Detailed Rationale

Crisil Ratings has downgraded its rating on the long term bank facilities of S.B. Packagings Private Limited (SBP; part of the SBP group) to 'Crisil A-/Stable’ from 'Crisil A/Negative’.

 

The downgrade reflects the continuous decline in the group’s business risk profile .  Operating margin’s of the group has remained under pressure in last 2 fiscals ending FY25 owing to low operating profits in the recently acquired companies combined with higher acquisition expenses.  In addition due to the increasing competition the margins of the group’s margins are estimated to remain low at around 5-6%. Group has been continuously focusing on improving the margins by undertaking price revisions with clients along with focus on production of higher margin products. Improvement in the margins at group level will remain the key monitorable.

 

The rating action also factors in the lower than expected improvement in the revenue of the group despite the latest acquisition. In fiscal 2025 the growth is expected to remain muted to around Rs. 1050-1100 crores from Rs. 1016 crores in the previous fiscals. The group has achieved revenue of around Rs 908.4 crore (after adjusting inter party transactions) during 9MFY2025

 

The financial risk profile has remained strong with networth expected to be over Rs 797 crore in FY25(aided by conversion of unsecured loans, from C-flex group, of around Rs. 248.8 crores crore into equity in fiscal 2024 in the recently acquired entities)aided by steady accretion to reserves, gearing and total outside liabilities to tangible networth ratio expected to be around 0.04 time and 0.33 time as on March 31, 2025. Debt protection metrics are expected to be comfortable with expected interest cover and net cash accruals to adjusted debt ratio of around 8.1 times and 1.7 time, respectively, in fiscal 2025.

The financial risk profile and liquidity are further supported by no major long-term debt on the books. Net cash accruals are expected to be around Rs 40-50 crore against debt repayments of Rs 10-15crore over the medium term, thereby providing sufficient cushion to liquidity. With expected improvement in operating margin, the net cash accruals are expected to improve further

 

The rating reflects SBP group’s strong market position in the flexible packaging industry, longstanding association with leading brands and a healthy financial risk profile. These strengths are partially offset by modest operating profitability margins and customer concentration in revenue.

Key Rating Drivers & Detailed Description

Strengths:

• Strong market position: SBP group has a longstanding association with leading players in the hygiene segment, and over the years it has added customers and enhanced its capacities resulting in revenue growth over the years. The group has a competitive edge because of its expertise in manufacturing recyclable packaging products and printing thin polyethylene (PE) films. It is a preferred packaging partner as it caters to hygiene brands in the value-added products segment. Being a market leader with the most advanced technology, the group also enjoys bargaining power. Furthermore, the recently acquired companies have complementary business than SBP as they are present in the non-hygiene segment. The acquisition has resulted in SBP group having manufacturing plants in multiple locations across India and will enable SBP group to diversify its presence in the export market. The group has achieved revenue of around Rs 908.4 crore (after adjusting  interparty transactions) during 9MFY2025 and is expected to clock over Rs 1030 crore during the full fiscal year 2025. Going forward with the diversification in new products and onboarding of new customer the revenue is expected to grow at stable rate.

 

• Healthy financial risk profile: The financial risk profile is healthy with networth of over  Rs 790 crore. in fiscal 2024 which has increased due to conversion of unsecured loan of C-flex group into equity and issue of shares in the C-flex group). In fiscal 2025 due to subdued profit margins the net worth is expected to remain in the simar range of Rs. 790-800 cores for the full fiscal 2025.Gearing and total outside liabilities to tangible networth ratio expected to be around 0.04 time and 0.33 time as on March 31, 2025. Debt protection metrics are expected to be comfortable with expected interest cover and net cash accruals to adjusted debt ratio of around 8.1 times and 1.7 time, respectively, in fiscal 2025. Group has sufficient capacity and with no major debt funded capex plans, financial risk profile of the group is expected to be comfortable in the medium term.

 

Weaknesses:

• Moderate operating profitability margins: SBP group’s operating profitability was under stress owing to operating losses in the recently acquired companies on account of low margin SKUs, high material expenses, and high overhead costs also coupled with the increasing competition However, it has improved from FY2025 onwards but it is not expected to achieve the margin levels of pre-acquisition period as recently acquired companies are in lower margin business impacting the overall margins of the group The operating margin for SBP group was 4% during 9MFY2025. The acquisition is expected to lead to better bargaining power with suppliers and customers and hence better cost efficiencies for the acquired companies which coupled with increased focus on production of higher margin products and no further one-time expenses with respect to the acquisition, will consequently result in gradual improvement in the operating margin for SBP group. Improvement in the operating margins of the group along with the stable margins of the companies at standalone level will remain the key monitorable.

 

• Customer concentration in revenue: Around 60-70% of the revenue is derived from three major clients, exposing the group to revenue concentration risk. However, this risk is mitigated by the fact that these customers are reputed players in the hygiene and non-hygiene segments. Also, these clients have strict quality and capability norms, leading to low competition. Although with the latest acquisition has been mitigating the risk of dependency over single product or customer. Also the group has added clients in the hygiene non-hygiene and food retail segments, size of the business and improvement in profitability will be key monitorable.

Liquidity: Strong

Bank limits remained sparingly utilized at 5% for last 12 months ending September 2024. Net cash accruals are expected to be around Rs 50 crore against debt repayments of Rs 11 crore in fiscal 2025, thereby providing sufficient cushion to liquidity. With expected improvement in operating margin, the net cash accruals are expected to further improve to Rs 60 crore per year going forward against debt repayments of Rs 10 crore in FY2026. 

Outlook: Stable

Crisil Ratings believes the SBP group will continue to benefit from its established track record in the food and hygiene segment and its strong relationships with leading brands.

Rating sensitivity factors

Upward factors:

• Sustained revenue of over 15% along with with operating margin of around 7-8% at group level
• Sustenance of financial risk profile.

 

Downward factors:

• Decline in revenue or fall in operating margin below 4% impacting the over cash accruals of the group
• Stretched working capital cycle and/or large debt weakening the capital structure.

About the Group

Incorporated in 1991 and promoted by Mr Amit Banga, SBP manufactures flexible packaging materials such as special polybags and pouches for the hygiene, modern retail and food industries. Customers include established brands in the fast-moving consumer goods segment. Facility is in Bahadurgarh, Haryana. 

 

SBP (Food & Hygiene) Pvt. Ltd., set up in April 2020, is a 100% subsidiary of SB Packaging Pvt. Ltd. and caters to the premium packaging segment. Commercial operations started in September 2020.

 

Set up in June 2020, Replastik Pvt Ltd is a 100% subsidiary of SBP. The company recycles non-metal waste and scrap.

 

Incorporated in 1986 by Mr. Binod Kumar Maheshwari of Kolkata, West Bengal, CPPL is engaged in manufacturing flexible packaging material like multi-layer laminated, printed, and metallized films using bi-axially-oriented polypropylene, polyester film wrappers for soap and stiffeners for FMCG industry. The company was acquired by Constantia Flexible group in CY2018.

 

Aparna Paper Processing Industries Pvt. Ltd. was established in 1999 for manufacturing similar products at Pondicherry.

 

Vibgyor Printing and Packaging Private Limited was established in 2004 for manufacturing packaging products at Baddi, Himachal Pradesh.

 

Established in 1999, PPPL is the flagship company of 70 years old Parikh Group which was incepted in 1940. The Ahmedabad-based packaging plant joined Constantia Flexibles in 2013 to support the group for further growth and expansion in Asia. Constantia Parikh is mainly producing-snacks & chips packaging, stand up pouches, single-unit shampoo sachets and different roll stock laminate materials.

 

Parikh Flexibles Private Limited is a step-down subsidiary of Parikh Packaging Private Limited.

Any other information: Not Applicable