| Seshasayee Paper and Boards Limited | ||||||
| Rating outlook revised to 'Negative'; Ratings Reaffirmed | ||||||
| Rating Action | ||||||
| ||||||
| 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 revised its outlook on the long-term bank facilities of Seshasayee Paper and Boards Limited (SPBL) to ‘Negative’ from ‘Stable’ while reaffirming the rating at ‘Crisil AA-’ and has reaffirmed its ‘Crisil A1+’ rating on the short term bank facilities.
The rating action factors in steep decline in profitability in fiscal 2025 owing to lower realization and elevated raw material prices. Realizations have moderated due to significant increase in imports into India at cheaper prices, from China and ASEAN countries while the raw material prices have increased drastically resulting in impact in profitability from 19.07 percent in fiscal 2024 to 6.88 percent in 9M fiscal 2025. This has resulted in reduction in net cash accruals from Rs.239.43 crore in 9MFY24 to Rs.112.95 crore in 9MFY 25. Improvement in profitability will be a key monitorables over the medium term.
Despite decline in realisation, Revenue is expected to be marginally lower than previous year due to healthy volume growth. Financial risk profile and liquidity will continue to remain strong over the medium term.
The ratings continue to reflect the established position of SBPL in the writing and printing paper (WPP) segment, supported by extensive experience of its promoters, and the integrated operations and healthy operating efficiency. The ratings also factor in the robust financial risk profile of the company. These strengths are partially offset by susceptibility to volatility in raw material prices. |
Analytical Approach Crisil Ratings has evaluated the standalone business and financial risk profiles of SPBL where standalone approach applied. |
Key Rating Drivers & Detailed Description Strengths:
The company, both units combined, meets about 80% of its power requirement in-house through its captive power plants. The plant (21 megawatt [MW]) in Erode is equipped to use both coal and bio-fuels. It also has black-liquor dry solids (BLDS) fueled captive power plant (16 MW) in Erode and captive power plant (6 MW) in Tirunelveli, where both coal and bio-fuels can be used.
To enhance pulp and paper production capacities in phases in Erode, the management has announced project MDP-IV. The first phase of the MDP-IV, which would entail a cost of Rs 400 crore, is likely to be funded entirely through internal accrual. The company is awaiting environmental clearance for Project MDP-IV-Phase-I.
In September 2022, the company acquired the assets of M/s Servalakshmi Paper Ltd (corporate debtor under liquidation) on a going-concern basis through an e-auction held under IBC Rules. This acquisition (funded through internal accrual) should add another 75,000 TPA of paper manufacturing capacity under SPBL. The Hon'ble National Company Law Tribunal (NCLT), Chennai bench, through its order dated May 12, 2023 approved the e-auction sale of assets of M/s Servalakshmi Paper Limited as a going concern, in favour of the company and consequently the company has received the sales certificate and has taken possession of the unit in May 2023. A few appeals challenging the Hon'ble NCLT's order have been filed, which are being contested by the company.
Weakness:
|
Liquidity: Strong Liquidity will remain supported by strong cash accrual, lower bank limit utilisation and prudent working capital management. The cash credit limit of Rs 61 crore was utilised at 17% on average during the 12 months through January 2024. In the absence of any yearly maturing debt over the medium term, the entire cash accrual -- expected at more than Rs 150 crore per annum – will aid financial flexibility. The current ratio is estimated at over 3 times as on March 31, 2025 and unencumbered cash and bank balance and investments at over Rs 700 crore as of dec 2024. |
Outlook: Negative Crisil Ratings believes SPBL’s profitability will remain under pressure, over the medium term, on account of elevated raw material prices and competition from cheaper imports of paper into India. |
Rating sensitivity factors Upward factors:
Downward factors:
|
About the Company Incorporated in 1960, SPBL manufactures pulp, WPP, packing and wrapping grade papers, and specialty grade papers. Products are sold under the brands Sprint, Sprint Plus, Swift and Success. The company has an integrated pulp, paper and paper board mill at Pallipalayam in Erode, Tamil Nadu, and a paper manufacturing mill in Tirunelveli with aggregate capacity of 255,000 TPA. |
Key Financial Indicators
|
Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
|
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||
|
Criteria Details
|