| Orient Abrasives Limited | ||||||
| Ratings downgraded to 'CRISIL BBB+/Stable/CRISIL A2' | ||||||
| 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 Orient Abrasives Limited (OAL, part of Orient group) to ‘CRISIL BBB+/Stable/CRISIL A2’ from ‘CRISIL A-/Negative/CRISIL A2+’
Rating downgrade reflects continued moderation in group's overall business and financial profile. While revenue is expected to improve revival in group’s operating margin will continue to remain impacted on account of continued non availability of high-grade bauxite which has impacted manufacturing of calcined and brown fused alumina largely. Consequently, group accruals moderated to Rs 16.5 crore in fiscal 2022 and is expected remain in similar range over the medium term. While group has started production of Proppant, further uptake from proppant facility and profitability will remain key monitorable as improvement in net cash accruals will remain sensitive to it Further, Group’s return on capital employed is expected to remain low.
The ratings continue to factor in healthy financial risk profile, because of healthy net worth, 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: Healthy financial risk profile: Net worth was healthy at around Rs 247 crores and total outside liabilities to Tangible net worth was low at 0.3 times, as of March 2022. Debt protection metrics are above average, with interest coverage and net cash accruals to total debt ratios at 6.2 times and 0.44 times, respectively in fiscal 2022. The financial risk profile is expected to remain healthy over the medium term in absence of any significant addition of debt in near term. Company have also paid existing term in current financial year .In 9M FY 23 company have shown improvement in profitability on account of diversification in the product .
Established market position in the refractory industry: :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.
Weakness: Decline in the margin profile and subdued return indicators : Operating margins dipped by over 3.61 % in FY2022 due to non availability of raw materials . This has also resulted in RoCE declining to below 3% in FY2022 The margins continued to remain subdued at 9.20% for 9MFY2023 after rising in Q3 owing to increase in sale of proppant. Operating margins will continue to be a key monitorable. ROCE
Shortage of raw materials impacting operations and susceptibility of operating margins to raw material prices 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.
Raw bauxite and calcined alumina are OAL’s key raw materials. The prices have remained volatile over the past couple of years, exposing the operating profitability to volatility in raw material prices. The abrasive industry is power-intensive and rising fuel costs can make power costlier, adversely affecting OAL’s operating margin. Operating margins have been volatile in the past, ranging from 6.5% to 13% in the past four years ended in fiscal 2022 (6.5% in fiscal 2022). |
Liquidity: Adequate Bank limit utilization is moderate at around 69.19 percent for the past twelve months ended October 2022. Cash accruals are expected to be over Rs 14 Crores which are sufficient against nil term debt obligation. Current ratio is healthy at 2.23 times on March 31, 2022. Moderate cash and bank balance of around Rs.2.30 Crores as on March 31, 2022. Low gearing and moderate net worth support its financial flexibility and provides the financial cushion available in case of any adverse conditions or downturn in the business. |
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 |
Upward Factors: |
About the Group OAL was set up by Mr. R L Rajgarhia in 1971. The company has a unit in Porbandar, Gujarat, to manufacture fused aluminum 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
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
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 15-Feb-2023 in line with the lender-wise facility details as on 17-Aug-2021 received from the rated entity.
Criteria Details
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