Detailed Rationale

CRISIL Ratings has revised its outlook on the long-term bank facilities of Ozone Overseas Private Limited (OOPL) to ‘Negative’ from ‘Stable’ and reaffirmed the rating at 'CRISIL A-‘. Also, CRISIL Ratings has reaffirmed its ‘CRISIL A2+' rating on the short-term bank facilities.

The revision in outlook reflects the deterioration in the operating profitability of the company in fiscal 2022. Operating income and earnings before interest, tax, depreciation and amortisation (EBITDA) stood at Rs 294 crore and Rs 23.88 crore, respectively (compared with Rs 181 crore and Rs 23.6 crore, respectively, in fiscal 2021; and Rs 243 crore and Rs 41.7 crore, respectively, in fiscal 2020).  The operating profitability declined on account of significant promotional and advertisement expenses however gross profit margins have remained at 40% in fiscal 2022 as against 39% in fiscal 2021 and 42% in fiscal 2020. Operating margin is expected at 11-12% in fiscal 2023 because of continued advertisement expenditure. Ability to revert to operational stability and turnaround to historical levels of profitability will be key monitorables.

The ratings continue to reflect the established market position of the group supported by strong brand and diverse product mix, and its healthy financial risk profile. These strengths are partially offset by susceptibility to fluctuations in foreign exchange (forex) rates, exposure to intense competition and volatile operating profitability.

Key Rating Drivers & Detailed Description

Strengths

Established market position because of strong brand and diversified product profile: The brand, Ozone, has strong recognition across India. The company has a portfolio of 3,000-4,000 products such as floor springs, door closures, hinges, metal doors, kitchen furniture and fittings, and door control devices, which are used in hospitals, government and private institutions, malls and airports. The market position is supported by strong supply chain management, backed by an in-house logistics department, and the latest systems and software. The company plans to shift from trading to manufacturing in fiscal 2024, which will enhance its market position.

Healthy financial risk profile: Supported by low reliance on external borrowing, steady accretion to reserve and negligible dividend payout, networth was moderate at Rs 123 crore as on March 31, 2022, as against debt of Rs 72 crore, leading to gearing of 0.58 time. Debt protection metrics were comfortable, as indicated by interest coverage and net cash accrual to adjusted debt ratios of 10.5 times and 0.26 time, respectively, in fiscal 2022. The company is expected to undertake capital expenditure (capex) of around Rs 85 crore in fiscal 2023 and around Rs 40 crore in fiscal 2024 for setting up a manufacturing plant; the capex will be funded in debt to equity ratio of 2:1. However, the financial risk profile will remain healthy over the medium term.

Weaknesses

Susceptibility to fluctuations in forex rates, cyclicality in real estate development, and exposure to intense competition: Majority of the products are procured from China and Taiwan in USD. The company hedges the resultant forex exposure. Nonetheless, the operating margin will remain susceptible to fluctuations in forex rates.

The company’s architectural hardware solutions are used in real estate development, rendering revenue vulnerable to cyclicality in this sector. Also, despite diversification in the product profile, the operating margin is vulnerable to intense competition, entailing the need to offer additional discounts for pushing sales, especially in the real estate market.

Volatile operating profitability: The operating margin fell to 8.11% in fiscal 2022 from 21.5% in fiscal 2019 driven by the Covid-19 pandemic and significant expenditure on promotional activities, and is expected at 11-12% in fiscal 2023 because of continued advertisement expenditure. Improvement in revenue and profitability backed by better absorption of fixed cost will be a rating sensitivity factor. 

The OOPL group made investment of Rs 35 crore for purchase of three residential properties in Delhi against cash accrual of Rs 18.8 crore in fiscal 2022. The investment was funded through term loan of Rs 23 crore. Further investment in non-core assets may impact the financial risk profile and liquidity and will be key monitorables.

Any other information: Not applicable

Annexure - Details of instrument(s)

Annexure - List of Entities Consolidated

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper/magazine/agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL Ratings. However, CRISIL Ratings alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites and portals.

About CRISIL Ratings Limited (A subsidiary of CRISIL Limited)

CRISIL Ratings pioneered the concept of credit rating in India in 1987. With a tradition of independence, analytical rigour and innovation, we set the standards in the credit rating business. We rate the entire range of debt instruments, such as bank loans, certificates of deposit, commercial paper, non-convertible/convertible/partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 33,000 large and mid-scale corporates and financial institutions. We have also instituted several innovations in India in the rating business, including ratings for municipal bonds, partially guaranteed instruments and infrastructure investment trusts (InvITs).
 
CRISIL Ratings Limited ('CRISIL Ratings') is a wholly-owned subsidiary of CRISIL Limited ('CRISIL'). CRISIL Ratings Limited is registered in India as a credit rating agency with the Securities and Exchange Board of India ("SEBI").
 
For more information, visit www.crisilratings.com 
 

About CRISIL Limited

CRISIL is a global analytical company providing ratings, research, and risk and policy advisory services. We are India's leading ratings agency. We are also the foremost provider of high-end research to the world's largest banks and leading corporations.

CRISIL is majority owned by S&P Global Inc, a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.

For more information, visit www.crisil.com

Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK

CRISIL PRIVACY NOTICE
 
CRISIL respects your privacy. We may use your contact information, such as your name, address and email id to fulfil your request and service your account and to provide you with additional information from CRISIL. For further information on CRISIL’s privacy policy please visit www.crisil.com.

DISCLAIMER

This disclaimer is part of and applies to each credit rating report and/or credit rating rationale (‘report’) that is provided by CRISIL Ratings Limited (‘CRISIL Ratings’). To avoid doubt, the term ‘report’ includes the information, ratings and other content forming part of the report. The report is intended for the jurisdiction of India only. This report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the report is to be construed as CRISIL Ratings providing or intending to provide any services in jurisdictions where CRISIL Ratings does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this report does not create a client relationship between CRISIL Ratings and the user.

We are not aware that any user intends to rely on the report or of the manner in which a user intends to use the report. In preparing our report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the report is not intended to and does not constitute an investment advice. The report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind to enter into any deal or transaction with the entity to which the report pertains. The report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Ratings are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold or sell any securities/instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL Ratings assumes no obligation to update its opinions following publication in any form or format although CRISIL Ratings may disseminate its opinions and analysis. The rating contained in the report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the report should rely on their own judgment and take their own professional advice before acting on the report in any way. CRISIL Ratings or its associates may have other commercial transactions with the entity to which the report pertains.

Neither CRISIL Ratings nor its affiliates, third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively, ‘CRISIL Ratings Parties’) guarantee the accuracy, completeness or adequacy of the report, and no CRISIL Ratings Party shall have any liability for any errors, omissions or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the report. EACH CRISIL RATINGS PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Ratings Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. Public ratings and analysis by CRISIL Ratings, as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any), are made available on its website, www.crisilratings.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee – more details about ratings by CRISIL Ratings are available here: www.crisilratings.com.

CRISIL Ratings and its affiliates do not act as a fiduciary. While CRISIL Ratings has obtained information from sources it believes to be reliable, CRISIL Ratings does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and/or relies on in its reports. CRISIL Ratings has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL Ratings has in place a ratings code of conduct and policies for managing conflict of interest. For details please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html.

Rating criteria by CRISIL Ratings are generally available without charge to the public on the CRISIL Ratings public website, www.crisilratings.com. For latest rating information on any instrument of any company rated by CRISIL Ratings, you may contact the CRISIL Ratings desk at crisilratingdesk@crisil.com, or at (0091) 1800 267 1301.

This report should not be reproduced or redistributed to any other person or in any form without prior written consent from CRISIL Ratings.

All rights reserved @ CRISIL Ratings Limited. CRISIL Ratings is a wholly owned subsidiary of CRISIL Limited.
 

CRISIL Ratings uses the prefix ‘PP-MLD’ for the ratings of principal-protected market-linked debentures (PPMLD) with effect from November 1, 2011, to comply with the SEBI circular, "Guidelines for Issue and Listing of Structured Products/Market Linked Debentures". The revision in rating symbols for PPMLDs should not be construed as a change in the rating of the subject instrument. For details on CRISIL Ratings' use of 'PP-MLD' please refer to the notes to Rating scale for Debt Instruments and Structured Finance Instruments at the following link: https://www.crisil.com/en/home/our-businesses/ratings/credit-ratings-scale.html