| Pudumjee Paper Products Limited | ||||||
| Rating outlook revised to ‘Positive’; Ratings reaffirmed | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has revised the outlook on the long-term bank facilities and fixed deposit programme of Pudumjee Paper Products Limited (PPPL) to ‘Positive’ from ‘Stable’ while reaffirming the rating at ‘CRISIL A-/FA’. The rating on the short-term bank facility has been reaffirmed at ‘CRISIL A2+’.
The outlook revision reflects expectation of sustenance of PPPL’s improved business risk profile driven by recovery in demand during FY22 and enhanced operating margin during FY21 and FY22. Revenue improved to Rs 378.6 crore during 9M FY22 as against revenue of Rs 289.01 crore during 9M FY21 and this is backed by steady demand and better realization. Operating margin had improved to 15.6% in FY21 from 9.6% in FY20 and has continued to remain healthy at 13.66% during 9M FY22, despite increase in raw material prices, driven by higher sales from better margin products such as print base, opaque laminating base, glassine tissue and other miscellaneous paper, and also supported by company’s focus on tailor-made products. Consequently, the Earning before Depreciation, interest and tax has improved to Rs 51.71 crore in 9M FY22 from Rs 42.3 crore during 9M FY21. Sustenance of operating margin at a healthy level and steady improvement in turnover going ahead will remain key sensitivity.
The ratings reflect PPPL’s established market position in the specialty paper segment supported by extensive experience of the promoters and its wide product portfolio. The rating also factors in its healthy financial risk profile. These strengths are partially offset by exposure to intense competition in the paper industry, and susceptibility of profitability to volatility in raw material prices. |
Key Rating Drivers & Detailed Description Strengths: Established market position: The promoters have been in the industry for over five decades and over their tenure have developed a strong understanding of the market dynamics. Company has a healthy market position, with a share of around 30-40% in the various sub-segments of the domestic specialty paper segment. It has a diverse product mix, and comprises several grades of glassine, opaque laminating base, kraft, tissue, greaseproof, maplitho, crepe tissue, MG poster, and printing paper. The large clientele also requires a high degree of customization which also supports the comfortable operating margin.
Healthy financial risk profile: Company has a robust networth and low gearing of Rs 232.09 crore and 0.21 time, respectively, as on March 31, 2021, and are expected to be around Rs 272 crore and around 0.3 time as on March 31, 2022. Interest coverage and net cash accruals to adjusted debt ratios are healthy at around 11.8 times and 0.82 time for fiscal 2021 and expected to be around 10.8 times and 0.7 time for fiscal 2022. Financial risk profile is expected to remain comfortable despite capex of Rs 70-75 crore (debt funded up to Rs 47 crore).
Weaknesses: Exposure to intense competition and cyclicality in the industrial paper industry: Imports cater to about 50-60% of the domestic demand for specialty paper. The company also faces competition from other large domestic players in segments such as writing and printing paper, and hygiene and tissue paper. The number of small mills has also seen a rapid growth because of low entry barriers and government policies supporting smaller players. Intense competition in the highly fragmented industrial paper industry constrains scalability, pricing power, and product differentiation.
Susceptibility to volatile raw material prices: Raw material prices account for around 60% of the cost of sales. The company manufactures paper from imported wood pulp as well as wastepaper, the prices of which are highly volatile. This risk is partially mitigated by moderate inventory. Operating margin is expected to be in the range of 12.0-12.5% over the medium term. |
Liquidity: Strong Liquidity continued to remain strong. Company is expected to generate net cash accruals of Rs 50-57 crore which will be more than adequate against repayments of Rs 11.5-13.5 crore per fiscal during FY22 and FY23 and around Rs 7 crore during FY24. Bank limit utilization on cash credit limits of Rs 40 crore was low—averaging 2% over the last 12 months ended Dec-2021. PPPL is expected undertake capex of Rs 70-75 crore in fiscal 2022 to be funded through debt of Rs 47 crore and balance through internal accruals. Liquidity, in the form of unencumbered cash & bank balance and liquid mutual fund investments, of Rs 90.87 crore as on Dec 31, 2021 also underpins strong liquidity. |
Outlook: Positive CRISIL Ratings believes PPPL will exhibit an improved business risk profile backed by enhanced operating margin and steady improvement in demand. |
Rating Sensitivity Factors Upward factors:
Downward factors:
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About the Company PPPL was set up in January 2015 to take over the paper manufacturing division of Pudumjee Pulp & Paper Mills Ltd, Pudumjee Industries Ltd, and Pudumjee Hygiene Products Ltd. The company manufactures a variety of specialty, writing and printing, and tissue paper. Its plant at Pune has a capacity of 72,000 tonne per annum. |
Key Financial Indicators
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 22-Feb-2022 in line with the lender-wise facility details as on 09-Aug-2021 received from the rated entity.
Criteria Details
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