| Malu Paper Mills Limited | ||||||
| Long-term rating downgraded to 'CRISIL BB- / Stable'; short-term rating reaffirmed | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has downgraded its ratings on the long-term bank facilities of Malu Paper Mills Limited (MPML) to 'CRISIL BB-/Stable' from ‘CRISIL BB/Stable’. Short term rating has been reaffirmed at ‘CRISIL A4+. ‘ The downgrade reflects moderation of business risk profile of the company, mainly operating margin. Despite increase in the revenue in fiscal 2022, on account of dip in operating margin, accruals have remained subdued for second consecutive fiscal. Consequently, cushion between net cash accruals and repayment obligation has reduced. Company’s operating margin has been declining over past 4 years and has reported operating margin of 1.83% in fiscal 2022 against 8.56% in fiscal 2019. Operating margin of company was mainly impacted in fiscal 2022 on account of increase in raw material prices and limited ability to pass on to customers. Company’s operating margin continued to remain subdued during H1 of fiscal 2023. Timely infusion from promoters over the years in the form of unsecured loans has supported the liquidity. Sustained improvement in operating margin while maintaining revenue growth to remain rating sensitivity factor.
The ratings continue to reflect the extensive experience of the promoters in the paper industry and expectation of funding support from the promoters and group companies. These strengths are partially offset by the company's susceptibility to fluctuations in raw material prices and working capital intensive nature of operations. |
Analytical Approach Unsecured loans and inter-corporate deposits of Rs 65.94 crores as on March 31st 2022, extended to MPML by the promoters and group companies, have been treated as 75% equity and 25% debt, as loans are subordinated to all forms of bank borrowings, interest on same is ploughed back into the company and are expected to be retained in the business over the medium term. |
Key Rating Drivers & Detailed Description Strengths:
With over two decades of experience in the paper industry and promoter’s understanding of the dynamics of the market, company has established healthy relationships with its key stakeholders like suppliers and customers.
The reduction in debt levels and strengthened financial risk profile of the company was a result of the support from the promoters and group companies in the form of unsecured loans and inter-corporate deposits. This support from promoters and group companies is expected to continue in future in case of exigencies. Support is derived from several entities in the Malu group which cater to many industries and segments like paper, steel castings, coal trading and electrodes industries. The group started operations in 1975 with coal trading in Maharashtra and diversified its business to include manufacturing paper, steel castings and welding electrodes, along with processing of manganese ore.
Weakness:
Price of Waste paper the major raw material required by the company is cyclical and highly volatile leading to volatile operating margins. Cyclical downturns and adverse variability in the demand supply balance also results into lower profitability, thus lower realizations. Operating margins of the company have remained volatile ranging from 1.83%-8.56% over the last fiscal through fiscal 2022.
Although on an improving trend, the operations of the company are working capital intensive as evidenced by gross current assets (GCA) days of around 128 days in as on March 31, 2022, mainly due to higher inventory days of around 74 days. Overall GCA days are expected to remain in the same range over medium term. |
Liquidity: Stretched Company incurred net cash losses in fiscal 2022 and fiscal 2021 and is likely to incur cash losses in current fiscal against repayment obligation of around Rs 1-1.8 crore, constraining liquidity. Bank limit utilization is high at around 93 percent for the past twelve months ended October 2022. Current ratio is below average at around 1 time on March 31, 2022. Cash and cash equivalents balance as on March 31,2022 was low at Rs 0.04 Cr. There is track record of timely support from the promoter in the past and timely fund infusion is likely to continue, in case of exigencies, to meet its working capital requirements and repayment obligations, supporting liquidity profile |
Outlook Stable CRISIL Ratings believes MPML will benefit from the promoters’ extensive experience and established relationship with customers and suppliers. |
Rating Sensitivity factors Upward Factors
Downward Factors
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About the Company MPML, part of the Malu group, was incorporated in January 1994 as Malu Solvex Ltd. The name was changed with effect from April 24, 1998. The company manufactures kraft paper, newsprint and writing and printing paper at its plants in Saoner Taluka, Maharashtra. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
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 Bank Lenders & Facilities | |||
| Facility | Amount (Rs.Crore) | Name of Lender | Rating |
| Bank Guarantee | 0.5 | Bank of India | CRISIL A4+ |
| Bank Guarantee | 1.7 | State Bank of India | CRISIL A4+ |
| Cash Credit | 6.19 | Axis Bank Limited | CRISIL BB-/Stable |
| Cash Credit | 3.09 | Bank of Baroda | CRISIL BB-/Stable |
| Cash Credit | 6.19 | Bank of India | CRISIL BB-/Stable |
| Cash Credit | 6.19 | State Bank of India | CRISIL BB-/Stable |
| Cash Credit | 3.09 | The Jammu and Kashmir Bank Limited | CRISIL BB-/Stable |
| Letter of Credit | 5 | Axis Bank Limited | CRISIL A4+ |
| Letter of Credit | 3.5 | Bank of India | CRISIL A4+ |
| Letter of Credit | 3.5 | State Bank of India | CRISIL A4+ |
| Proposed Long Term Bank Loan Facility | 10.3 | Axis Bank Limited | CRISIL BB-/Stable |
| Proposed Long Term Bank Loan Facility | 6 | Bank of Baroda | CRISIL BB-/Stable |
| Proposed Long Term Bank Loan Facility | 15.4 | Bank of India | CRISIL BB-/Stable |
| Proposed Long Term Bank Loan Facility | 1.16 | Not Applicable | CRISIL BB-/Stable |
| Proposed Long Term Bank Loan Facility | 14.98 | State Bank of India | CRISIL BB-/Stable |
| Proposed Long Term Bank Loan Facility | 10.21 | The Jammu and Kashmir Bank Limited | CRISIL BB-/Stable |
This Annexure has been updated on 21-Feb-23 in line with the lender-wise facility details as on 07-Feb-23 received from the rated entity.
Criteria Details
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