Rating Rationale
March 12, 2020 | Mumbai
Prima Plastics Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.40 Crore
Long Term Rating CRISIL BBB-/Stable (Reaffirmed)
Short Term Rating CRISIL A3 (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its ratings on the bank facilities of Prima Plastics Limited (Prima; part of the Prima group) at 'CRISIL BBB-/Stable/CRISIL A3'.
 
The ratings continue to reflect the group's healthy financial risk profile, driven by comfortable gearing and debt protection metrics. The ratings also factor in the promoters' extensive experience in the plastic-moulded furniture industry and healthy relationships with customers and suppliers. These strengths are partially offset by susceptibility to volatility in raw material prices and to intense competition in the domestic market.

Analytical Approach

For arriving at the ratings, CRISIL has combined the business and financial risk profiles of Prima and Prima Union Plasticos SA (PUPS) as the entities, together referred to as the Prima group, are in the same business, and have common promoters and fungible cash flow. Furthermore, Prima owns 90% stake in PUPS.

Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description
Strengths: 
* Healthy financial risk profile: The financial risk profile is supported by comfortable total outside liabilities to adjusted networth ratio of 0.48 time as on March 31, 2019, and healthy debt protection metrics. Interest coverage and net cash accrual to total debt ratios were 4.17 times and 0.34 time, respectively, in fiscal 2019, and are expected above 5 times and 0.2 time, respectively, over the medium term.
 
* Promoters' extensive experience in the plastic-moulded furniture industry: The Prima group was set up by Mr Manohar Parekh and his sons in 1993 (listed in 1995). Mr Parekh was also the co-founder of National Plastics Industries Ltd (NPIL) in the 1950s. The promoters' experience of over 3 decades and healthy relationships with a diversified clientele and supplier base should continue to support the business risk profile.
 
Weaknesses:
* Susceptibility to volatility in raw material prices and to intense competition in the domestic market: The key raw material for moulded furniture is polypropylene (PP). As it is a petroleum-derived product, the price of PP is highly volatile, constraining profitability. Furthermore, the plastic-moulded furniture industry is largely unorganised and intensely competitive. High transportation cost makes it difficult for Prima to expand its geographic presence.
 
* Large working capital requirement:
Working capital requirements are large as reflected in gross current assets (GCAs) of 193 days as on March 31, 2019 driven by debtors and inventory of 79 & 80 days respectively. Group maintains higher inventories to cater institutional orders and at its depots to ensure adequate SKU's (Stock keeping units) to cater to its furniture business. Receivables are high due to large credit period offered to government agencies.
Liquidity Adequate

Net cash accrual was Rs 10.9 crore in fiscal 2019 and is expected at Rs 9.5-12 crore per fiscal over the medium term against debt obligation of Rs 1.5-2.5 crore per. Expected capital expenditure (capex) of Rs 16-18 crore per fiscal will be funded through term debt up to 50-60% and through internal accrual. Bank limit utilisation averaged 59% over the 12 months through January 2019 and is expected at a similar level over the medium term. The current ratio is comfortable at 2.1 times as on March 31, 2019. There are no funding support expected to be provided to subsidiaries/JVs over the medium term. The group should have adequate liquidity to meet its financial and operational obligations over the medium term.

Outlook: Stable

CRISIL believes the Prima group will continue to benefit from its established position in the plastic moulded furniture segment and scaling up of operations at its subsidiary

Rating Sensitivity Factors
Upward factors:
* Improvement in standalone performance with moderate revenue growth and improvement in operating margins to above 9% leading to sustained overall revenue growth and consolidated margins above 11%
* Sustained financial risk profile with low leverage levels and healthy debt protection metrics

Downward factors:
* Decline in overall performance with subdued revenue growth and operating margins falling below 6%, leading to significant decline in net cash accruals
* Funding support to group companies/stretch in working capital cycle/ deferment of dividend by JVs or large debt funded capex constrain the financial risk profile

About the Group

Set up in 1993 by Mr Manohar Parekh and his sons, Mr Bhaskar Parekh and Mr Dilip Parekh, Prima manufactures moulded furniture. Its manufacturing facilities are in Daman, Andhra Pradesh, and Kerala. With a public issue in 1995, Prima is listed on the Bombay Stock Exchange.
 
It set up PUPS in Guatemala (Central America) in fiscal 2017. Prima also has an equal JV in Cameroon, Africa, with a local entity as its partner. PUPS and the JV manufacture plastic-moulded furniture and woven sacks, primarily catering to the local market.

Key Financial Indicators (Consolidated)
As on/for the period ended March 31   2019 2018
Operating income Rs crore 132.9 104.3
Reported profit after tax Rs crore 9.6 9.3
PAT margins % 7.2 8.9
Adjusted Debt/Adjusted Networth Times 0.4 0.4
Interest coverage Times 7.1 11.1
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 Cash Credit NA NA NA 12 CRISIL BBB-/Stable
NA Letter of Credit NA NA NA 3.5 CRISIL A3
NA Proposed Long Term Bank Loan Facility NA NA NA 1 CRISIL BBB-/Stable
NA Term Loan NA NA Sept-2021 3.5 CRISIL BBB-/Stable
NA Working Capital Facility NA NA NA 20 CRISIL BBB-/Stable
 
Annexure - List of entities consolidated
Names of Entities Consolidated Extent of Consolidation Rationale for Consolidation
Prima Plastics Limited Full Same line of business with management control and material financial & operational linkages
Prima and Prima Union Plasticos SA Full Same line of business with management control and material financial & operational linkages
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  36.50  CRISIL BBB-/Stable      11-02-19  CRISIL BBB-/Stable  11-10-18  CRISIL BBB/Stable  30-12-17  CRISIL BBB/Positive  CRISIL BBB/Positive/ CRISIL A3+ 
                    30-11-17  CRISIL BBB/Positive   
Non Fund-based Bank Facilities  LT/ST  3.50  CRISIL A3      11-02-19  CRISIL A3  11-10-18  CRISIL A3+  30-12-17  CRISIL A3+  CRISIL A3+ 
                    30-11-17  CRISIL A3+   
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
Cash Credit 12 CRISIL BBB-/Stable Cash Credit 24 CRISIL BBB-/Stable
Letter of Credit 3.5 CRISIL A3 Letter of Credit 6.5 CRISIL A3
Proposed Long Term Bank Loan Facility 1 CRISIL BBB-/Stable Proposed Long Term Bank Loan Facility 4.5 CRISIL BBB-/Stable
Term Loan 3.5 CRISIL BBB-/Stable Term Loan 5 CRISIL BBB-/Stable
Working Capital Facility 20 CRISIL BBB-/Stable -- 0 --
Total 40 -- Total 40 --
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 Fast Moving Consumer Goods Industry
CRISILs Bank Loan Ratings
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt
The Rating Process
Understanding CRISILs Ratings and Rating Scales

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