Rating Rationale
March 30, 2023 | Mumbai
Malu Paper Mills Limited
Ratings Reaffirmed and Withdrawn
 
Rating Action
Total Bank Loan Facilities RatedRs.97 Crore
Long Term RatingCRISIL BB-/Stable (Rating Reaffirmed and Withdrawn)
Short Term RatingCRISIL A4+ (Rating Reaffirmed and Withdrawn)
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 reaffirmed its ratings to the bank facilities of Malu Paper Mills Limited (MPML). Also, subsequently withdrawn the rating at the company’s request and on a receipt of a ‘No-objection Certificate’ from the bankers. The withdrawal is in line with CRISIL Ratings’ policy on withdrawal of bank loan ratings.

 

The ratings continue to reflects 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:

Extensive experience of the promoters:

MPML benefits from the two-decade long experience of the promoters and their understanding of dynamics of the market and their long-standing relationships with customers and suppliers.

 

Funding support from the promoters and group companies:

Reduced debt levels and healthy financials risk profile of the company is emanating from the continuous support of promoters and group companies in the form of unsecured loans and inter-corporate deposits. This support is expected to continue in the case of an exigencies. Support is derived from decades of experience of the group in various industries. Unsecured loans from the promoters stood at around Rs 78 Cr as on March 23, 2023.

 

Weaknesses:

Susceptibility to fluctuations in raw material prices:

Cyclical downturns and adverse variability in the demand supply balance, and cyclical price of the major raw material wastepaper required by the company, results in volatile operating performance of the company. Operating margins of the company have remained volatile up to  5.53% along with operating loss in the last three quarters ended Q3 FY 23 due to volatility of raw material and finished goods prices.

 

Working capital intensive nature of operations:

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 which were around 54 days as on September 30,2022. 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

* Significant increase in scale of operations and operating margin leading to net cash accruals sustaining above Rs 3 crores

* Improvement in working capital cycle

 

Downward Factors

* Sustained decline in revenue (10-15% per annum over the medium term) and operating margin resulting in higher cash losses

* Higher-than-expected debt-funded capital expenditure or acquisitions or stretch in working capital cycle weakens key credit metrics.

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

As on / for the period ended March 31

 

2022

2021

Operating income

Rs crore

212.20

169.60

Reported profit after tax

Rs crore

-6.26

-5.77

PAT margins

%

-2.95

-3.40

Adjusted Debt/Adjusted Net worth

Times

0.57

0.67

Interest coverage

Times

0.59

0.86

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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. 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)
Complexity 
levels
Rating assigned
with outlook
NA Bank Guarantee NA NA NA 2.2 NA CRISIL A4+ (Rating Reaffirmed and Withdrawn)
NA Cash Credit NA NA NA 24.75 NA CRISIL BB-/Stable (Rating Reaffirmed and Withdrawn)
NA Letter of Credit NA NA NA 12 NA CRISIL A4+ (Rating Reaffirmed and Withdrawn)
NA Proposed Long-Term Bank Loan Facility NA NA NA 58.05 NA CRISIL BB-/Stable (Rating Reaffirmed and Withdrawn)
Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 82.8 CRISIL BB-/Stable (Rating Reaffirmed and Withdrawn) 02-01-23 CRISIL BB-/Stable 28-02-22 CRISIL BB/Stable   -- 24-11-20 CRISIL BB/Stable CRISIL BB/Stable
Non-Fund Based Facilities ST 14.2 CRISIL A4+ (Rating Reaffirmed and Withdrawn) 02-01-23 CRISIL A4+ 28-02-22 CRISIL A4+   -- 24-11-20 CRISIL A4+ CRISIL A4+
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 1.7 State Bank of India CRISIL A4+ (Rating Reaffirmed and Withdrawn)
Bank Guarantee 0.5 Bank of India CRISIL A4+ (Rating Reaffirmed and Withdrawn)
Cash Credit 6.19 Axis Bank Limited CRISIL BB-/Stable (Rating Reaffirmed and Withdrawn)
Cash Credit 6.19 State Bank of India CRISIL BB-/Stable (Rating Reaffirmed and Withdrawn)
Cash Credit 6.19 Bank of India CRISIL BB-/Stable (Rating Reaffirmed and Withdrawn)
Cash Credit 3.09 Bank of Baroda CRISIL BB-/Stable (Rating Reaffirmed and Withdrawn)
Cash Credit 3.09 The Jammu and Kashmir Bank Limited CRISIL BB-/Stable (Rating Reaffirmed and Withdrawn)
Letter of Credit 5 Axis Bank Limited CRISIL A4+ (Rating Reaffirmed and Withdrawn)
Letter of Credit 3.5 State Bank of India CRISIL A4+ (Rating Reaffirmed and Withdrawn)
Letter of Credit 3.5 Bank of India CRISIL A4+ (Rating Reaffirmed and Withdrawn)
Proposed Long Term Bank Loan Facility 15.4 Not Applicable CRISIL BB-/Stable (Rating Reaffirmed and Withdrawn)
Proposed Long Term Bank Loan Facility 10.21 Not Applicable CRISIL BB-/Stable (Rating Reaffirmed and Withdrawn)
Proposed Long Term Bank Loan Facility 14.98 Not Applicable CRISIL BB-/Stable (Rating Reaffirmed and Withdrawn)
Proposed Long Term Bank Loan Facility 6 Not Applicable CRISIL BB-/Stable (Rating Reaffirmed and Withdrawn)
Proposed Long Term Bank Loan Facility 10.3 Not Applicable CRISIL BB-/Stable (Rating Reaffirmed and Withdrawn)
Proposed Long Term Bank Loan Facility 1.16 Not Applicable CRISIL BB-/Stable (Rating Reaffirmed and Withdrawn)

This Annexure has been updated on 30-Mar-23 in line with the lender-wise facility details as on 07-Feb-23 received from the rated entity.

Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Paper Industry
CRISILs Criteria for rating short term debt

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