Rating Rationale
January 17, 2019 | Mumbai
Rama Pulp and Papers Limited
Ratings continues on 'Watch Developing'
 
Rating Action
Total Bank Loan Facilities Rated Rs.15.23 Crore
Long Term Rating CRISIL BBB (Continues on 'Rating Watch with Developing Implications') 
Short Term Rating CRISIL A3+ (Continues on 'Rating Watch with Developing Implications') 
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL's ratings on the bank facilities of Rama Pulp and Papers Limited (RPPL) remain on 'Rating Watch with Developing Implications'.
 
CRISIL had placed the ratings on watch on November 7, 2017, following RPPL's announcement on October 30, 2017, regarding its merger with Nath Paper and Pulp Ltd (NPPL) and Nath Industrial Chemicals Ltd (NICL).
 
On October 17, 2018 CRISIL revised its outlook to 'rating watch with developing implications' from 'rating watch with negative implications'. The rating action followed the progress made towards repaying sizeable debt on NPPL's books. The consolidated entity is expected to have a comfortable financial risk profile, owing to steady repayment of debt obligation. The track record demonstrated by the promoter towards providing financial support further influenced the rating action. Moreover, comfort is also drawn from the improving profitability in NPPL.
 
The amalgamation, which has been approved by the boards of all the three companies, shareholders now awaits regulatory and lenders' approval. The transaction is likely to be concluded by the first quarter of fiscal 2020 as per RPPL's management.
 
The proposed amalgamation should lead to synergies, as the three companies are present across value chains of paper and speciality chemicals. NICL's sulphuric acid output and captive power plant will provide backward integration, while RPPL's writing and printing paper output will be used by NPPL for coating paper.
 
CRISIL is in discussion with the management of RPPL to understand the implications of this transaction, and the financial and business plans of the proposed amalgamated entity, to assess the impact on the credit risk profile of RPPL. CRISIL will remove the rating from watch and take a final rating action once it gains clarity on these matters.
 
The ratings continue to reflect RPPL's adequate financial risk profile, and diversified product profile. These strengths are partially offset by the small scale of, and limited integration in, operations, and exposure to volatility in raw material prices.

Key Rating Drivers & Detailed Description
Strengths
* Diversified product profile:
RPPL started manufacturing linear alkyl benzene sulphonic acid (LABSA) by commissioning its unit successfully in fiscal 2017. Entry into the chemical business has helped the company to diversify its revenue streams further. The overall paper segment contributes 69% to revenue of which papers used to manufacture laminates, contribute 46%, with other speciality papers (tissue paper, carbon-base paper, thermal paper, pleating paper, and wax match tissue paper), accounting for the rest. Overall sales growth is estimated at 6-7% year-on-year in fiscal 2019 driven by favourable demand in the segment. Growth in the chemicals segment is expected to remain muted owing to intense competition for LABSA.
 
* Moderate financial risk profile: RPPL is debt-free as on September 30, 2018. Cash accrual remains adequate to support the working capital requirement and capital expenditure plans. Capital structure and debt protection metrics are expected to remain sufficient over the medium term supported by low reliance on debt, steady revenue growth and profitability of 6-7%.
 
Weakness
* Small scale of operation: Despite long-standing presence, overall size remains modest. Lack of a captive power plant leads to lower efficiency compared to other large players in the paper industry. However, with the proposed merger, RPPL will have a 2 megawatt captive thermal power plant.
 
* Exposure to volatility in raw material prices: The commoditised nature of paper and LABSA and sharp fluctuations in raw material prices affect profitability. Cyclical downturns or adverse change in demand-supply balance may result in lower realisations and thus constrain operating margin.
 
Liquidity: adequate
Liquidity should remain adequate over the medium term: annual net cash accrual of Rs 6-7 crore expected between fiscals 2019 and 2020, should be sufficient to meet incremental working capital requirement and minimal capex requirement. Utilisation of bank limit was 45% in the twelve months through October 2018. The absence of any long-term debt as on September 30, 2018, supports liquidity further.

About RPPL
RPPL, incorporated as a private limited company in 1980, was reconstituted as a public limited company in 1983. In 1993, Mr Akash Kagliwal and entities in which he held stakes bought 51.41% of RPPL's equity, obtaining management control over the company. The company manufactures writing and printing paper (WPP), absorbent paper, and special-grade paper, with WPP and absorbent paper capacity of 50 tonne per day (tpd) and speciality paper capacity of 16 tpd in Vapi. In fiscal 2017, the company set up a LABSA plant in Vapi, Gujarat which began commercial operations from April 2016.
 
About NPPL
Incorporated in April 1975, Aurangabad, Maharashtra-based NPPL, promoted by Mr Akash Kagliwal, manufactures high-strength core board and thermal grade paper. It has capacity to manufacture 50,000 tonne per annum of paper, and caters to customers across India.
 
About NICL
Vapi-based NICL, incorporated in July 1978, manufactures and trades in industrial chemicals. Key product, sulphuric acid, is used in pharmaceuticals, dyes and textiles. Promoted by Mr Akash Kagliwal, it has a 2 megawatt captive thermal power plant.
 
During the first six months of fiscal 2019, RPPL's net profit was Rs 2 crore on revenue of Rs 64 crore, against Rs 2 crore and Rs 61 crore, respectively, in the corresponding period of the previous fiscal.
Key Financial Indicators
Particulars Unit 2018 2017
Revenue Rs crore 120 110
Profit after tax Rs crore 2.0 2.3
PAT margin % 2.0 2.1
Adjusted debt/adjusted networth Times 0.00 0.21
Interest coverage Times 15.23 9.91

Any other information: Not applicable

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 crore)		 Rating assigned
with outlook
NA Cash Credit* NA NA NA 12.50 CRISIL BBB/Watch Developing
NA Bank Guarantee NA NA NA 1.1 CRISIL A3+/Watch Developing
NA Term Loan NA NA NA 1.63 CRISIL BBB/Watch Developing
*Letter of credit sublimit of Rs 1.50 crore
*Bank guarantee sublimit of Rs 1.50 crore
*Export packaging credit sublimit of Rs 2.00 crore
*Foreign bill discounting sublimit of Rs 1.00 crore
*Letter of undertaking for bank guarantee sublimit of Rs 3.00 crore
* Full interchangeability among non-fund-based limits
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  14.13  CRISIL BBB/(Watch) Developing      22-10-18  CRISIL BBB/Watch Developing  07-11-17  CRISIL BBB/Watch Negative  09-03-16  CRISIL BBB/Stable  CRISIL BBB/Stable 
            25-07-18  CRISIL BBB/Watch Negative  13-06-17  CRISIL BBB/Stable       
            27-04-18  CRISIL BBB/Watch Negative           
            02-02-18  CRISIL BBB/Watch Negative           
Non Fund-based Bank Facilities  LT/ST  1.10  CRISIL A3+/(Watch) Developing      22-10-18  CRISIL A3+/Watch Developing  07-11-17  CRISIL A3+/Watch Negative  09-03-16  CRISIL A3+  CRISIL A3+ 
            25-07-18  CRISIL A3+/Watch Negative  13-06-17  CRISIL A3+       
            27-04-18  CRISIL A3+/Watch Negative           
            02-02-18  CRISIL A3+/Watch Negative           
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
Bank Guarantee 1.1 CRISIL A3+/Watch Developing Bank Guarantee 1.1 CRISIL A3+/Watch Developing
Cash Credit* 12.5 CRISIL BBB/Watch Developing Cash Credit* 12.5 CRISIL BBB/Watch Developing
Term Loan 1.63 CRISIL BBB/Watch Developing Term Loan 1.63 CRISIL BBB/Watch Developing
Total 15.23 -- Total 15.23 --
*Letter of credit sublimit of Rs 1.50 crore
*Bank guarantee sublimit of Rs 1.50 crore
*Export packaging credit sublimit of Rs 2.00 crore
*Foreign bill discounting sublimit of Rs 1.00 crore
*Letter of undertaking for bank guarantee sublimit of Rs 3.00 crore
* Full interchangeability among non-fund-based limits
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 Paper Industry
CRISILs Criteria for rating short term debt

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