Rating Rationale
January 04, 2024 | Mumbai
Manjushree Technopack Limited
Ratings reaffirmed at 'CRISIL AA-/Stable/CRISIL A1+'
 
Rating Action
Total Bank Loan Facilities RatedRs.1166 Crore
Long Term RatingCRISIL AA-/Stable (Reaffirmed)
Short Term RatingCRISIL A1+ (Reaffirmed)
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 'CRISIL AA-/Stable/CRISIL A1+' ratings on the bank loan facilities of Manjushree Technopack Ltd (MTL).


The rating action reflects the strong business risk profile of MTL due to continued healthy performance over the medium term, supported by good demand prospects, leading market position in the rigid packaging segment in India, improving product diversity and marquee client profile. The large capital expenditure (capex) undertaken over the past four fiscals towards organic and inorganic expansion will help bolster production capacities and register strong revenue growth over the medium term. MTL is expected to maintain healthy operating profitability of 15-17%, supported by superior operating capabilities, thus increasing annual cash flow to over ~Rs 240 crore, over the medium term, from ~Rs 176 crore in fiscal 2023.


The company’s healthy financial risk profile continues to improve, strengthened by steady cash accrual and equity infusion by the parent, Advent International (Advent), the global private equity investor, which helped partly fund the capital spend and acquisitions. The debt protection metrics have improved over last couple of years with debt to earnings before interest, taxes, depreciation and amortisation (EBITDA) ratio improving to 1.8 times in fiscal 2023, from 2.3 times in fiscal 2021, while total outside liabilities to tangible networth ratio improved to 1.02 time as on March 31, 2023 (1.58 times as on March 31, 2021). While these metrics moderated in fiscal 2023 over fiscal 2022, they are expected to improve gradually over the medium term, supported by healthy business performance, progressive repayment of debt and moderate capital spending.

 

In the recent past, MTL has made acquisitions to increase its scale of operations, add new products to its portfolio and improve geographical presence. MTL has also undertaken organic growth in Vizag and Mysore. Going forward, the group may continue pursuing small to mid-sized bolt on acquisitions to enhance revenue growth, but is expected to maintain financial prudence, as demonstrated recently.

 

The ratings continue to reflect the established market position of MTL, strong operating efficiency, and healthy and improving financial risk profile. These strengths are partially offset by moderately high working capital requirement and intense competition in the plastic packaging industry.

Analytical Approach

CRISIL Ratings has consolidated MTL and its wholly owned subsidiary – MTL New Initiatives Pvt Ltd – as the two companies have common management and financial and operational linkages.

 

CRISIL Ratings has also amortised intangibles and goodwill of ~Rs 336 crore following the acquisition of Classy Kontainers and Hitesh Plastics over a period of seven years.

 

The compulsory convertible debentures of ~Rs 587 crore (as per fiscal 2023 audited financials and issued by MTL) have been treated as part of ‘equity’ as it will compulsorily get converted into equity after eight years.

 

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:

  •   Established market position, as indicated by strong customer base and increasing revenue diversity: The company is one of the largest players in the rigid plastics packaging business in India with installed capacity of over 1,90,000 tonne per annum. MTL enjoys a leading market position in the rigid plastics packaging segment. Strong market share is supported by established relationships with customers such as Reckitt Benckiser (India) Ltd, Dabur India Ltd (‘CRISIL AAA/Stable/CRISIL A1+’), Hindustan Coca Cola Beverages Private Ltd, PepsiCo India Private Ltd, and Mondelez India Foods Private Ltd. Over the past few years, MTL has diversified its customer base, increased its presence in various categories of the fast-moving consumer goods packaging industry, such as packaging for food and beverages, personal care, home care, liquor and pharmaceuticals. The company has a manufacturing base in Bengaluru. With the acquisition of Varahi Ltd (Varahi) in fiscal 2017 and National Plastics Industries Ltd (NAPLA)’s facilities in fiscal 2020 in North India, its overall market reach and ability to service diverse clients improved substantially. In April 2021, MTL completed the acquisition of business-to-business services of Pearl Polymers Ltd (PPL), which helped increase its market share. Acquisition of NAPLA has added dispensers and sprays to the product portfolio. The acquisitions helped MTL improve its product diversity, add new clients, and supply new products to existing clients, thereby improving the wallet share. MTL also expanded into East India markets by setting up a plant at Guwahati, Assam, in 2017. In fiscal 2021, it commissioned a greenfield capacity at Silvassa that will help enhance geographical diversification in the western market. The company has also commissioned a rigid plastic recycling plant at Bengaluru in fiscal 2021. Furthermore, in January 2022, MTL completed acquisition of Classy Kontainers. In July 2022, MTL announced the acquisition of Hitesh Plastics. These helped the company expand in the new client segment and product segments such as caps and closures. Addition of new plants at Vizag and Mysore will further support client additions apart from enhancing the product profile.

 

  •   Strong operating efficiency: Freight costs are an important element in the overall cost structure of the packaging industry. Geographical proximity plays an important role in the acquisition of clients. Presence in North India has improved post acquisition of Varahi, NAPLA and PPL and should continue to help MTL in integrating its manufacturing units with the supply chain systems of customers. Additionally, the newly commissioned Vizag plant, upcoming Mysore plant and acquisition of Hitesh Plastics will cater to the rigid packaging demand closer to the customer. Furthermore, well-developed, in-house design facilities, and capabilities of diverse manufacturing processes allow the company to maximise potential revenue from a particular geographical region.

 

Despite volatile raw material prices, MTL is expected to have operating margin of 15-17% over the medium term, driven by the company’s ability to pass on raw material price variations to clients.

 

  • Healthy and improving financial risk profile: Higher annual cash accrual of Rs 180-240 crore over the medium term (Rs 176 crore in fiscal 2023) and progressive debt repayment should help fund capex or acquisition plans. Owing to compulsorily convertible debentures with coupon of 9%, the interest coverage ratio may moderate but remain comfortable at 3.5-4 times in fiscal 2024. The debt to EBITDA and net cash accrual to debt ratios are expected to remain at similar levels as in fiscal 2023.

 

Weaknesses:

  • Moderately large working capital requirement: Moderately high working capital intensity is due to seasonality in most end-user segments. As the company significantly caters to beverage manufacturers, sales peak during summer, leading to a sizeable inventory. Inventory is high at 60-80 days, peaking from March to May. Also, credit of 60-90 days is extended to customers. The working capital cycle may remain moderately high, with gross current assets of 130-140 days over the medium term.

 

  • Exposure to intense competition: The packaging industry is highly fragmented and intense competition may continue to constrain scalability, pricing power and profitability. However, the established presence of MTL and strong customer relationships help mitigate the impact of competition. The research and development capabilities of the company are also expected to help maintain a better margin than peers.

Liquidity: Strong

Cash accrual is projected at Rs 180-240 crore per annum, against debt repayment of ~Rs 55 crore over the medium term and annual capex needs of Rs 80-100 crore (excluding acquisitions). A bank limit of ~Rs 390 crore was utilised at 84% on average for the 12 months through August 2023, and headway exists for meeting incremental working capital needs.

Outlook: Stable

MTL will continue to benefit from higher contribution from newly commissioned capacities and recent acquisitions, leading to a rise in scale and geographical diversity as well as steady increase in offtake by existing customers. Healthy financial risk profile should sustain, with improving cash accrual and prudent capex spend.

Rating Sensitivity factors

Upward factors:

  • Sustained annual revenue growth of at least ~15%, and operating profitability of 16-17%, leading to healthy cash generation
  • Improvement in debt protection metrics, for instance debt-to-EBITDA ratio of 1.5-1.6 times on sustained basis

 

Downward factors:

  • Sharp decline in business performance, impacting operating profitability (below 12-13%), and cash accrual on sustained basis
  • Large, debt-funded capex or acquisition, leading to weakening of debt protection metrics; for instance, debt-to-EBIDTA ratio of over 3 times

About the Company

MTL was established in 1987 as a private limited company and reconstituted as a public limited company in 1994. It manufactures polyethylene terephthalate (PET) jars and bottles, multilayer containers, PET hot-fillable bottles, and pre-forms for use in the food, beverage, pharmaceutical, cosmetic, agricultural chemicals, and allied sectors. In February 2013, it started operations at its state-of-the-art PET preform manufacturing facility at Bidadi, Bengaluru. This facility has a ‘platinum green’ certification under the Leadership in Energy & Environmental Design programme and is the largest of its kind in South Asia.

 

As of March 2023, Advent is a majority stakeholder with ~97% shareholding and ~3% is held by other public shareholders.

Key Financial Indicators

As on / for the period ended March 31

 

2023

2022

Revenue

Rs crore

2097

1468

Adjusted profit after tax (PAT)

Rs crore

59

71

PAT margin

%

2.8

4.8

Adjusted debt/adjusted networth

Times

0.51

0.39

Interest coverage

Times

3.89

4.93

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 the
instrument
Date of
Allotment
Coupon
Rate (%)
Maturity
Date
Issue size
(Rs. Crore)
Complexity
Level
Rating assigned
with outlook
NA Cash credit NA NA NA 225 NA CRISIL AA-/Stable
NA Cash credit NA NA NA 105 NA CRISIL AA-/Stable
NA Cash credit NA NA NA 60 NA CRISIL AA-/Stable
NA Proposed cash credit Limit NA NA NA 10 NA CRISIL AA-/Stable
NA Long-term loan NA NA Aug-26 15.47 NA CRISIL AA-/Stable
NA Long-term loan NA NA Oct-27 62.05 NA CRISIL AA-/Stable
NA Long-term loan NA NA Sep-27 150 NA CRISIL AA-/Stable
NA Long-term loan NA NA Nov-29 92 NA CRISIL AA-/Stable
NA Proposed term loan NA NA NA 382.18 NA CRISIL AA-/Stable
NA Bank guarantee NA NA NA 3 NA CRISIL A1+
NA Letter of credit NA NA NA 20 NA CRISIL A1+
NA Letter of credit* NA NA NA 40 NA CRISIL A1+
NA Foreign exchange forward NA NA NA 1.3 NA CRISIL A1+

*BG sub limit Rs.10cr 

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

MTL New Initiatives Pvt Ltd

Full

Wholly owned subsidiary

Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT/ST 1103.0 CRISIL A1+ / CRISIL AA-/Stable   -- 20-06-23 CRISIL A1+ / CRISIL AA-/Stable 28-11-22 CRISIL AA-/Stable 24-08-21 CRISIL AA-/Stable CRISIL A+/Positive
      --   -- 17-03-23 CRISIL A1+ / CRISIL AA-/Stable 27-10-22 CRISIL AA-/Stable 30-06-21 CRISIL AA-/Stable --
      --   --   --   -- 24-06-21 CRISIL AA-/Stable --
Non-Fund Based Facilities ST 63.0 CRISIL A1+   -- 20-06-23 CRISIL A1+ 28-11-22 CRISIL A1+ 24-08-21 CRISIL A1+ CRISIL A1
      --   -- 17-03-23 CRISIL A1+ 27-10-22 CRISIL A1+ 30-06-21 CRISIL A1+ --
      --   --   --   -- 24-06-21 CRISIL A1+ --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 3 State Bank of India CRISIL A1+
Cash Credit 225 State Bank of India CRISIL AA-/Stable
Cash Credit 105 ICICI Bank Limited CRISIL AA-/Stable
Cash Credit 60 HDFC Bank Limited CRISIL AA-/Stable
Foreign Exchange Forward 1.3 State Bank of India CRISIL A1+
Letter of Credit 20 State Bank of India CRISIL A1+
Letter of Credit& 40 HDFC Bank Limited CRISIL A1+
Long Term Loan 15.47 HDFC Bank Limited CRISIL AA-/Stable
Long Term Loan 150 HDFC Bank Limited CRISIL AA-/Stable
Long Term Loan 62.05 ICICI Bank Limited CRISIL AA-/Stable
Long Term Loan 92 Axis Bank Limited CRISIL AA-/Stable
Proposed Cash Credit Limit 10 Not Applicable CRISIL AA-/Stable
Proposed Term Loan 382.18 Not Applicable CRISIL AA-/Stable
& - BG sub limit Rs.10cr
Criteria Details
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
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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