| Merino Industries Limited | ||||||
| Ratings downgraded to 'Crisil A+/Stable/Crisil A1' | ||||||
| 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 facilities of Merino Industries Ltd (MIL) to ‘Crisil A+/Stable/Crisil A1’ from ‘Crisil AA-/Stable/Crisil A1+’.
The downgrade reflects the deterioration in the company's business risk profile due to slower-than-anticipated stabilisation of the particle board project in Halol, Gujarat. This has resulted in consistently lower-than-expected revenue growth over the last few fiscals and a moderation in earnings before interest, tax, depreciation, and amortisation (Ebitda) margin, which declined to ~5.4% in fiscal 2025 from over 10% in fiscal 2024.
Earlier, the benefit from the growing particle board segment was expected to strengthen the business risk profile of MIL and was a key focus area. Although the unit commenced commercial operations at the end of fiscal 2024, it continues to face challenges due to sluggish demand in the chipboard/particle board market, resulting in below-average capacity utilisation; which could lead to a slower ramp up than the previous estimates. These factors, combined with intense pricing pressure and competition in the overall laminates market, continue to constrain the company's operating efficiency and need further monitoring. The decline in operating profitability and negative net profit margin for fiscal 2025 have also led to a weak return on capital employed (RoCE) of less than 1% during the fiscal.
In the first quarter of fiscal 2026, the company's Ebitda margin is estimated to have improved to 7%, driven by higher capacity utilisation in the particle board unit this fiscal. However, the margin remains significantly weaker than the 10-12% achieved over the three fiscals through 2024, and 15-18% recorded in the preceding fiscals. With an estimated topline of over Rs 600 crore until June 2026, sustained improvement in the performance of the particle board unit is crucial to achieving a stable and improved margin profile.
The ratings reflect the strong market position of MIL in the laminates industry and its healthy capital structure. These strengths are partially offset by exposure to intense competition and changes in demand from the real estate sector, volatility in raw material prices, and large working capital requirement. |
Analytical approach Crisil Ratings has evaluated the standalone business and financial risk profiles of MIL. |
Key Rating Drivers - Strengths Strong market position in the domestic laminates industry: Being one of the largest organised players in the domestic laminates industry, MIL caters to a diversified clientele. The promoters have been in this business for around five decades and have built a vast distribution network comprising nearly 3,000 dealers. Products are sold in the domestic and overseas markets under the well-known brands, Merino (decorative laminates), My Space (furniture and panel products) and Vegit (potato flakes). Strong brand recall and sizeable share in the domestic market should continue to drive revenue growth over the medium term. Turnover was around Rs 2,300 crore in fiscal 2025 vis-à-vis around Rs 2,258.04 crore in fiscal 2024, with more than 70% coming from the high-pressure laminates (HPL) segment. Timely ramp up in divisional operations such as low pressure laminates (LPL) and particle boards, and subsequent growth in the scale of operations remain monitorable.
Healthy capital structure: Networth was strong at Rs 1,344.80 crore as on March 31, 2025, backed by steady accretion to reserve. Gearing and total outside liabilities to tangible networth ratio were comfortable at 0.52 time and 0.86 time, respectively. With regular repayment of term debt contracted in the last few fiscals for regular capital expenditure (capex) and for capex towards particle board project, capital structure should remain strong over the medium term. Debt protection metrics were moderate, as indicated by interest coverage and net cash accrual to total debt ratios of about 2.4 times and 0.17 time, respectively, in fiscal 2025. With expected improvement in profitability and no major debt-funded capex plans over the medium term, the metrics are likely to remain stable. |
Key Rating Drivers - Weaknesses Exposure to intense competition and changes in demand in the real estate sector: The decorative laminates and panel boards industry has several unorganised and organised (Greenlam Industries Ltd and Century Plyboards India Ltd) domestic players as well as some international brands. Competition may intensify further with the entry of large foreign brands and veneer players into the laminates segment. Moreover, large organised players in the domestic market have also incurred capex to capture market share and meet the growing demand. Though replacement demand supports operations during lean phases, new users and the construction industry remain key growth drivers. The scalability remains susceptible to these factors, as evidenced by the slow ramp up in the newly set-up particle board/LPL segment, as well as the muted growth rate in the existing HPL segment.
Susceptibility of profitability to volatility in raw material prices: Raw material cost forms 55-60% of the cost of sales. Key raw materials include kraft and design paper for HPL and wood dust and other products for LPL, and chemicals such as phenol, methanol, and melamine. MIL imports majority of its raw materials and sources the rest from the domestic market. Volatility in the prices of raw material and freight charges, coupled with headwinds from the international market, exerted pressure on profitability. The Ebitda margin registered significant deterioration over the years, coming down to around 5% in fiscal 2025 from 10-12% in the three fiscals through 2024. Revision in prices of finished products and sufficient passthrough of cost, along with stabilisation of particle board project, is critical for improvement in profitability.
Large working capital requirement: Intense competition necessitates offering substantial credit to distributors. The company also needs to hold large inventory because of a variety of designs and the need to minimise delays in delivery to customers. Gross current assets were around 150 days over the three fiscals ended March 31, 2025. Efficient working capital management amid increasing scale will remain monitorable over the medium term. |
Liquidity: Strong Utilisation of bank limit of Rs 470 crore was 81% in the last 12 months. Investment in liquid mutual funds, debentures and bonds were around Rs 100 crore as of March 2025, thereby aiding liquidity. With term loan for the particle board project getting refinanced with a more relaxed payment schedule of 5 years, accrual of Rs 120-150 crore should remain sufficient to meet debt obligation of Rs 35-40 crore over the medium term. |
Outlook: Stable Crisil Ratings believes MIL will continue to benefit from its robust market position in the domestic laminates industry, its strong distribution network and timely ramp-up of new capacities. |
Rating sensitivity factors Upward factors
Downward factors
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About the company MIL, set up by Kolkata-based Lohia family, manufactures decorative laminates, furniture, panel products (interior solutions for homes, offices, commercial spaces and public areas) and potato flakes. |
Key financial indicators
*provisional |
Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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