| Mangalam Organics Limited | ||||||
| Ratings downgraded to 'CRISIL BBB+/Stable/CRISIL A2' | ||||||
| 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 bank loan facilities of Mangalam Organics Limited (MOL) to 'CRISIL BBB+/Stable/CRISIL A2' from 'CRISIL A-/Stable/CRISIL A2+'
The rating downgrade reflects moderation of business risk profile primarily operating margin. Consequently, group’s accruals and debt protection metrics has also moderated.
Group’s operating margin continued to remain lower than expectations on back of high inventory and correction in raw material as well as finished good prices. Group has reported operating margin of (3.37%) for 9 months of fiscal 2023. While operating margin improved in Q3 of fiscal 2023 on back of old inventory being already utilized, it remained significantly lower and will continue to remain monitorable. However, business risk profile continues to remain supported by established brand and steady increase in volume sales. Consequently, group is expected to have cash losses in fiscal 2023. However, liquidity will be supported by moderate bank limit utilization on back of improvement in working capital cycle. Financial risk profile, though moderated, total outside liabilities to adjusted networth (TOLANW) continues to remain below 1 time. Ramp up in utilization at new plant leading to increase in volume sales along with improvement in operating margin to remain key rating sensitivity factor.
The rating continues to reflect the extensive experience of the promoters, established market position in the camphor industry, diversifying product portfolio and a healthy financial risk profile. These strengths are partially offset by susceptibility to volatility in raw material prices, large working capital requirement and exposure to intense competition from domestic and foreign manufacturers |
Analytical Approach For arriving at its ratings, CRISIL Rating has consolidated the business and financial risk profiles of MOL and its two subsidiaries which are strategically important to, and have a significant degree of operational integration with MOL. These companies are Campure Private Limited (CPL) and Mangalam Pooja Stores Private Limited (MPSPL)
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths: Promoters’ extensive experience and established market position MOL benefits from its promoters’ extensive experience in the camphor industry, and its position as a leading player in the domestic market. The Dujodwala family has experience of around five decades and healthy relationships with customers and suppliers. Furthermore, India’s camphor industry benefits from lower import from China and healthy domestic demand. The company has the ability to manufacture high quality camphor backed by efficient manufacturing facilities. MOL will likely continue to benefit from promoter’s experience and its well established market presence.
Diversified Product portfolio MOL’s retail segment which primarily include FMCG products under the brand names of ‘CamPure’ and ‘Mangalam’, has been growing and accounted for 15% of revenues in fiscal 2022 as compared to 10% in fiscal 2021. While camphor manufacturing remains the key product of the company, it has been focusing on further expanding the retail segment which is margin remunerative.
Comfortable capital structure The financial risk profile is supported by strong networth of Rs 304.07 crores as on March 31, 2022, backed by steady accretion to reserves. Despite the partially debt funded capex, leverage remains low, with total outside liabilities to adjusted networth ratio at 0.84 time as on March 31, 2022 which is expected to improve over the medium term supported by healthy earnings.
Weaknesses: Susceptibility to volatility in raw material and camphor prices Operating margin is susceptible to fluctuations in raw materials prices and camphor prices. Alpha pine and gum turpentine, which account for 60-70% of total raw material, are largely imported from Indonesia, Brazil, Russia, and Europe, and their availability and prices are subject to demand and supply situation. Camphor prices are also volatile and impacts realisation and profitability. Business risk profile will continue to be susceptible to changes in input and camphor prices and will remain a major rating sensitivity factor. Operating margin has ranged between 38% to 18% for last 3 years through fiscal 2022 and was at (3.37%) for 9 months of fiscal 2023.
Intense competition from domestic manufacturers as well as revival of import from China The camphor industry is an intensely competitive business, with presence of many domestic players as well as foreign players. Large players are expanding capacity, thereby increasing supply and intensifying competition, which will likely moderate realization. Revival of import from China may also have an adverse impact on the domestic industry.
Large working capital requirements MOL’s operations are working capital intensive with gross current assets (GCAs) of 251 days as on March 31, 2022, with receivables and inventory of 33 days and 223 days, respectively. Inventory levels are generally high during the financial year end as the company builds inventory for the peak season of July to December. Currently the working capital requirements have increased further leading to higher dependence on debt, hence, working capital management will be a key rating sensitivity factor. |
Liquidity: Adequate Bank limit utilisation is low at around 46.11 percent for the past 12 months ended Jan 2023. Current ratio are healthy at 1.76 times on March31, 2022 . Low gearing and moderate net worth support it’s financial flexibility, and provides the financial cushion available in case of any adverse conditions or downturn in the business. Group has repayment obligation of Rs 8-9 crore. While cash loss is expected in fiscal 2023, accruals are expected to see healthy growth of upwards of Rs 30 crore fiscal 2024 onwards. |
Outlook: Stable CRISIL Ratings believes MOL will continue to benefit from established market position, experience of promoters and healthy financial risk profile |
Rating Sensitivity factors Upward Factors:
Downward factors:
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About the Company Incorporated in 1981, MOL (formerly, Allied Collides Pvt Ltd), is based in Mumbai, and manufactures and trades in fine specialty chemicals, including camphor, resins, and dipentene. The company also has retail operations which includes homecare and personal care products under the brand name of CamPure and Mangalam. Operations are managed by Mr Kamal Kumar Dujodwala and Mr. Pannkaj Dujodwala MOL is listed on the Bombay Stock Exchange as well as National Stock Exchange |
Key Financial Indicators: Consolidated
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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 - List of Entities Consolidated
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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 | ||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 08-Mar-23 in line with the lender-wise facility details as on 30-Jul-22 received from the rated entity.
Criteria Details
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