| Manugraph India Limited | ||||||
| Ratings downgraded to 'CRISIL BB+/Negative/CRISIL A4+' | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL has downgraded its ratings on the bank facilities and commercial paper programme of Manugraph India Limited (Manugraph) to 'CRISIL BB+/Negative/CRISIL A4+' from 'CRISIL BBB-/Negative/CRISIL A3'. |
| Analytical Approach |
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For arriving at its ratings, CRISIL has taken a consolidated view of Manugraph and its wholly owned subsidiary, Manugraph Americas Inc. |
| Key Rating Drivers & Detailed Description |
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Strengths: * Established presence in the domestic printing machinery industry The company has an established presence in the domestic single/double-width web offset printing machine segment with experience of around 50 years in the business. It uses superior technology, acquired through technology tie-ups in the past with leading European printing machine manufacturers such as VEB Polygraph and Manroland. Moreover, it has its own strong research and development (R&D) capabilities, which have facilitated the development of new products such as the Smartline 4X1 machine (double width) for high-end applications, and M360 Bookline press and folder for low-end applications. This has resulted in a large product profile catering to an established clientele. * Healthy capital structure The company doesn't have any long-term debt and only depends on short-term borrowing to fund working capital requirement. Short-term debt in the form of cash credit is estimated at around Rs 12 crore as on April 30, 2020. Low debt and a moderate networth (Rs 76 crore as adjusted by CRISIL) has resulted in a healthy gearing of 0.15 time as on April 30, 2020. The capital structure is expected to be sustained in the absence of any debt-funded capital expenditure (capex) or acquisition. Weaknesses: * Exposure to cyclicality inherent in the end-user industry Demand for newspaper printing machinery is linked to the capex programmes of print media houses, which in turn are linked to macroeconomic growth. Demand for newsprint is expected to remain low owing to decline in circulation of newspapers and preference for digitised content. The situation is further accentuated by COVID-19 crisis which had led to preference for digitised content. This will impact revenue and consequently profitability given that the company has high fixed cost. Management is taking up cost-controlling measures like reduction in employee base and salary cut for employees, which may result in improvement of profitability over the medium term. Scaling up of operations and improvement in profitability will remain key rating sensitivity factors. The company had diversified into plastic packaging industry in order to counter the volatility in its performance due to cyclicality in the end user segment by delivering its first flexo-machines order in March 2018. However, very few orders have been received in fiscal 2020. Continued losses despite low debt have resulted in negative NCATD and Interest coverage ratio * Large inventory requirement Sizeable raw material inventory of more than 100 days (because of the need to maintain numerous components and spares) leads to large working capital requirement. While a considerable part of the inventory is order-backed, sustained large inventory constrains financial flexibility in operations. Further, inventory has been volatile as reflected from inventory days of 86-151 over the past three fiscals. Inventory has further increased to 177 days as on September 30, 2019 (albeit on a lower revenue base) due to weak operating revenue of Rs 57 crore during the first six months of fiscal 2020. |
| Liquidity Adequate |
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Though liquidity has weakened due to negative cash accrual in the past three fiscals, it remains adequate, as reflected in unencumbered cash and cash equivalents of around Rs 30 crore as on April 30, 2020. There is no long-term debt and hence no maturing debt obligation over the medium term. Further, working capital requirement is met primarily through fund-based facilities, which have been moderately utilised. Fund based utilisation was around 25% for April 2020. Established relationship with suppliers and customers results in a healthy payments cycle and hence moderate deployment of own funds. Any significant decline in liquidity on account of continued losses will remain a key monitorable. |
| Outlook: Negative |
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CRISIL believes that Manugraph's business risk profile will remain constrained over the medium term due to muted demand and high operational costs. |
| Rating Sensitivity factors |
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Upward factors: * Revenue of over Rs 200 crore, with cash accrual of Rs 10-15 crore in fiscal 2021 * Sustenance of capital structure and liquidity * Sustenance of working capital at moderate level Downward factors: * Continued operating losses, resulting in negative cash accrual in fiscal 2021 * Deterioration in liquidity marked by decline in cash & cash equivalent * Large working capital requirement or increase in debt, thus weakening the financial risk profile. |
| About the Company |
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Incorporated in 1971 and promoted by Mr Sanat Shah, Manugraph manufactures single/double-width web-offset printing machines. It is the market leader in this segment in India and also has an established position overseas, with global sales contributing 13% to total revenue in fiscal 2019. The company has two manufacturing facilities in Kolhapur, Maharashtra. Over the years, it has entered into technology tie-ups with leading overseas printing machine manufacturers. The company has been recognised as an R&D house by the Department of Scientific and Industrial Research. Its strong R&D capability has facilitated the development of products such as the Smartline 4X1 machine (double-width) with a speed of 70,000 copies per hour (cph), Dreamline 4X1 machine (double-width) with a speed of 50,000 cph, and Ecoline 2X1 machine (single width) with a speed of 25,000 cph. |
| Key Financial Indicators (Consolidated) | ||||||||||||||||||||||||
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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) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
^Letter of credit is fungible with bank guarantee of up to 50% of the limit | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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 various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
^Letter of credit is fungible with bank guarantee of up to 50% of the limit | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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