|
|
| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 14.62 | - | ACUITE D | Downgraded |
| Bank Loan Ratings | 30.38 | ACUITE D | Downgraded | - |
| Total Outstanding Quantum (Rs. Cr) | 45.00 | - | - |
| Total Withdrawn Quantum (Rs. Cr) | 0.00 | - | - |
| Rating Rationale |
|
Acuité has downgraded the long-term rating to ‘ACUITE D’ (read as ACUITE D) from ‘ACUITE BBB-’ (read as ACUITE triple B minus) and the short-term rating to ‘ACUITE D’ (read as ACUITE D) from ‘ACUITE A3’ (read as ACUITE A3) on the Rs. 45.00 Cr bank facilities of Akshat Papers Limited(APL).
Rationale for rating downgrade The rating downgrade reflects instances of delay in servicing of term debt and some instance of LC devolvement by APL for the months of December-21, January, February and March 2022. The pending dues have been serviced only in the month of March 20222 by the entity as confirmed by the bankers. Confirmation of curing of default as per Acuite’s default recognition criteria will remain a key rating sensitivity.
|
| About the Company |
|
APL was established in the year 1996 by Mr Suresh .C. Singhal. The company is engaged in the manufacturing of Kraft paper with a GSM range of 120-400 from 100 percent recycled materials. The company has a paper mill with an installed capacity of 56,000 tons per annum (TPA) in Gujarat. Currently, APL is being managed by Mr Akshat Singhal and Mr. Arnav Singhal. The Company has a manufacturing plant in Gujarat.
|
| Analytical Approach |
| Acuité has taken a standalone view of the business and financial risk profile of APL to arrive at the rating. |
Key Rating Drivers
| Strengths |
| Experienced promoters and long track record of operations
Incorporated in 1966, APL manufactures kraft paper, which is primarily used in the production of corrugated boxes and paperboards. The promoter of the company, Mr. Suresh Singhal has more than two decades of experience in the paper industry. The promoter is assisted by his sons - Mr. Akshat Singhal and Mr. Arnav Singhal who take care of day to day operations of the company. The extensive experience of the management has helped the company build a strong presence in the market. Acuité believes that APL continues to enjoy the benefit of the promoters' longstanding presence in the industry and improving its business risk profile over the medium term. Improved Operating income albeit deteriorated operating and profitability margins The company reported revenues of Rs.100 Cr. for FY2021 against Rs.88 Cr. during FY2020. Further for FY2022 (Prov.) the company has reported revenues of around Rs.109Cr. The YoY growth in the revenues can be linked to increase in the selling prices of kraft papers and APL's focus on higher production of thin kraft paper which has lower mass & weight and higher strength which results in lower capacity utilisation while is sold at a higher price. The average selling price during FY2018-FY2020 ranged from Rs 14 per kg to Rs 26 per kg. However, during FY2021 the prices ranged between Rs. 32-35 per kg which has helped APL is securing better scale of operations. However, the operating margins for FY2021 stood at 9.90 percent against 10.59 per cent during FY2020. The margins have deteriorated due to increase in the raw material prices which the company is not able to pass on to its customers. Additionally, company had availed an emergency credit line to the tune of Rs.1.63 Cr. which had to be paid off during FY2021. The same has further affected the profitability margins which stood at 0.89 percent in FY2021 against 1.87 percent for FY2020. The profitability margin for FY2022(Prov.) has stood at 1.39 percent. |
| Weaknesses |
| Exposure to volatile raw material prices and highly fragmented and competitive industry
Operating margin remains susceptible to volatile raw material (waste paper) prices, which are linked directly to international prices. Any adverse fluctuation in raw material prices can impact profitability. Kraft paper is used for tertiary packaging; thus, offtake depends on industrial production and other macroeconomic factors. The recycling industry is highly intense competition and highly fragmented industrial paper industry constrains scalability, pricing power, and product differentiation. Delays in servicing of debt obligations The latest feedback received from the bankers confirm that APL has been delaying the servicing of its debt obligations for the month of January, February and March 2022. The payments have been regularized only in the month of March 2022. The stretch in liquidity is due to lower net cash accruals causing cash flow mismatches vis-à-vis repayment obligations. This has also caused devolvement in LC for the month January & February 2022 which have been regularised within 30 days as confirmed by the banker |
| Rating Sensitivities |
|
| Material covenants |
| None |
| Liquidity Position: Stretched |
|
The company has stretched liquidity profile marked by recent instances of delays in servicing of debt obligations. The fund-based working capital limits for APL are utilised fully at almost 95 percent for the latest six months ended March 2022. Also, the term loan obligations for the month of January February and March 2022 are serviced only in March 2022.
|
| Outlook: Not Applicable |
| |
| Other Factors affecting Rating |
| Not Applicable |
| Particulars | Unit | FY 21 (Actual) | FY 20 (Actual) |
| Operating Income | Rs. Cr. | 100.17 | 88.62 |
| PAT | Rs. Cr. | 0.89 | 1.66 |
| PAT Margin | (%) | 0.89 | 1.87 |
| Total Debt/Tangible Net Worth | Times | 0.76 | 0.73 |
| PBDIT/Interest | Times | 1.85 | 2.01 |
| Status of non-cooperation with previous CRA (if applicable) |
| Not Applicable |
| Any other information |
| Not Applicable |
| Applicable Criteria |
|
• Default Recognition - https://www.acuite.in/view-rating-criteria-52.htm • Entities In Manufacturing Sector -https://www.acuite.in/view-rating-criteria-59.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm |
| Note on complexity levels of the rated instrument |
| https://www.acuite.in/view-rating-criteria-55.htm |
|
| |
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| |
| About Acuité Ratings & Research |
