Rating Rationale
May 31, 2018 | Mumbai
Malu Paper Mills Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.97 Crore
Long Term Rating CRISIL BB-/Stable (Reaffirmed)
Short Term Rating CRISIL A4+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its ratings to the bank facilities of Malu Paper Mills Limited (MPML) at 'CRISIL BB-/Stable/CRISIL A4+'.
 
The ratings continue to reflect MPML's established track record in the Kraft paper and newsprint segments and funding support from promoters and group companies. These rating strengths are partially offset by the company's constrained financial flexibility marked by its large debt repayment obligations and susceptibility to operating profitability to fluctuation in raw material prices.

Analytical Approach

CRISIL has treated MPML's unsecured loan of Rs 44.45 crore outstanding as on March 31, 2018 from the promoters as neither debt nor equity as these loans are from promoters and their group and are subordinated to all forms of external borrowings. Also these loans are expected to remain in the business over the medium term.

Key Rating Drivers & Detailed Description
Strengths
* Established track record in the kraft paper and newsprint segments: The Malu group comprises various entities with operations in paper, steel castings, coal trading, and electrodes industries. The group started operations in 1975 with coal trading in Maharashtra, and diversified business to include manufacturing paper, steel castings, and welding electrodes, and processing of manganese ore. MPML's promoters have been in the paper industry for more than 20 years and hence have strong insight into local market dynamics and established relationship with its customers.
 
* Funding support from promoters and group companies: : The promoters and group companies have extended unsecured loans of Rs.44 crores as on March 31, 2018, which has reduced reliance on external debt to meet incremental working capital requirements and supported the liquidity as well as the financial risk profile of the company. The promoters will continue to extend need-based support.
 
Weakness
* Constrained financial flexibility because of large debt obligation: The large capex in the past resulted in higher debt obligations which is reflected in high gearing of around 3.3 times as on 31st March 2018. The high gearing constrains the financial flexibility of the company to avail additional debt in case of need.
 
* Susceptibility of operating profitability to fluctuation in raw material prices: Paper prices are cyclical and volatile because of its commoditised nature, which makes players' profitability unpredictable. Cyclical downturns and adverse variability in demand supply balance may result in lower realizations which is reflected in varying profitability from 6.5% to 10.5% for last 5 fiscals ending fiscal 2018.
Outlook: Stable

CRISIL believes MPML will continue to benefit over the medium term from its promoters' extensive industry experience and funding support from group companies. The outlook may be revised to 'Positive' in case of sustained improvement in cash accruals backed by better than expected demand and profitability resulting in a better financial risk profile, especially liquidity. Conversely, the outlook will be revised to 'Negative' if the revenue or profitability declines, leading to lower-than-expected cash accrual, or if the financial risk profile weakens further due to higher-than-expected working capital requirement or debt-funded capital expenditure.

About the Company

MPML, part of the Malu group, was originally 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
Particulars Unit 2018 2017
Revenue Rs. crore 279.1 242.6
Profit after tax (PAT) Rs. crore 2.2 4.2
PAT margin % 0.5 1.2
Adjusted debt/Adjusted networth Times 3.8 4.2
Interest coverage Times 1.6 1.6

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. Cr) Rating Assigned with Outlook
NA Bank Guarantee NA NA NA 2.2 CRISIL A4+
NA Cash Credit NA NA NA 24.75 CRISIL BB-/Stable
NA Letter of Credit NA NA NA 12 CRISIL A4+
NA Long Term Loan NA NA Mar-2022 56.89 CRISIL BB-/Stable
NA Proposed Long Term Bank Loan Facility NA NA NA 1.16 CRISIL BB-/Stable
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  82.80  CRISIL BB-/Stable      21-02-17  CRISIL BB-/Stable      07-10-15  CRISIL BB-/Stable  -- 
Non Fund-based Bank Facilities  LT/ST  14.20  CRISIL A4+      21-02-17  CRISIL A4+      07-10-15  CRISIL A4+  -- 
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
Bank Guarantee 2.2 CRISIL A4+ Bank Guarantee 2.2 CRISIL A4+
Cash Credit 24.75 CRISIL BB-/Stable Cash Credit 24.75 CRISIL BB-/Stable
Letter of Credit 12 CRISIL A4+ Letter of Credit 12 CRISIL A4+
Long Term Loan 56.89 CRISIL BB-/Stable Long Term Loan 56.89 CRISIL BB-/Stable
Proposed Long Term Bank Loan Facility 1.16 CRISIL BB-/Stable Proposed Long Term Bank Loan Facility 1.16 CRISIL BB-/Stable
Total 97 -- Total 97 --
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 Paper Industry
CRISILs Criteria for rating short term debt

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