Rating Rationale
October 06, 2021 | Mumbai
Om Paper Mill - Hosur
Rating Continues on 'Watch Developing'
 
Rating Action
Total Bank Loan Facilities RatedRs.22 Crore
Long Term RatingCRISIL B+/Watch Developing (Continues on 'Rating Watch with Developing Implications)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings' rating on the long term bank facilities of Om Paper Mill - Hosur (OPMH) remain on 'Rating Watch with Developing Implications'.

 

The ratings were earlier placed on watch as management had confirmed applying for restructuring of loans under Reserve Bank of India (RBI) guidelines issued on May 5, 2021, and the 'Resolution Framework 2.0 for stressed assets'. As informed to CRISIL Ratings, the lender has invoked the restructuring proposal on September 30, 2021 and final approval is expected in the near term.

 

CRISIL Ratings will continue to monitor developments in this regard and remove the ratings from watch once formal approval is received and the contours of the restructuring plans are finalised. CRISIL Ratings also notes that though the company has applied for debt restructuring, timely servicing of interest obligations will remain a key monitorable.

 

The rating reflect OPMH's susceptibility to intense competition and cyclicality in the industrial paper industry and profitability susceptible to volatility in waste paper  prices and exposure to nascent stage of operations, These weakness are partially offset by its extensive industry experience of the partners.

Key Rating Drivers & Detailed Description

Weaknesses:

Susceptibility to intense competition and cyclicality in the industrial paper industry: The Indian industrial paper industry is highly fragmented with several organized and unorganized players. The level of fragmentation is even higher in the industrial paper segment (which accounts for a major portion of the total paper industry) where unorganized players hold majority of the market share. Rapid growth in the number of small mills has been because of the low entry barriers (the cost of setting up an industrial paper plant is relatively low as most smaller capacities are waste-paper-based, and involve low investment in technology) and government policies (several excise concessions and other benefits to small paper mills granted from time to time).

 

Profitability susceptible to volatility in waste paper prices and exposure to nascent stages of operations: Operating margin is expected to susceptible due to volatile raw material prices, which are directly linked to international prices. Since the firm started its commercial operation in June 2020, it has limited track record. Consequently, scalability is constrained, as reflected in estimated revenue of Rs 16 crore for FY 2021. Nascent stage will continue to limit scalability over the medium term.

 

Strength:

Extensive industry experience of the partners: The partners have an experience of over 10 years in industrial paper industry. This has given them an understanding of the dynamics of the market, and enabled them to establish relationships with suppliers and customers.

Liquidity: Stretched

OMPH's liquidity is expected to remain stretched over the medium term due to its nascent stages of operation. Though the bank limit utilization is moderate at around 68 percent for the past ten months ended March 2021, cash accrual are expected to be over Rs3.5-4 crore which are tightly matched against term debt obligation of Rs 2.5-3 crore over the medium term. However liquidity is partially supported by funding support from partners in the form of capital infusion

Rating Sensitivity factors

Upward factor

  • Improvement in turnover by more than 20 percent while sustaining operating profitability
  • Improvement in TOLTNW

 

Downward factor

  • Decline in interest cover to less than 1.5 times
  • Any large debt funded capital expenditure adversely impacting the financial risk profile.
  • Rejection of the one 'time restructuring plan, resulting in weakening of liquidity

About the Company

OPMH was established as partnership firm in 2016. It has recently set up kraft paper manufacturing unit at Hosur-Tamil Nadu. OPMH has started its commercial operation from June 2020 and owned by Mr. Amruthlal Patel, Mr. Kantilal Patel, Mr. Ravj Patel, Mr. Jaiprakash D. Patel and Mrs. Daksha D. Patel

Key Financial Indicators

As on / for the period ended March 31

 

2021*

2020

Operating income

Rs crore

16.20

0.10

Reported profit after tax

Rs crore

-1.95

-0.84

PAT margins

%

-12.06

-842.66

Adjusted Debt/Adjusted Net worth

Times

2.03

1.46

Interest coverage

Times

1.16

-198.35

*Provisional

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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)

Complexity Levels

Rating Assigned with Outlook

NA

Long Term Loan

NA

NA

June 2027

16

NA

CRISIL B+/Watch Developing

NA

Cash Credit

NA

NA

NA

6

NA

CRISIL B+/Watch Developing

 

Annexure - Rating History for last 3 Years
  Current 2021 (History) 2020  2019  2018  Start of 2018
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 22.0 CRISIL B+/Watch Developing 22-07-21 CRISIL B+/Watch Developing   --   --   -- --
      -- 12-05-21 CRISIL B+/Stable   --   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Rating
Cash Credit 6 CRISIL B+/Watch Developing
Long Term Loan 16 CRISIL B+/Watch Developing
Criteria Details
Links to related criteria
Understanding CRISILs Ratings and Rating Scales
CRISILs Bank Loan Ratings
CRISIL's approach to Covid-19-related restructuring

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