresh Patel, and Mr Bhavesh Patel, LPPL manufactures PP woven bags, BOPP multi color bag, block bottom bags, un laminated bags, etc. |
Key Financial Indicators
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)
& - Includes sub limit of BD/EPC/PCFC/BG/LC
% - Includes sub limit of Rs 5 crore of CC and Rs 15 crore of BD/EPC/PCFC/BG/LC
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 24-Dec-2021 in line with the lender-wise facility details as on 23-Dec-2021 received from the rated entity.
Criteria Details
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