Rating Rationale
August 07, 2018 | Mumbai
Orient Bell Limited
 
Rating Action
Total Bank Loan Facilities Rated Rs.236.15 Crore
Long Term Rating CRISIL A-/Stable
Short Term Rating CRISIL A2+
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL ratings on the bank facilities of Orient Bell Limited's (OBL) continue to reflect established market position in the tiles industry, diversified geographical and customer profiles, and an above-average financial risk profile. These strengths are partially offset by vulnerability to demand from end-user industry, exposure to intense competition, and susceptibility to fluctuations in raw material prices.

Analytical Approach

Unsecured loans (outstanding at Rs 15 crore as on March 31st 2018) extended to OBL by the promoters have been treated as neither debt nor equity. That is because these loans are subordinate to bank debt and may remain in the business over the medium term.

Key Rating Drivers & Detailed Description
Strengths
* Established market position
With capacity of 29 million square metre, OBL is one of the leading organised players 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.

* Diversified geographical and customer profiles
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.

* Above-average financial risk profile
Gearing was comfortable at 0.28 time as on March 31, 2018, and should remain below 0.50 time over the medium term. Interest coverage and net cash accrual to total debt ratios were 5.2 times and 0.88 time, respectively, in fiscal 2018 and are projected at 4.5-5.0 times and 0.3-0.5 time over the medium term.

Weaknesses
* Vulnerability to demand from end-user industry
The ceramic tiles industry reported modest growth in 2017-18 due to slowdown in the real estate market. OBL managed a marginal growth of 2.7% in FY 17-18 and reported a turnover of Rs. 671.8 crore due to subdued real estate market. Dependency on the real estate market and its economic scenarios should continue to constrain the business.

* Exposure to intense competition
Intense competition (from the unorganised sector and reputed brands 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.

* Susceptibility to fluctuations in raw material prices
Expenses incurred to procure 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 has happened in fiscal 2018, with increase in gas prices, operating margins fell to 7.3% in fiscal 2018 from 8.4% in fiscal 2017.
Outlook: Stable

CRISIL believes OBL will continue to benefit from the established market position and an above-average financial risk profile. The outlook may be revised to 'Positive' if substantial increase in revenue and profitability along with prudent working capital management strengthens financial risk profile. Conversely, the outlook may be revised to 'Negative' if significantly low cash accrual, stretched working capital cycle, or any large, debt-funded capital expenditure weakens financial risk profile.

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. It manufactures and markets glazed ceramic wall, floor, and vitrified tiles under the brand, Orient Bell. Its facilities are in Sikanderabad (Uttar Pradesh), Dora (Gujarat) and Hoskote (Karnataka). Mr Daga and family are the promoters.

Key Financial Indicators
Particulars Unit 2018 2017
Revenue Rs.Crore 671.80 653.57
Profit After Tax (PAT) Rs.Crore 40.05 11.04
PAT Margin % 6.0 1.7
Adjusted debt/adjusted networth Times 0.28 0.62
Interest coverage Times 5.2 4.2

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 Letter of credit & Bank Guarantee NA NA NA 80 CRISIL A2+
NA Long Term Loan NA NA Mar-2023 49.15 CRISIL A-/Stable
NA Working Capital Facility NA NA NA 107 CRISIL A-/Stable
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  156.15  CRISIL A-/Stable  30-07-18  CRISIL A-/Stable  24-07-17  CRISIL A-/Stable  16-09-16  CRISIL BBB+/Positive  13-04-15  CRISIL BBB+/Stable  CRISIL BBB+/Negative 
Non Fund-based Bank Facilities  LT/ST  80.00  CRISIL A2+  30-07-18  CRISIL A2+  24-07-17  CRISIL A2+  16-09-16  CRISIL A2  13-04-15  CRISIL A2  CRISIL A2 
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
Letter of credit & Bank Guarantee 80 CRISIL A2+ Cash Credit & Working Capital demand loan 107 CRISIL A-/Stable
Long Term Loan 49.15 CRISIL A-/Stable Letter of credit & Bank Guarantee 80 CRISIL A2+
Working Capital Facility 107 CRISIL A-/Stable Long Term Loan 19.23 CRISIL A-/Stable
-- 0 -- Term Loan 29.92 CRISIL A-/Stable
Total 236.15 -- Total 236.15 --
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
Rating Criteria for Construction Industry
CRISILs Approach to Recognising Default
CRISILs Criteria for rating short term debt

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