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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 55.00 | ACUITE BBB- | Stable | Assigned | - |
| Total Outstanding | 55.00 | - | - |
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Rating Rationale |
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Acuité has assigned its long-term rating of ‘ACUITE BBB-’ (read as ACUITE triple B minus) on the Rs. 55.00 crore bank facilities of Gujarat Craft Industries Limited (GCIL). The outlook is 'Stable'.
Rationale for rating The rating assigned factors in the established track record of operations of almost 4 decades in this line of business along with experienced management. Further, it factors in the healthy financial risk profile of the company with a gearing of below unity as on March 31st, 2023 and comfortable debt protection metrics with debt service coverage ratio of 1.86 times as on March 31st, 2023. Further, scale of operations remained almost stagnant in FY 2023 at Rs 164.33 as against Rs 170.80 in FY 2022. However, EBIDTA margins have sharply declined to 5.53% in FY 2023 as compared to 8.66% in FY 2022 due to increase in raw material prices. However, the above mentioned strength are partly offset by working capital intensive nature of operations with high GCA days of 133 days in FY 2023. Further, the rating is constrained by susceptibility of profitability to fluctuation in raw material prices. |
| About the Company |
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Gujarat Craft Industries Private Limited was established in 1984 as a Public Limited Company listed on the Bombay Stock Exchange. GCIL is a vertically integrated, manufacturer and exporter of PP/HDPE-coated woven products. The company maintains stringent international quality standards and are ISO 9001:2015 certified, thereby deriving most of their revenue from international markets. Company’s diverse product line includes Flexible Intermediate Bulk Containers (FIBCs)/ Bulk bags [Big Bags], PP/HDPE Woven Fabrics, Woven Sacks, BOPP Bags, PE Tarpaulins, Plastic Sheeting, HDPE Geo-membranes, Vermicomposting beds and Fumigation covers.
GCIL is promoted by Mr. Ashok Chhajer, Mr. Rishab Chhajer and Mr. Kashyap Mehta. |
| Unsupported Rating |
| Not Applicable |
| Analytical Approach |
| Acuité has considered the standalone business and financial risk profiles of Gujarat Craft Industries Limited to arrive at the rating. |
| Key Rating Drivers |
| Strengths |
| GCIL has an established track record of operations dating back almost four decades, along with experienced management. The company is promoted by Mr. Ashok Chhajer, Mr. Rishab Chhajer and Mr. Kashyap Mehta. The promoters and management of the company have experience of over four decades in the industry which reflected in the growing scale of operations. The experience of the promoters have helped the company to maintain a longstanding relationship with its customers and suppliers. The company was able to achieve a revenue of Rs 164.33 Cr in FY 2023 almost at similar level of achieved in FY 2022 of Rs 170.80 Cr. The revenue of the company constitutes of 61.35% of domestic and 38.65% of export. Further, the company has achieved a revenue of Rs 89.63 till October 2023 and is having a current order book position of Rs 35.78 Cr. However, operating margins of GCIL sharply declined in FY 2023 to 5.53% from 8.66% in FY 2022. Acuité believes that the long operational track record coupled with the experience of the management will continue to benefit GCIL going forward, resulting in steady growth in the scale of operations. Healthy financial risk profile The financial risk profile of GICL is healthy, marked by moderate tangible net worth, low gearing level and comfortable debt protection metrics. The tangible net worth of the company stood at Rs. 37.02 Cr as on March 31, 2023, as against Rs. 34.03 Cr as on March 31, 2022. The net worth is adjusted for revaluation reserves and increase in net worth is due to accumulations of profits to reserves. The company follows a conservative financial risk policy reflected through its peak gearing of 1.30 times as on March 31, 2021. The gearing ratio of the company has improved and stood at 0.89 times as on March 31, 2023 as compared to 1.07 times as on March 31, 2022. The total outside liabilities to tangible net worth (TOL/TNW) stood at 1.46 times as of March 31, 2023 as compared to 1.61 times as on March 31, 2022 and 1.99 times as on March 31, 2021. Further, debt protection metrics stood comfortable with debt service coverage ratio and interest coverage ratio of 1.86 times and 3.55 times respectively as on March 31, 2023.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 plan. |
| Weaknesses |
| Working capital-Intensive nature
The working capital operations of the company are intensive in nature with high gross current asset days, which stood at 133 days as of March 31, 2023 compared to 125 days as of March 31, 2022. The inventory days of the company stood at 78 days in FY 2023 as against 74 days in FY 2022. However, the debtor days remained within the average credit period allowed and stood at 48 days in FY 2023 as against 52 days in FY 2022. The creditors days stood at 31 days in FY 2023 as against 24 days in FY 2022. . Acuite believes that the working capital operations of GCIL may continue to remain intensive, considering the nature of the business wherein in high inventory requirements are there. Susceptibility of margins to raw material price fluctuation and foreign exchange fluctuation risk As GCIL 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 35-40 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. |
| Rating Sensitivities |
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| Liquidity Position |
| Adequate |
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The company’s liquidity position is adequate, marked by sufficient net cash accruals against the maturing debt obligations. The company has generated net cash accruals of Rs 5.67 Cr in FY2023 against its maturing repayment obligations of Rs. 1.81 Cr in the same tenure. Further, the company is expected to generate sufficient cash accruals to repay its debt obligation in near to medium term. However, the working capital management of the company is intensive marked by GCA days of 133 days in FY2023 as against 125 days in FY2022. Further, GCIL has moderate reliance on the short-term financing with an average utilization of around 66 percent for 9 months ended November 2023. The current ratio stands at 1.92 times as on March 31, 2023, as against 1.86 times as on March 31, 2022.
Acuite believes that liquidity position of the company may continue to remain adequate backed by steady cash accruals. |
| Outlook: Stable |
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Acuite believes the outlook on GCIL will continue to remain ‘Stable’ over the medium term backed by its long track record of operations and experienced management along with healthy financial risk profile. The outlook may be revised to ‘Positive’ if the company is able to successfully acquire higher orders which will lead to significant improvement in scale of operations and the profitability margins while also improving its working capital operations. Conversely, the outlook may be revised to ‘Negative’ in case of any operating inefficiency by GCIL leading to deterioration in revenue and profitability along with financial risk profile and liquidity position of the company.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 23 (Actual) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 164.33 | 170.80 |
| PAT | Rs. Cr. | 3.47 | 7.58 |
| PAT Margin | (%) | 2.11 | 4.44 |
| Total Debt/Tangible Net Worth | Times | 0.89 | 1.07 |
| PBDIT/Interest | Times | 3.55 | 6.11 |
| Status of non-cooperation with previous CRA (if applicable) |
| None |
| Any other information |
| None |
| Applicable Criteria |
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• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Entities In Manufacturing Sector:- https://www.acuite.in/view-rating-criteria-59.htm • Rating Process and Timeline: https://www.acuite.in/view-rating-criteria-67.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm |
| Note on complexity levels of the rated instrument |
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In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuite’ s categorisation of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow patterns, number of counterparties and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Rating Criteria “Complexity Level Of Financial Instruments” on www.acuite.in.
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| Rating History : |
| Not Applicable |
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