Key Rating Drivers & Detailed Description

Strengths:

Established market position because of strong brand and diversified product profile

The Ozone brand has strong recognition across India. Also, the company has a diverse portfolio of 4,000-5,000 products varying from floor springs, door closures, hinges to metal doors, kitchen furniture and fittings, and door control devices which are used in hospitals, government and private institutions, malls and airports. Expanding its product basket has helped the company gradually scale up operations. Its market position is supported by strong supply chain management, backed by an in-house logistics department, and the latest systems and software installed with distributors and in warehouses. The company plans to shift from pure trading to manufacturing of part segments from the next fiscal.

The operating margin of the company dipped to 12.7% in fiscal 2021 from 17.2% in fiscal 2020 on account of the pandemic. The operating profitability is expected to improve on the back of recovery in revenue and higher realisation due to increased proportion of value-added products, and should remain healthy over the medium term.

Healthy financial risk profile

The capital structure has been healthy due to lower reliance on external borrowings and constant accretion to reserves with negligible dividend payout. Networth and gearing were Rs 102.67 crore and 0.28 time, respectively, as on March 31, 2021. The company has no major long-term borrowings and mainly has short-term working capital debt which is revolving. The debt protection metrics are comfortable, as indicated by interest coverage and net cash accrual to adjusted debt ratio of 11.25 times and 0.57 time, respectively, for fiscal 2021. High cash accrual due to strong profitability and controlled working capital cycle should improve the financial metrics over the medium term.

Weaknesses:

Susceptibility to fluctuations in foreign exchange rates, cyclicality in real estate development, and exposure to intense competition

Majority of the products are procured from manufacturers in China and Taiwan and denominated in US dollar, and OOPL hedges the resultant forex exposure. Nonetheless, the operating margin will remain susceptible to fluctuation in forex rates.

Most of the architectural hardware solutions that the company deals in are used in real estate development, rendering revenue susceptible to cyclicality in that sector. Also, despite diversification in product profile, operating margin will remain vulnerable to intense competition, entailing the need to offer additional discounts for pushing sales, especially in the current sluggish real estate market.

Large working capital cycle

The company had gross current assets of 267 days as on March 31, 2021, driven by inventory of 147 days because of its diversified product portfolio. Receivables stood at 86 days. Working capital is supported by credit from suppliers (payables at 90 days as on March 31, 2021)

Annexure - Details of Instrument(s)

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