| Varmora Granito Private Limited | ||||||
| Ratings reaffirmed at 'CRISIL A- / Stable / CRISIL A2+ ' | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL has reaffirmed its ‘CRISIL A-/Stable/CRISIL A2+’ ratings on the bank facilities of Varmora Granito Pvt Ltd (VGPL; a part of the Varmora group).
The ratings continue to reflect the extensive experience of the promoters in the ceramic industry along with the group’s strong market position, healthy financial risk profile, and strategic plant location. These strengths are partially offset by large working capital requirement, susceptibility to volatile raw material costs, exposure to intense competition, and the vulnerability to cyclicality in the end-user industry. |
Analytical approach For arriving at its ratings, CRISIL has combined the business and financial risk profiles of VGPL, Solaris Ceramic Pvt Ltd (SCPL), Tocco Ceramic Pvt Ltd (TCPL), Conffi Sanitaryware Pvt Ltd (CSPL), Nextile Marbosys Private Limited (NMPL) and Varmora International (VI), collectively referred to as the Varmora group (VG), as they are in the same line of business, have a common management team, and have operational and financial linkages.
Unsecured loans of Rs 20 crore (outstanding at Rs 29 crore as on March 31, 2019) extended to the Varmora group by the promoters have been treated as NDNE. That is because these loans are from promoters and are expected in the business over the medium term.
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
The promoters of VG have vast experience in the ceramic industry. The VG benefits from the extensive experience of its promoters, their understanding of the dynamics of the local market, and established relationships with customers and suppliers. CRISIL believes that VG will continue to benefit from the strong industry experience of its promoters and will achieve sustained revenue growth, over the medium term.
It sells its products under the common brand name of Varmora. The group has a wide industry presence with more than 1400 dealers. CRISIL believes that promoter’s brand awareness efforts have led to established brand and consistent revenues of the group.
The financial risk profile is likely to remain adequate over the medium term. Networth was moderate at around Rs 169 crore as on March 31, 2020, with gearing of 1.19 times. Debt protection metrics were strong, with interest coverage and net cash accrual to total debt ratios of 4.37 times and 0.27 time, respectively, for fiscal 2020.
Manufacturing facilities are in Morbi (Gujarat), India’s ceramic hub, accounting for 70-80 % of overall ceramic tiles production. Strategic location of the unit facilitates easy access to clay (key raw material), contractors and skilled labour, and critical infrastructure such as gas and power. Transportation cost is also low as Morbi is near the major ports of Kandla and Mundra.
Weaknesses
Operations are likely to remain moderately working capital intensive. Gross current assets (GCAs) were over six months as on March 31, 2020 driven by debtors of around 4 months.
Raw materials such as different types of clay, feldspar, silica, kaolin, and carbonates account for 50-55% of total sales, while gas and power cost accounts for 15-20%; hence, even a slight variation in price can drastically impact profitability. Further, intense competition may continue to constrain scalability, pricing power, and profitability.
The group caters to the real estate, construction, and infrastructure industries. The end-user industries are cyclical, and are strongly correlated to economic cycles. In the past, because of economic recession, the construction sector faced a slowdown, with several projects getting delayed or cancelled which in turn restrained the performance of ceramic tiles industry. The fortunes of ceramic tile industry are therefore directly linked with the growth and consumption pattern of the real estate sector. |
Liquidity: Adequate Liquidity backed by improving accruals against repayment obligations, moderate bank limit utilization and healthy financial flexibility. Group is expected to generate annual accruals of Rs.50-55 crore p.a. which shall cover the repayment obligations around Rs. 20 cr. The group has access to fund-based limit worth Rs 121 crore which was utilised at an average of around 80% through 2020. Current ratio was moderate at 1.3 times as on March 31, 2020. The promoters are expected to continue extending timely, need-based unsecured loans to aid financial flexibility. |
Outlook Stable CRISIL believes that the Varmora group's business risk profile will continue to benefit from extensive experience of the promoters in the ceramic tiles industry, strong brand recall, and established distribution network. |
Rating sensitivity factors Upward factors
Downward factors
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About the group VGPL, incorporated in 1984, manufactures glazed vitrified tiles and polished glazed vitrified tiles.
TCPL, formed in 2011, manufactures vitrified tiles, while SCPL, which was established in 2009, manufactures wall tiles. All the companies are owned by Varmora and family and have production facilities at Morbi.
VI, set up in 2009, was earlier acting as the marketing, export arm for the group, and trades in vitrified, floor, and wall tiles. From 2020, VI has forayed in the sales of sanitaryware products. In fiscal 2017, the VGPL took 50.9% stake in CSPL (incorporated in 2014) thereby making the company one of its subsidiaries. CSPL sells its products under the brand name of, Varmora, across the country and in the overseas market as well. In fiscal 2018, VGPL floated another subsidiary NMPL, which manufactures the slim tiles/high value add slab tile project. |
Key Financial Indicators
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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)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||
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