| Orient Bell Limited | ||||||
| Rating outlook revised to ‘Stable’; ratings reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has revised its outlook on the bank facilities of Orient Bell Ltd (OBL) to ‘Stable’ from ‘Negative’ and reaffirmed the rating at ‘CRISIL A-‘. The short term rating has been reaffirmed at ‘CRISIL A2+’.
The revision in outlook reflects expectation of continued improvement in financial and business risk profile of the company. OBL was able to register muted revenue growth in fiscal 2021 despite covid-19 adversely impacting Q1FY21. Operating revenue stood at Rs 512 crore in Fiscal 2021, 2% better than Rs. 502 crore in Fiscal 2020, however, lower than the Rs. 582 crore achieved in Fiscal 2019.
Operating profitability continued to remain moderate in the range of 5.4-7.3% over past 4 fiscals through Fiscal 2021. The same improved to 6.9% in Fiscal 2021 from 5.4% in Fiscal 2020 largely driven by demand recovery post covid-19 pandemic as well as better realizations driven by diversification in product mix including larger size tiles which were sold at premium.
The ratings also take cognizance of the performance during first quarter of Fiscal 2022, wherein OBL incurred operated losses, however, following quarters of current Fiscal 2022 are expected to be better similar to the rebound during Fiscal 2021. Sustained improvement in business risk profile leading to a better financial risk profile would remain a rating monitorable.
CRISIL Ratings on the bank facilities of OBL continues to reflect the company’s established market position in the tiles industry, its diversified geographical reach and clientele, and comfortable financial risk profile. These strengths are partially offset by vulnerability to cyclicality in the end-user real estate industry and to fluctuations in gas and raw material prices, and exposure to intense competition. |
Analytical Approach Unsecured loan (Rs 15 crore as on March 31, 2021) extended by the promoters has been treated as neither debt nor equity. |
Key Rating Drivers & Detailed Description Strengths: * Established market position With capacity of 27 million square meters (based on current product sizes mix), OBL is one of the leading organized tiles manufacturers in India. After acquisition of Bell Ceramic Ltd in 2010, it has become a pan-India player with plants in the northern, southern, and western regions. OBL is focused on improving its brand presence across India and has thus increased the budget for marketing and branding spends. Clientele is varied, comprising institutional buyers and over 4,000 dealers across the country. Thus, revenue and profitability remain insulated from adverse fluctuations in the preferences of any particular customer or region. During Fiscal 2021, around 46% of revenues came from Norther India, followed by Southern and Western India which contributed around 24% of revenues each.
* Comfortable financial risk profile Gearing was healthy at 0.07 time as on March 31, 2021, driven by low (adjusted) debt at around Rs 17 crore as on March 31, 2021, which further got reduced to Rs 15 crore as on June 30, 2021. Coverage ratios were also comfortable as reflected by interest coverage and net cash accrual to total debt ratios were 6.45 times and 1.61 time, respectively, in fiscal 2021. The financial risk profile should remain adequate, supported by prudent working capital management leading to low debt.
Weakness: * Vulnerability to cyclicality in the end-user industry The ceramic tiles industry reported a decline in fiscals 2019 and 2020 due to slowdown in the real estate market. OBL’s turnover fell 18% to Rs 582.99 crore in fiscal 2019 and to Rs 501.81 crore in fiscal 2020 and currently it is at 511.96 crore in fiscal 2021 on account of the Covid-19 pandemic and the economic slowdown. Dependence on the real estate market should continue to constrain the business risk profile.
* Exposure to intense competition Intense competition from the unorganised sector and reputed brands of companies such as Kajaria Ceramics Ltd, Nitco Ltd, Somany Ceramics Ltd, and HR Johnson India may continue to restrict scalability and limit pricing power, thereby constraining profitability. Further, the size of a company affects the ability to absorb fixed costs during tough times such as Covid-19, wherein smaller players may incur operating losses, while comparatively bigger players might not.
* Susceptibility to fluctuations in gas and raw material prices leading to fluctuating margins Raw materials (different types of clays, feldspar, silica, kaolin and carbonates) comprise 50-60% of total operating cost, while gas and power costs comprise 20-25%. Hence, even a slight variation in input prices will drastically impact profitability, as seen in fiscal 2018, when increase in gas prices led to a fall in operating margin to 7.3% from 8.4% in fiscal 2017. This, coupled with slowdown in construction sector, government reforms and lockdown amid covid-19, led to a further decline of margins to 5.4% in Fiscal 2020.
With better demand in Fiscal 2021 as well as various cost rationalization measures including solar energy and alternative sources of power as well as de-bottlenecking of processes has resulted in control in overall power and fuel cost management and subsequently increase in the operating margins to 7% in Fiscal 2021. Sustenance of improved operating profitability going forward would remain crucial from credit risk perspective. |
Liquidity: Strong Bank limit utilisation is low at around NIL for the past twelve months ended June 2021. Cash accrual are expected to be over Rs 30 crore which are sufficient against term debt obligation of 10-12 crore over the medium term. In addition, it will be act as cushion to the liquidity of the company. The company has received unsecured loans of Rs 15 crore from its promoters, as on March 31, 2021. The loans have been treated as neither debt nor equity. Current ratio improved to 1.78 times as on March 31, 2021, |
Outlook Stable CRISIL Ratings believes OBL will continue to benefit from the established market position and an comfortable financial risk profile. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company OBL (formerly, Orient Ceramics and Industries Ltd) is a public limited company listed on the Bombay Stock Exchange and National Stock Exchange, and promoted by Mr. Daga and his family members. It manufactures glazed ceramic wall, floor, and vitrified tiles under the Orient Bell brand. Facilities are in at Sikanderabad in Uttar Pradesh, Dora in Gujarat, and Hoskote in Karnataka. |
Key Financial Indicators
*Operating income also includes cash discount of Rs. 9.36 crore in fiscal 2021 and Rs. 8.62 crore in fiscal 2020 |
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 - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Annexure - Details of Bank Lenders & Facilities
| Facility | Amount (Rs.Crore) | Rating |
| Letter of credit & Bank Guarantee | 20 | CRISIL A2+ |
| Letter of credit & Bank Guarantee | 11 | CRISIL A2+ |
| Letter of credit & Bank Guarantee | 7 | CRISIL A2+ |
| Letter of credit & Bank Guarantee | 22 | CRISIL A2+ |
| Letter of credit & Bank Guarantee | 10 | CRISIL A2+ |
| Letter of credit & Bank Guarantee | 10 | CRISIL A2+ |
| Long Term Loan | 30 | CRISIL A-/Stable |
| Proposed Fund-Based Bank Limits | 19.15 | CRISIL A2+ |
| Working Capital Facility | 44 | CRISIL A-/Stable |
| Working Capital Facility | 9 | CRISIL A-/Stable |
| Working Capital Facility | 23 | CRISIL A-/Stable |
| Working Capital Facility | 5 | CRISIL A-/Stable |
| Working Capital Facility | 16 | CRISIL A-/Stable |
| Working Capital Facility | 10 | CRISIL A-/Stable |
Criteria Details
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