Rating Rationale
April 22, 2020 | Mumbai
Mitsu Chem Plast Limited
 
Rating Action
Total Bank Loan Facilities Rated Rs.60 Crore
Long Term Rating CRISIL BBB-/Stable
Short Term Rating CRISIL A3
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL's ratings on the bank facilities of Mitsu Chem Plast Limited (MCPL) continue to reflect the extensive experience along with fund support from the promoters and company's diversified product profile catering to reputed customer base across multiple industries. These strengths are partially offset by average financial risk profile and susceptibility of operating performance to ramp up in scale of operations post capacity expansion and movements in raw material prices.

Analytical Approach

Unsecured loan from promoters have been treated as neither debt nor equity as these are subordinated to bank debts, has presence of track record of non-withdrawal for past 3 years and are expected to remain in business over the medium term.

Key Rating Drivers & Detailed Description
Strengths:
* Industry experience of the promoters and their financial support: Company's promoters have been in the business for around last 3 decades and have thus established strong relationships with reputed customers and suppliers while developing insights about industry dynamics. Also, the promoters have extended unsecured loans (Rs 11.26 crore as on March 31, 2019) to ease working capital requirements.

* Diversified product profile catering to reputed customer base across multiple industries: Company has a diversified product profile that includes open mouth/wide mouth drums, jerry cans, bottles and varied size containers made of 100% food grade materials adhering to 21 CFR norms as per USFDA standards. It caters to different end users industries which include FMCG, automobile, pharmaceutical & chemical amongst others. Major customers include National Peroxides Ltd., Galaxy Surfactants Ltd., Cipla Ltd., Emcure Pharmaceuticals Ltd. amongst others.

Weakness
* Average financial risk profile: Moderate networth and total outside liabilities to adjusted networth (Rs 27.18 crore and 2.24 times as on March 31, 2019) along with interest coverage ratio of 2.7 times for fiscal 2019 represents moderate financial risk profile.

* Susceptibility of operating performance to ramp up in scale of operations post capacity expansion and movements in raw material prices: Company has completed significant capacity expansion during fiscal 2019 and fiscal 2020. Ramp up in scale of operations will be key monitorable on account of repayment obligations. Further, company's main raw materials being HDPE, LDPE, PP, etc. which are petroleum derivatives, players in the industry are susceptible to fluctuations in raw material prices.
Liquidity Adequate

MCPL has adequate liquidity driven by expected cash accruals of over Rs. 7 crore and Rs 10 crore per annum in fiscal 2020 and fiscal 2021, respectively. Cash and cash equivalents of Rs.1.98 crore as on March 31, 2019. The company also has access to fund based limits of Rs.25.5 crore, utilized to the tune of 85% on an average over the 12 months ended December 2019. The company has long term repayment obligation of Rs. 4.4-5.6 crore and capex is expected to be over Rs. 5-7.5 crore in fiscal 2020 and 2021 respectively. CRISIL believes the company has sufficient accruals and cash and cash equivalents to part finance its capex requirements (already completed for fiscal 2020) and incremental working capital needs over the next one year.

Outlook: Stable

CRISIL believes MCPL will continue to benefit from the industry experience of its promoters, its established relationships with key customers, and increased scale.

Rating Sensitivity Factors
Upward factor
* Sustained increase in revenue and operating margin resulting in accruals above Rs 12 crore
* Improvement in capital structure resulting in improved financial risk profile.

Downward factor
* Decline in cash accrual below Rs 6.5 crore on account of subdued operating performance
* Larger-than-expected, debt-funded capital expenditure or in cases of stretch in working capital cycle, results in deterioration of financial risk profile.

About the Company

Established in the year 1990, MCPL is a leading manufacturer of plastic Blow Molded and Injection Molded products used in segments like Industrial Packaging, Lifestyle Furniture, Automotive Components, Healthcare Products & Emergency Handling Solutions. The company is promoted by Mr. Jagdish Dedhia , Manish Dedhia and Mr. Sanjay Dedhia. The management took over the company in 1990 from its erstwhile promoters.

Key Financial Indicators
Particulars Unit 2019 2018
Revenue Rs.Crore 124.84 112.29
Profit After Tax (PAT) Rs.Crore 3.65 3.4
PAT Margin % 2.9 3
Adjusted debt/adjusted networth Times 1.57 0.98
Interest coverage Times 2.7 2.64

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 1 CRISIL A3
NA Cash Credit NA NA NA 32.8 CRISIL BBB-/Stable
NA Foreign Exchange Forward NA NA NA 0.5 CRISIL A3
NA Letter of Credit NA NA NA 4 CRISIL A3
NA Long Term Loan NA NA Mar-2024 21.7 CRISIL BBB-/Stable
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  55.00  CRISIL BBB-/Stable/ CRISIL A3  26-03-20  CRISIL BBB-/Stable  04-04-19  CRISIL BBB-/Stable/ CRISIL A3  16-01-18  CRISIL BBB-/Stable/ CRISIL A3    --  -- 
            07-03-19  CRISIL BBB-/Stable/ CRISIL A3           
Non Fund-based Bank Facilities  LT/ST  5.00  CRISIL A3  26-03-20  CRISIL A3  04-04-19  CRISIL A3  16-01-18  CRISIL A3    --  -- 
            07-03-19  CRISIL A3           
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 1 CRISIL A3 Bank Guarantee 1 CRISIL A3
Cash Credit 32.8 CRISIL BBB-/Stable Cash Credit 32.8 CRISIL BBB-/Stable
Foreign Exchange Forward .5 CRISIL A3 Letter of Credit 4 CRISIL A3
Letter of Credit 4 CRISIL A3 Long Term Loan 22.2 CRISIL BBB-/Stable
Long Term Loan 21.7 CRISIL BBB-/Stable -- 0 --
Total 60 -- Total 60 --
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 Bank Loan Ratings
CRISILs Criteria for rating short term debt
The Rating Process
Understanding CRISILs Ratings and Rating Scales

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