Rating Rationale

Key Rating Drivers & Detailed Description

Strengths:

Established market position supported by extensive experience of the promoters: Backed by presence of over three decades in the polyvinyl chloride (PVC) films industry, the promoters have developed sound understanding of market dynamics and maintained healthy relationships with customers and suppliers. As a result, revenue has recorded a compound annual growth rate of 9-10% for the three fiscals through March 2025. Catering to diversified business segments insulates the company from a downturn in any industry. Operating income of Rs 191 crore has been booked for the first nine months of fiscal 2025. The continuation of the focus on adding value-added products such as pool liners and new customers in each segment should enable the company to record consistent improvement in operating income, backed by volumetric growth of 5-6%.

Comfortable financial risk profile: The capital structure is marked by moderate gearing of less than one time maintained for 6-7 years ended March 31, 2025. Gearing is expected to improve to 0.09-0.12 time over the medium term, aided by limited reliance on external debt. Debt protection metrics are healthy too, with interest coverage and net cash accrual to adjusted debt ratios estimated to be over 17 times and 2 times, respectively, in fiscal 2025. The metrics are likely to remain healthy over the medium term, with a steady operating margin of 13-14%.

Weaknesses:

Moderate operating profitability: Operating margin has grown to 14% for the first nine months of fiscal 2025, largely driven by the management’s focus on sale of value-added products, fetching a relatively higher margin, and moderation in raw material prices. Going ahead, with the company having a better scope to fully pass on the hike in raw material prices, the margin should improve further. Sustenance of operating margin at 13-14%, along with steady rise in operating income and volumetric growth, should strengthen the financial risk profile, and remain a key rating sensitivity factor.

Modest scale of operations: Although operating income has grown by 9-10% in compounded terms for the last three fiscals through March 2025, the scale of operations remains moderate. Operating income is estimated to be in the range of Rs 260-270 crore in fiscal 2025, and is expected to improve further, with increased focus on manufacturing of value-added products and addition of product segments and distributors. The sustained increase in operating income, aided by volumetric growth, remains a key rating sensitivity factor.