| Orient Abrasives Limited | ||||||
| Rating outlook revised to 'Negative', ratings reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISILRatings has revised its outlook on the long term bank facilities Orient Abrasives Ltd (OAL, part of Orient group) to ‘Negative’ from ‘Stable’ while reaffirming its rating at ‘CRISIL A-‘. Short term rating has been reaffirmed at ‘CRISIL A2+’.
The revision in outlook reflects possible weakening of the business risk profile in light of shortage of high grade bauxite available from owned mines and temporary suspension of its Porbandar plant operations. There is significant loss in manufacturing revenue from discontinuation of some of the existing products; however revenue is expected to be maintained in current fiscal backed by higher trading volumes and sale of newly introduced products; accordingly operating margins are expected to moderate.
The group has introduced some new products, being manufactured at its newly acquired plant and also shifted manufacturing of some of the existing products (for which the raw material is available), from their Porbandar plant to its Bhuj plant. While, these initiatives should compensate for the revenue loss from the discontinuation of the earlier products and also revive operating profit margin over the medium term; however swift re-scale up of manufacturing operations and profitability would be key sensitivities for the business risk profile.
The ratings continue to factor in healthy financial risk profile, because of healthy networth, low TOL/ANW and above average debt protection metrics and established market position in the refractory industry. These rating strengths are partially offset by working capital intensive operations and susceptibility of operating margin to volatility in raw material prices. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of OAL and its newly acquired subsidiary Orient Advanced Materials Pvt Ltd (OAMPL, part of Orient group). This is because the OAMPL is a wholly owned subsidiary of OAL and there is significant operational synergy, common management and financial fungibility.
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
The group has been operating in the industry for close to five decades and established itself as a reliable supplier of abrasive material to various end user industries. The experience of its promoters and its established relationship with customers and suppliers are expected to benefit the business risk profile over the medium term.
Weaknesses
The group has exhausted its reserves of high grade bauxite and this has led to temporary suspension of its Porbandar plant operations, impacting manufacturing of products contributing around 40% of its revenue mix. The group has acquired a new proppant plant and has set up a manufacturing unit at Bhuj under its subsidiary. The new products and scale up in volumes of other existing products where the raw material are available is expected to compensate for revenue loss over the medium term; however improvement in revenue and profitability remains a key sensitivity.
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Liquidity: Adequate Adequate liquidity as reflected in in net cash accruals (NCA) of Rs.20.7 crores in fiscal 2021 against repayment obligations of Rs.3.9 crores. NCA is expected to be over Rs.15-20 crores per fiscal over the medium term, adequate against repayment obligations of Rs.4-6 crores per fiscal during the same period. Capex of Rs 40 crore in fiscal 2022 is expected to be funded adequately by term debt of Rs 30 crore. Bank limits were moderately utilised at 38% during past 12 months ended in October 2021. Healthy capital structure enhances OAL’s ability to borrow, supporting overall financial flexibility |
Outlook: Negative CRISIL Ratings believes that the business risk profile of the group is expected to weaken over the medium term on the back of shortage of raw material from owned mines and increased contribution from trading activity |
Rating sensitivity factors: Upward factors:
Downward factors:
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About the Group OAL was set up by Mr R L Rajgarhia in 1971. The company has a unit in Porbander, Gujarat, to manufacture fused aluminium oxide (FAO) abrasive grain and calcined products, set up in 1975. In July 2015, Mr Rajgarhia sold his shares to Bombay Minerals Ltd (a subsidiary of Ashapura Minechem Ltd), which now holds the maximum stake of 36 |
Key Financial Indicators*
*CRISIL Rating adjusted numbers |
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)
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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 Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 31-Dec-2021 in line with the lender-wise facility details as on 17-Aug-2021 received from the rated entity.
Criteria Details
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