Detailed Rationale

Crisil Ratings has reaffirmed its 'Crisil AA-/Stable/Crisil A1+’ ratings on the bank loan facilities of Uflex Limited (Uflex; part of the Uflex group)

 

The ratings continue to reflect the strong market position of Uflex in both the domestic and overseas markets. The sustainability in the business risk profile is driven by revenue of Rs. 11,222 crores achieved during 9MFY2025 (Rs. 9,936 crores in 9MFY2024); group is expected to achieve revenue in the range of Rs. 14,800-15,000 crores for full year 2025 from Rs.13,414 crores in FY2024, the improvement in the revenue is driven by the improved demand in the exports market along with the improved realizations which remained impacted last fiscal due to sharp decline in prices because of oversupply in the industry.

 

In fiscal 2025 operating margins of the group are expected to remain largely in line with the expectation despite the impact of increasing freight cost because of red sea crisis; the operating margins in FY25 are expected to remain at around 12.5-13%. In April 2024 Uflex has started the commercial production of its PET(Polyethylene Terephthalate) chips plant of Panipat with capacity of 1,68,000 MTPA which will be utilised for captive consumption also for the sales in bottle grade chips, this plant has started to support the growth as well as the bottom line for the group. The Egypt plant for PET chips is expected to commence operations in FY2026 which will be sufficiently cover the requirement for the overall overseas requirement of the PET chips is expected to support margins from FY2026 full year onwards.

 

Group is expected to report healthy revenue growth of over the medium term benefitting from the enhanced capacity and healthy demand in the aseptic packaging along with expected to improvement in the demand from overseas market.

 

Despite the continuous ongoing debt funded Capital Expenditure (capex) the financial risk profile of the Uflex group remained comfortable, as reflected in expected total outside liabilities to tangible networth (TOLTNW) ratio of 1.35-1.4 times as on March 31, 2025, compared with 1.4 times as on March 31, 2024. The financial risk profile is expected to remain stable over the medium term.

 

The ratings continue to reflect the groups established presence in the flexible packaging industry, diversified customer and product profiles and a comfortable financial risk profile. These strengths are partially offset by susceptibility to cyclicality in the commoditized packaging films industry along with forex loss and large working capital requirement.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of Uflex and all its Indian and foreign subsidiaries and step-down subsidiaries and joint ventures, together referred to as the Uflex group, on account of operational, management and financial linkages among the entities.

 

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:

• Established market position in the global flexible packaging industry: The Uflex group is one of the largest players in the flexible packaging industry, with a strong market presence in the domestic and overseas markets through subsidiaries in Egypt, Dubai, Mexico, USA, Russia, Poland, Hungary and Nigeria. In 9MFY25 group has achieved revenue of Rs. 11,222 crores against Rs. 9,936 crores in 9MFY24, the improvement in the revenue is due to the improved demand in the exports market. Revenue for full year 2025 is expected to remain in the range of Rs. 14,800-15,000 crores. The company operates at a cumulative capacity of 10,74,110 tpa, In addition to packaging films, the company manufactures various value-added films, including coated films, metallised films, inks and adhesives, and it is also one of the largest flexible packaging companies in India.  Packaging business also includes Aseptic packaging business which has current capacity of 7 billion packs which was operating at more than 100% capacity. The business has shown good traction and in Aseptic business as the volumes grew by 116%. To meet the growing demand for aseptic packaging in Egypt, Europe, the Middle East, and East Africa, Uflex plans to commission an aseptic packaging facility in Egypt by H2 FY26, with an annual capacity of 12 billion packs.

 

• Diversified product and customer profiles: The group has presence throughout the value chain in flexible packaging. It provides complete end-to-end packaging solutions, ranging from flexible packaging intermediate products (packaging machines, holograms, inks and adhesives, cylinders)  to end or final products (packaging films, multilayer laminates and liquid packs). Over the years, it has developed a reputed and diversified clientele, catering to leading players in the packaging films, flexible packaging and fast-moving consumer goods (FMCG) industries. Also, risk of customer concentration is low.

 

The company’s packaging films are used across a range of industries and applications, leading to a diversified customer base. Furthermore, it benefits from established relationships with several leading players from consumer goods as well as packaging industries.

 

• Comfortable financial risk profile: The capital structure is comfortable, supported by expected gearing of around 0.90 time as on March 31, 2025 (In FY2024: 0.94x). Debt protection metrics were strong, indicated by estimated interest coverage ratio and net cash accrual to adjusted debt ratios of at 3.01 times (in FY2024: 2.54 times) and 0.14 time, respectively, in fiscal 2025. The net debt position of the group as on 31st Dec 2024, was ~Rs.6150 crores with healthy cash and equivalents of ~Rs 1073 crore. Management has philosophy of doing the regular capex and currently with the ongoing capex of PET chips plant and other regular capex the net debt levels are expected to be in the range of Rs. 5500-6000 cr. over the medium term. Continuous debt funded capex is leading to increasing Net Debt to EBIDTA levels. However due to the group's strong estimated networth of over Rs.7400 crore as on March 31, 2025, and prudent funding of the group’s aggressive capital expenditure with relatively moderate debt supports the financial risk profile of the group. A higher-than-expected debt for funding the capex or a moderation in the profitability, thereby resulting in a deterioration in the credit metrics, will remain key rating sensitivities.

 

Weaknesses:

• Cyclical and commoditised packaging films industry and foreign exchange risk: The biaxiallyoriented polypropylene (BOPP) and Biaxially Oriented Polyethylene Terephthalate (BOPET) industry is cyclical. Product realisations have fluctuated in the past depending on the demand-supply gap. Moreover, the industry tends to add large capacities when prices improve, resulting in overcapacity and, hence, pressure on realisations. Also, because of the commoditised nature of the packaging business, players have little scope for passing on increase in raw material costs (accounting for 65-75% of net sales), making them highly susceptible to volatility in raw material prices. Thus, the operating margin is susceptible to fluctuations in product realisations and input costs. Adverse movements in forex rates can negatively impact the group’s profitability, given Uflex groups foreign currency-denominated loans and its exposure to multiple currencies. However, it has a natural hedge in the form of export revenue, thereby offsetting the forex risk to some extent.

 

• Large working capital requirement: Gross current assets estimated to remain at 200 days as on March 31, 2025, driven by receivables of 85-90 days and inventory of 75-80 days. The working capital is partially supported by credit of 70-100 days from suppliers.

Liquidity: Strong

Net cash accrual, expected at over Rs.900-1,400 crore per annum, will sufficiently cover yearly debt obligation of Rs.600-650 crore over the next two fiscals. The group also had healthy unencumbered cash balance of ~Rs 1073 crore as on 31st Dec-2024. Bank limit utilisation averaged 60-65% over the 12 months through Jan-25.  Current ratio was moderate at 1.5 times as on March 31, 2024. However the losses reported by Uflex in H1FY25 impacted the cash accruals for the full fiscal which can put some pressure on the liquidity of the group and hence the same will remain the key monitorable.

Outlook: Stable

The Uflex group will continue to benefit from its strong market position in the packaging industry and comfortable financial risk profile over the medium term.

Rating sensitivity factors

Upward factors:

• Net Debt/EBITDA levels of the Uflex group remained below 1.5 times on sustained basis, with the TOLTNW remaining below 1 time.
• Continuous improvement in business performance and no time or cost overruns on the new project

 

Downward factors:

• Lower-than-expected cash accrual on account of reduction in the operating margin or weaker demand
• Net Debt/EBITDA levels of the Uflex group increasing to over 3.25 times on sustained basis.
• Continued foreign exchange losses impacting the overall margins and cash accruals of the group.

About the Company

Company Promoted and founded in 1985 by Mr Ashok Chaturvedi, the Uflex group offers end-to-end flexible packaging solutions, including films (BOPET, BOPP, CPP [cast polypropylene] and metallised), flexible laminates, holographic films, aseptic liquid packaging, packaging and printing machines and inks and adhesives, catering mainly to the FMCG industry. The company is headquartered at Noida, Uttar Pradesh, and has manufacturing facilities in India, Dubai, Mexico, Russia, Egypt, Poland, Hungary, Nigeria and the US.

Any other information: Not Applicable