Rating Rationale
September 05, 2019 | Mumbai
Machino Plastics Limited
Ratings downgraded to 'CRISIL BBB/Stable/CRISIL A3+'
 
Rating Action
Total Bank Loan Facilities Rated Rs.172.3 Crore
Long Term Rating CRISIL BBB/Stable (Downgraded from 'CRISIL BBB+/Positive')
Short Term Rating CRISIL A3+ (Downgraded from 'CRISIL A2')
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has downgraded its ratings on bank facilities of Machino Plastics Limited (MPL) to 'CRISIL BBB/Stable/CRISIL A3+' from 'CRISIL BBB+/Positive/CRISIL A2'.
 
The downgrade reflects weakening of the business risk profile:  sales dropped to Rs 62.6 crore in the first quarter of fiscal 2020, from Rs 79.3 crore in corresponding period of the previous fiscal. Profitability has also shown a decline, with losses reported in the last quarter of fiscal 2019 and first quarter of fiscal 2020. Business risk profile has been impacted by muted demand from the principal auto manufacturer, Maruti Suzuki India Ltd (MSIL; rated CRISIL AAA/Stable/A1+). Recovery remains a key sensitivity factor over the medium term. Limited cushion likely between net cash accrual and term debt could also weaken liquidity.
 
The ratings continue to reflect MPL's established position in the plastic-moulded automotive (auto) components market, strong relationship with MSIL, an above-average financial risk profile, and efficient working capital management. These strengths are partially offset by the moderate scale of operations, and exposure to high customer concentration, and fluctuation in raw material prices.

Key Rating Drivers & Detailed Description
Strengths:
* Established market position and a strong relationship with MSIL
Presence of around three decades in the auto components industry has enabled the promoters to develop an established customer base. Being one of the major suppliers of dashboards, front bumpers, and instrument panels for various car models, the company is strategically important for MSIL, the key client. Proximity to MSIL's plants in Gurugram and Manesar in Haryana also reduces freight cost, enabling MPL to quote the lowest price and ensure timely availability of products.
 
* Above-average financial risk profile
Capital structure is moderate, as reflected in total outside liabilities to tangible networth ratio of 2.9 times and networth at Rs 50.4 crore as on March 31, 2019. Debt protection metrics were comfortable, with interest coverage and net cash accrual to total debt ratios of 3.9 times and 0.17 time, respectively, for fiscal 2019. 
 
* Efficient working capital management
Operations are efficiently managed, with gross current assets of 70 days as on March 31, 2019. Receivables were stable at 40-50 days over the past three fiscals. Raw material was sourced from the domestic market, against low credit of 18 days. Inventory has been historically order-backed, and minimal stock of 14 days was held as on March 31, 2019.

Weaknesses
* Moderate scale of operations with high customer concentration
Scale of operations remains moderate, as reflected in revenue of Rs 302.9 crore in fiscal 2019, and thus, restricts expansion into newer markets. The product portfolio too is restricted to few large and small 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. Moderate scale, coupled with intense competition, reduces negotiating power with suppliers and customers, and thus, limits benefits associated with economies of scale.
 
* Vulnerability to fluctuation in raw material prices
Since polypropylene compound, the key raw material, is a downstream petrochemical product, its price remains highly volatile. Also, as sale price to MSIL is based on average raw material prices prevailing in the current quarter, MSIL factors in any price escalation (only if incremental cost is beyond a certain threshold) with a time lag of up to three months.
 
Liquidity: Adequate
Liquidity is adequate, marked by expected cash accrual of Rs 18 crore in fiscal 2020, against long term debt of around Rs 16 crore. Current ratio was low at 0.61 time as on March 31, 2019, while cash and cash equivalents were moderate at Rs 6 crore.
Outlook: Stable

CRISIL believes MPL will continue to benefit from its established market position and longstanding tie-up with MSIL.
 
Rating sensitivity factors
Upward factors
* Healthy revenue growth of over 25%, and improvement in operating margin to over 9%.
* Higher net cash accrual, with sufficient cushion between cash accrual and maturing debt
 
Downward factors
* Decline in revenue by 20% or operating margin by 150 basis points
* Absence of timely funding support from the promoters  

About the Company

MPL was incorporated in 1987, by the promoter, Mr M D Jindal and his son, Mr Sanjiv Jindal. The company manufactures large, 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.

Key Financial Indicators
As on / for the period ended March 31  Units 2019 2018
Operating income Rs crore 302.91 306.34
Reported profit after tax (PAT) Rs crore 0.41 4.8
PAT margin % 0.13 1.57
Adjusted Debt/Adjusted Networth Times 2.27 2.00
Interest coverage Times 3.92 3.8

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 Cash Credit NA NA NA 38.5 CRISIL BBB/Stable
NA Term Loan NA NA Feb-2023 84.96 CRISIL BBB/Stable
NA Channel Financing NA NA NA 10.0 CRISIL BBB/Stable
NA Letter of credit & Bank Guarantee NA NA NA 1.0 CRISIL A3+
NA Proposed Long Term Bank Loan Facility NA NA NA 37.84 CRISIL BBB/Stable
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  171.30  CRISIL BBB/Stable  11-02-19  CRISIL BBB+/Positive  23-10-18  CRISIL BBB+/Positive  22-09-17  CRISIL BBB+/Stable  05-10-16  CRISIL BBB+/Stable  CRISIL BBB+/Stable 
Non Fund-based Bank Facilities  LT/ST  1.00  CRISIL A3+  11-02-19  CRISIL A2  23-10-18  CRISIL A2  22-09-17  CRISIL A2  05-10-16  CRISIL A2  CRISIL A2 
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
Cash Credit 38.5 CRISIL BBB/Stable Cash Credit 38.5 CRISIL BBB+/Positive
Channel Financing 10 CRISIL BBB/Stable Channel Financing 10 CRISIL BBB+/Positive
Letter of credit & Bank Guarantee 1 CRISIL A3+ Letter of credit & Bank Guarantee 1 CRISIL A2
Proposed Long Term Bank Loan Facility 37.84 CRISIL BBB/Stable Proposed Long Term Bank Loan Facility 37.84 CRISIL BBB+/Positive
Term Loan 84.96 CRISIL BBB/Stable Term Loan 84.96 CRISIL BBB+/Positive
Total 172.3 -- Total 172.3 --
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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