| Machino Plastics Limited | ||||||
| Rating outlook revised to 'Stable'; ratings reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has revised its outlook on the long term bank facilities of Machino Plastics Limited (MPL) to ‘Stable’ from ‘Negative’ while reaffirming the rating at ‘CRISIL BBB-‘. The short term rating has been reaffirmed at ‘CRISIL A3’
The revision in outlook reflects better than anticipated improvement in financial risk profile of MPL, esp. liquidity. Although MPL had to rely on external sources of funds to fund its term debt repayments in first quarter of fiscal 2021, with revival in demand from second quarter onwards, MPL had sufficient accrual generation to fund its term debt repayments. Consequently, the moderation in bank limit utilization was also witnessed which has been averaging at 69.7% for the last six months ending February, 2021.
The improvement in business performance has been led by revival in demand from its customers, led by Maruti Suzuki India Limited (MSIL; 'CRISIL AAA/Stable/CRISIL A1+'). The same is reflected in operating income of Rs 70.1 crore achieved in third quarter of fiscal 2021 compared to Rs 55.4 crore and Rs 13.3 crore in second quarter and first quarter of fiscal 2021 respectively. Operating margin also improved to 11% in third quarter of fiscal 2021 compared to 7.1% and -18.8% in second quarter and first quarter of fiscal 2021 respectively.
CRISIL Ratings expects healthy improvement in business performance of MPL in fiscal 2022 however, the growth rate may be impacted because of the looming economic uncertainty owing to resurgence of Covid-19 infections across India since March, 2021 and hence will be a key rating sensitivity factor over the medium term.
The ratings continue to reflect MPL’s established position in the plastic-moulded auto components industry, strong relationship with key client Maruti Suzuki India Ltd (MSIL), and efficient working capital management. These strengths are partially offset by moderate scale of operations, high customer concentration in revenue, and susceptibility to fluctuations in raw material prices. |
Key Rating Drivers & Detailed Description Strengths:
Presence of around 3 decades in the auto components industry has enabled the promoters to establish a strong customer base. Being a major supplier of bumpers, instrument panels and other parts for various car models, MPL is strategically important for MSIL, the key client. Proximity to MSIL's plants in Gurugram and Manesar in Haryana reduces freight cost, enabling MPL to quote the lowest price and ensure timely availability of products.
Operations are efficiently managed, as indicated by estimated gross current assets of 56 days as on March 31, 2020 (71 days as on March 31, 2019). Receivables were stable at 35-55 days over the past 3 fiscals. Raw material is sourced from the domestic market against low credit of 10-20 days at an average. Inventory has been historically order-backed, and the company held stock of just 15 days as on March 31, 2020.
Weakness:
The moderate scale, reflected in revenue of Rs 242 crore in fiscal 2020, restricts expansion into new markets. For the 9 months through December 2020, MPL recorded revenue of Rs 138.8 crore, 24.3% lower than that in the corresponding period of fiscal 2020 as sales in first quarter of fiscal 2021 was impacted because of Covid-19 induced lockdown. Revenue in fiscal 2021 is expected to be down by around 13% compared to earlier estimation of 20% owing to recovery in demand from its customers, majorly MSIL which contributes around 90% of MPL’s total sales. The product portfolio is restricted to a few plastic components. Moreover, the company caters mainly to MSIL through direct sales to the primary and replacement segments, and does not have its own brand. Modest scale and intense competition reduce negotiating power with suppliers and customers.
As polypropylene compound, the key raw material, is a downstream petrochemical product, its price is highly volatile. Also, as the sale price to MSIL is based on average raw material prices prevailing in the current quarter, MSIL factors in any price escalation with a time lag of up to 3 months. |
Liquidity: Adequate Liquidity has continued to improve as reflected in improving cushion in net cash accrual generation vis-à-vis repayments post first quarter of fiscal 2021 wherein term debt repayments were met through available external sources of funds. To support liquidity situation in second quarter, MPL took moratorium as per RBI’s guidelines for three of its loans owing which company was able to meet its term debt repayments through internal accruals. Post that, with significant revival in demand in third and fourth quarter of fiscal 2021, MPL is estimated to have generated sufficient cash accruals to meet its term debt obligations.
The same is reflected in improving cushion in bank lines which were averaging at 69.75 for last 6 months ending February, 2021. CRISIL Ratings expects MPL to generate sufficient cash accruals to meet its term debt obligations of Rs 14 crore in fiscal 2022. Any major deviation than anticipation will be a key rating sensitivity factor over the medium term. To further support liquidity, MPL has availed Rs 10.2 crore worth of loan under ECLGS 2.0 scheme from its bankers.
Current ratio was low at 0.52 time as on March 31, 2020 and estimated to be less than 1 as on March 31, 2021 as well. |
Outlook: Stable CRISIL Ratings believes that exposure of MSIL will continue to support business risk profile of MPL. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company MPL was incorporated in 1987, by the promoter, Mr M D Jindal and his son, Mr Sanjiv Jindal. The company manufactures all sizes of plastic- moulded auto components, mainly for MSIL. It was set up as a joint venture with MSIL (formerly, Maruti Udyog Ltd) and Suzuki Motor Corporation, Japan.
For the 9 months ended through December 2020, MPL had reported operating income and profit after tax (PAT) of Rs. 138.8 crores and negative Rs. 6.74 crores, respectively, as against operating income and PAT of Rs. 183.47 crores and negative Rs 5.03 crore, respectively, for the corresponding period of fiscal 2020. |
Key Financial Indicators
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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)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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