Established track record of operations with experienced management
BFPL is based out of Bangalore and was incorporated in 1987, reflecting an established track record of operations for more than two decades. The company is promoted by Mr. Ramakrishnan, who is also the chairman and managing director of the company and has 40 years of experience in the said line of business. The day-to-day operations of the company are managed by the promoter along with an experienced senior management team that is ably supported by a strong line of mid-level managers. The extensive experience of the promoters has helped the company establish long and healthy relationships with its customers and suppliers over the years.

Acuité believes that the company will sustain its existing business profile over the medium term on the back of an established track record of operations and experienced management.

Healthy financial risk profile
The financial risk profile of BFPL continues to remain healthy, marked by moderate tangible net worth, a low gearing level, and moderate coverage ratios. The tangible net worth of the company stood at Rs. 57.91 crore as of March 31, 2022, as against Rs. 48.62 crore as of March 31, 2021. The company follows a conservative leverage policy, as reflected in its peak gearing level of 0.66 times as of March 31, 2022, as compared to 0.83 times as of March 31, 2021. The total outstanding debt of Rs. 38.15 crore consists of working capital borrowings of Rs. 18.87 crore and a term loan of Rs. 19.28 crore as of March 31, 2022. The coverage ratios continued to remain moderate, with an improved interest coverage ratio (ICR) of 11.63 times for FY2022 against 9.23 times for FY2021. The Debt Service Coverage Ratio (DSCR) stood at 2.36 times for FY2022 against 2.25 times for FY2021. The ratio of total outside liabilities to tangible net worth (TOL/TNW) stood at 0.86 times as of March 31, 2021.

Acuité believes that the financial risk profile of the company is likely to remain healthy over the medium term in the absence of any debt-funded capex.

Efficient working capital management
The working capital operations are managed efficiently, as marked by a gross current asset (GCA) of 78 days as of March 31, 2022, as against 129 days as of March 31, 2021. The inventory levels stood at 30 days for FY2022 as compared to 57 days for FY2021. The debtor days stood at 37 days for FY2022 against 48 days for FY2021. The creditor days of the company stood at 13 days for FY2022 as against 59 days for FY2021. The efficient working capital management has led to lower utilisation levels of working capital limits, as the average utilisation of the working capital limits of the company remained on the lower side of 17.20 percent in the eleven months ended March 2023.

Deterioration in the operating performance of the company
The revenue of the company declined to Rs. 138.06 crore in FY2023 as against Rs. 228.42 crore in FY2022 and Rs. 170.39 crore in FY2021. The decline in revenue is due to the decline in export orders received as the company encountered difficulties in receiving export orders following the Russia-Ukraine war. The operating profit margins have been volatile as they are susceptible to crude oil prices. The operating profit margin of the company is estimated to range between 10.15% and 10.80% for FY2023E, as against 8.94% for FY2022 and 11.34% in FY2021. In 10MFY2023, the operating margin stood at 10.17%.

Susceptibility of margins to raw material price fluctuation and foreign exchange fluctuation risk
As BFPL is engaged in the manufacturing of FIBC bags, the major raw materials required to manufacture such products are polypropylene granules and low-density polyethylene, which are derivatives of crude oil, and the prices of crude oil are directly affected by various macroeconomic factors. Similarly, the prices of such raw materials are also volatile in nature, and such fluctuations in the major raw material prices may impact the operating profit margin of the company. Furthermore, the company also deals in exports to various countries across the globe, which contribute around 95 percent to the total revenues in FY2023 and FY2022. As a result, the company’s business is exposed to fluctuations in foreign exchange rates. However, such risks are mitigated to some extent due to the hedging policies adopted by the company.