| Pudumjee Paper Products Limited | ||||||
| Rated amount enhanced for Bank Debt | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed rationale CRISIL Ratings has reaffirmed its 'CRISIL A/Stable/CRISIL A1’ ratings on the bank facilities and fixed deposits of Pudumjee Paper Products Limited (PPPL).
The ratings factor in the sustenance of the improved business risk profile driven by continued recovery in demand. Revenue increased to Rs 758.68 crore during fiscal 2023 from Rs 555.25 crore in fiscal 2022, backed by steadily improving demand and better realisations. Operating margin remained healthy at 11.5% despite increase in raw material prices. This, along with healthy accretion to reserves and limited reliance on external debt, led to a comfortable financial risk profile.
The ratings continue to reflect the established market position of PPPL in the speciality paper segment, supported by the extensive experience of the promoters and management team and wide product portfolio; the ratings also factor in the healthy financial risk profile. These strengths are partially offset by exposure to intense competition and cyclicality 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 paper industry for over five decades and have developed a strong understanding of market dynamics. Market position is healthy, with a share of 30-40% in the various sub-segments of the domestic speciality paper industry. Product mix is diverse and comprises several grades of glassine, opaque laminating base, kraft, tissue, greaseproof, crepe tissue, MG poster, and printing paper. Clientele is large, and the customisation the company undertakes for them has enabled it to clock a high operating margin of over 11.5% in the last three fiscals. Margin is expected to be 11.5-12.5% over the medium term.
Healthy financial risk profile: Networth was large and gearing strong at Rs 332.39 crore and 0.15 time, respectively, as on March 31, 2023. Debt protection metrics were robust, with interest coverage and net cash accrual to adjusted debt ratios of around 25 times and 1.36 times, respectively, for fiscal 2023. Financial risk profile is expected to remain stable over the medium term, supported by steady accretion to reserves and no major debt-funded capital expenditure (capex).
Weaknesses: Exposure to intense competition: Imports cater to 50-60% of the domestic demand for speciality paper. PPPL also has to compete with other large domestic players in the writing and printing paper, and hygiene and tissue paper segments. Many organized players have also enhanced their capacities thus intensifying the competition. Further the industry is cyclical in nature which along with intense competition may constrain scalability and pricing power.
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 mitigated by a moderate inventory. |
Liquidity: Strong Liquidity is strong supported by healthy cash accruals, minimal bank limit utilization and surplus funds maintained in the form of bank balances and mutual fund investments. Expected annual net cash accrual of Rs 75-85 crore will be more than adequate to meet debt repayment of around Rs 26 crore in fiscal 2024 (including prepayments), and Rs 5-6 crore per fiscal over the medium term. Utilization of cash credit limit of Rs 40 crore averaged just 2% over the 12 months through March 2023. Unencumbered cash and bank balance and liquid mutual fund investments are expected to be Rs 70-80 crore and shall continue to support the financial flexibility. |
Outlook: Stable The company will continue to benefit from its established market position in the speciality paper segment and strong relationships with customers. |
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 speciality, writing and printing, and tissue paper at its plant in Pune, which has 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: |
Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 07-Jun-2023 in line with the lender-wise facility details as on 09-Aug-2021 received from the rated entity.
Criteria Details
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