Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil BBB+/Stable’ rating on the long term bank facilities of R.A.K. Ceramics India Private Limited (RAK India).

 

The ratings continue to reflect the strong operational, business, and financial support received from the parent, RAK Ceramics PJSC (RAK UAE). The company has recorded a flattish growth in operating income of ~1% to Rs 871 crore in 2024 from Rs 867 crore in 2023, owing to moderation in demand in both the domestic market and exports amid stiff competition leading to a drop in volume and realisation. Muted growth in absolute revenue coupled with high fixed overheads such as employee costs and one-time high advertisement expense has moderated operating profitability by 240 basis points (bps) to 4.8% in 2024 from 7.2% in 2023. Going forward, the company is expected to record growth in operating income by ~5% due to expected improvement in retail demand. Operating profitability is also likely to improve to 5-6% over the medium term backed by a focus on improved product mix towards glazed vitrified tiles (GVT) and discontinuation of advertisement expenses this fiscal onwards. RAK India is adequately supported by the parent, RAK UAE, which has extended corporate guarantee to the term loans availed by RAK India and its joint venture (JV) partners and also extended interest bearing loans for working capital purposes this fiscal, the repayment of which will commence from April 2028.

 

The financial risk profile has moderated due to decline in profitability and net losses in 2024 leading to networth dropping to Rs 228 crore as on December 31, 2024, from Rs 241 crore as on December 31, 2023. The losses incurred and comparatively higher debt have kept the capital structure and debt protection metrics modest. Gearing stood healthy at 0.93 time as on December 31, 2024 while interest coverage ratio and net cash accrual to total debt (NCATD) moderated to 1.93 times and 0.12 time, respectively, in calendar year 2024 from 3.23 times and 0.24 time, respectively, in calendar year 2023. The improvement in profitability should boost the overall financial risk profile and remain a key monitorable. Unutilised bank lines to the tune of 25-30% of sanctioned limits and adequate cash generated from the business should comfortably meet repayment obligations and maintenance capital expenditure (capex). Further funding support, by way of a Rs 35 crore loan from the parent is expected in the current year; this will be utilised to replace higher cost bank borrowings and meet incremental working capital requirements. However, Crisil Ratings notes that the loans from promoters are interest bearing with repayment starting April 2028.

 

The ratings continue to reflect RAK India’s established market position and brand in the vitrified, ceramic tiles and sanitary ware segments in India. These strengths are partially offset by the average financial risk profile, vulnerability to fluctuations in fuel cost and raw material prices, and exposure to intense competition and end-user cyclicality.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of RAK India, GRIS Ceramics LLP (Gris) and Gryphon Ceramics Pvt Ltd (Gryphon) and Totus Ceramics. Gris and Gryphon are JVs with RAK India having a 51% stake while Totus Ceramics is a 100% subsidiary.

 

Crisil Ratings has also factored in the strong operational, business, and financial support received from the parent, RAK UAE.

 

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:

Strong operational, business, and financial support from the parent: RAK India, being a subsidiary of RAK UAE, continues to benefit from the parent’s established market presence in addition to business and financial support. The parent is one of the world's largest ceramics manufacturers with a reputed name in the industry. In 2024, RAK UAE had revenue of Emirati dirham (AED) 3.23 billion (equivalent to about Rs 7,592 crore) with an operating margin of 17.6%. Gearing was 0.72 time as on December 31, 2024.

 

Financial support has been forthcoming from the parent – RAK UAE – which infused Rs 50 crore equity in 2020 and has extended corporate guarantee to the term loan and working capital facilities of RAK India. It has also extended interest bearing loans for working capital purposes this fiscal, the repayment of which will start from April 2028. In 2013, RAK UAE converted Rs 137 crore of loan to equity, thus strongly benefiting RAK India’s capital structure. Further, the parent invested Rs 45 crore in 2017 for investment in JVs. Moreover, most of the personnel from the senior management team have been deputed by the parent. RAK India also receives continuous support from the parent in terms of technology and launching of new products.

 

The parent also extends operational support by procuring tiles from its Indian counterpart in case of any inventory build-up and slowdown in the domestic market.

 

Established market position and brand in the vitrified tiles and sanitary ware segments in India: RAK India commenced commercial operations in June 2006. Its market position is driven by the established presence of RAK UAE in the vitrified tiles industry spanning over two decades. Within a short span of 10 years, RAK India has stabilised its operations and become a leading player in the organised ceramics market in India and has set up a marketing network of over 400 dealers. The company is planning to expand its network in India and set up more showrooms to sell high-margin products.  While RAK India is a reputed brand, particularly in the premium segment, the ceramic tiles industry is highly competitive and renders the company susceptible to competitive pressures during down cycles.

 

Weaknesses:

Average financial risk profile: The financial risk profile has moderated due to decline in profitability and net losses incurred in 2024 leading to networth declining to Rs 228 crore as on December 31, 2024, from Rs 241 crore as on December 31, 2023. The losses incurred and comparatively higher debt have kept the capital structure and debt protection metrics modest. Gearing stood healthy at 0.93 time as on December 31, 2024 while interest coverage ratio and net cash accrual to total debt (NCATD) moderated to 1.93 times and 0.12 time, respectively, in calendar year 2024 from 3.23 times and 0.24 time, respectively, in calendar year 2023. The improvement in profitability should boost the overall financial risk profile and remain a key monitorable. Unutilised bank lines to the tune of 25-30% of sanctioned limits and adequate cash generated from the business should comfortably meet repayment obligations and maintenance capex. Further funding support, by way of a Rs 35 crore loan from the parent is expected in the current year; this will be utilised to replace higher cost bank borrowings and meet incremental working capital requirements. However, Crisil Ratings notes that the loans from promoters are interest bearing with repayment starting April 2028.

 

Exposure to intense competition and cyclicality in the real estate segment: The ceramic tiles industry is highly competitive and dominated by the unorganised sector, which has a market share of around 50%. The companies face competitive pressure from low-cost Chinese imports. Also, in the organised segment, RAK India faces intense competition from other reputed players such as H&R Johnson (India) Ltd, Somany Ceramics Ltd (‘Crisil AA-/Stable/Crisil A1+’), Kajaria Ceramics Ltd, and Asian Granito India Ltd. The ability to command a premium in the market will depend on the competitive advantage that RAK India derives from RAK UAE's expertise in this business. Additionally, any moderation in demand from real estate entities exerts pressure on pricing and reduces offtake.

 

Vulnerability to fluctuations in fuel cost and raw material prices: The ceramics industry is highly power intensive; power cost constitutes up to 20% of the total cost depending on the type of fuel used for the manufacturing process. Consequently, most of the industry players have operations in Morbi, Gujarat, which has adequate low-cost fuel in terms of natural gas to power the plants. However, RAK India, with its unit in Andhra Pradesh, is exposed to shortage of natural gas to power its plants. Nevertheless, RAK India has entered into JVs with entities based in Morbi – Gris and Gryphon -- to take advantage of the proximity to raw materials and access to fuel. Besides, given the competition, players also remain vulnerable to any steep fluctuations in the prices of key raw materials (clay, feldspar, silica, kaolin, and carbonates).

Liquidity: Adequate

Liquidity is expected to be adequate with net cash accrual of Rs 30-40 crore in 2025, against debt obligation of Rs 20-25 crore and capex of ~Rs 10-12 crore. Further, the bank limit of Rs 411 crore was utilised around 63% for the 12 months ended March 2025. Improved cash generation, unutilised bank lines and need-based parent support should be sufficient to meet the repayment obligations as well as incremental working capital requirements over the medium term.

Outlook: Stable

The business profile of RAK India will continue to benefit, with revival in demand in the core business segment, resulting in increase in scale of operations. Also, cost-rationalisation measures undertaken by the company improved operating efficiency, which would lead to higher cash generation and stronger debt protection metrics.

Rating sensitivity factors

Upward factors

• Sustained healthy revenue growth and steady operating profitability of 9-10%, resulting in stable  cash generation of Rs 90-100 crore per annum
• Significant improvement in the financial risk profile, and debt protection metrics, either through large equity infusion by the parent or higher cash generation from operations
• Improvement in the credit risk profile of the parent

 

Downward factors

• Sluggish revenue growth or operating margin remaining below 5% on a sustained basis, leading to insufficient cash generation to meet repayment obligations
• Deterioration in the overall financial risk profile due to sizeable debt-funded capex or acquisition or stretch in the working capital cycle
• Change in stance of support by the parent and moderation in the credit profile of the parent

About the Company

Incorporated in March 2004, RAK India is a wholly owned subsidiary of RAK UAE. The company manufactures vitrified/ceramic tiles and sanitary ware in India. As on December 31, 2024, it had capacity to manufacture 4.5 lakh square metre of tiles and 2,000 pieces of sanitary ware per annum. It uses the latest dry-powder-pressed technology at its plant at Samalkot in Andhra Pradesh.

 

In 2017, RAK India entered into two JVs – Gris and Gryphon. Gris manufactures regular sized vitrified/ ceramic tiles for floors and walls whereas Gryphon manufactures large slabs used primarily in commercial establishments. These companies sell 100% to RAK India.

About the parent (RAK UAE)

RAK UAE is a public-listed company, established in 1991 by the royal family of Ras Al Khaimah. It is part of an approximately USD 1-billion global conglomerate that supplies ceramic products to over 160 countries and is one of the world’s largest ceramics manufacturers with a global annual production output of 118 million square metre of ceramic and porcelain tiles, 5 million pieces of bathroom ware, and 36 million pieces of tableware and 2.6 million pieces of faucets and taps.

 

In July 2014, investment firm, Samena Capital, through its subsidiary, Samena Limestone Holdings, and its consortium of international investors, including two Gulf sovereign wealth funds, acquired 30.6% stake in RAK UAE from the ruling family of Ras Al Khaimah. On May 2021, Samena Capital sold 17.6% stake in RAK UAE to Falcone Investments LLC for which the shareholding reached 20.4%.

Key Financial Indicators

	Unit	2024	2023
Operating income	Rs crore	871	867
Profit after tax (PAT)	Rs crore	-18	2
PAT margin	%	-2	0.3
Adjusted debt/adjusted networth	Times	0.94	0.68
Interest coverage	Times	1.93	3.23

Note: The financial reporting is from January to December

Any other information: Not Applicable