Press Release March 04, 2024 GUJARAT CRAFT INDUSTRIES LIMITED Rating Reaffirmed

Product	Quantum (Rs. Cr)	Long Term Rating	Short Term Rating
Bank Loan Ratings	36.90	ACUITE BBB- | Stable | Reaffirmed	-
Bank Loan Ratings	18.10	-	ACUITE A3+ | Reaffirmed
Total Outstanding	55.00	-	-

Rating Rationale

­Acuité has reaffirmed its long-term rating of ‘ACUITE BBB-’ (read as ACUITE triple B minus) and short-term rating of 'ACUITE A3+' (read as ACUITE A three plus) on the Rs. 55.00 crore bank facilities of Gujarat Craft Industries Limited (GCIL). The outlook is 'Stable'. Rationale for rating The rating reaffirmation 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

­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

­Established  track record of operations and experienced management 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

Increase in scale of operation along with operating profitability. Further elongation of working capital cycle. Impact on profitability if unable to pass on increasing raw material cost.

Liquidity Position

Adequate

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

­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.

Other Factors affecting Rating

­None.

Key Financials

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)

­Not Applicable.

Any other information

­None.

Applicable Criteria

• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Rating Process and Timeline: https://www.acuite.in/view-rating-criteria-67.htm • Manufacturing Entities: 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

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.­

Rating History

Date Name of Instruments/Facilities Term Amount (Rs. Cr) Rating/Outlook 29 Jan 2024 Cash Credit Long Term 9.00 ACUITE BBB- | Stable (Assigned) Packing Credit Long Term 16.00 ACUITE BBB- | Stable (Assigned) Working Capital Term Loan Long Term 2.55 ACUITE BBB- | Stable (Assigned) Covid Emergency Line. Long Term 1.08 ACUITE BBB- | Stable (Assigned) Term Loan Long Term 1.27 ACUITE BBB- | Stable (Assigned) Secured Overdraft Long Term 7.00 ACUITE BBB- | Stable (Assigned) Proposed Long Term Bank Facility Long Term 18.10 ACUITE BBB- | Stable (Assigned)

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Annexure - Details of instruments rated

Lender’s Name ISIN Facilities Date Of Issuance Coupon Rate Maturity Date Quantum (Rs. Cr.) Complexity Level Rating State Bank of India Not avl. / Not appl. Bank Guarantee (BLR) Not avl. / Not appl. Not avl. / Not appl. Not avl. / Not appl. 2.50 Simple ACUITE A3+ | Reaffirmed State Bank of India Not avl. / Not appl. Cash Credit Not avl. / Not appl. Not avl. / Not appl. Not avl. / Not appl. 9.00 Simple ACUITE BBB- | Stable | Reaffirmed State Bank of India Not avl. / Not appl. Covid Emergency Line. Not avl. / Not appl. Not avl. / Not appl. 01 Dec 2025 1.08 Simple ACUITE BBB- | Stable | Reaffirmed State Bank of India Not avl. / Not appl. Letter of Credit Not avl. / Not appl. Not avl. / Not appl. Not avl. / Not appl. 14.00 Simple ACUITE A3+ | Reaffirmed State Bank of India Not avl. / Not appl. Packing Credit Not avl. / Not appl. Not avl. / Not appl. Not avl. / Not appl. 16.00 Simple ACUITE BBB- | Stable | Reaffirmed State Bank of India Not avl. / Not appl. Proposed Short Term Bank Facility Not avl. / Not appl. Not avl. / Not appl. Not avl. / Not appl. 1.50 Simple ACUITE A3+ | Reaffirmed Not Applicable Not avl. / Not appl. Proposed Short Term Bank Facility Not avl. / Not appl. Not avl. / Not appl. Not avl. / Not appl. 0.10 Simple ACUITE A3+ | Reaffirmed HSBC Not avl. / Not appl. Secured Overdraft Not avl. / Not appl. Not avl. / Not appl. Not avl. / Not appl. 7.00 Simple ACUITE BBB- | Stable | Reaffirmed State Bank of India Not avl. / Not appl. Term Loan Not avl. / Not appl. Not avl. / Not appl. 05 Nov 2024 1.27 Simple ACUITE BBB- | Stable | Reaffirmed State Bank of India Not avl. / Not appl. Working Capital Term Loan Not avl. / Not appl. Not avl. / Not appl. 05 Dec 2026 2.55 Simple ACUITE BBB- | Stable | Reaffirmed

Contacts

Analytical Details	Contact Details
Mohit Jain Senior Vice President - Rating Operations Tel: 022–49294017 mohit.jain@acuite.in Anush Shetty Associate - Rating Operations Tel: 022-49294065 anush.shetty@acuite.in	Contact details exclusively for investors and lenders Mob: +91 8591310146 Email ID: analyticalsupport@acuite.in Tel: 022-49294011 rating.desk@acuite.in

About Acuité Ratings & Research

Acuité is a full-service Credit Rating Agency registered with the Securities & Exchange Board of India (SEBI). The company received RBI Accreditation as an External Credit Assessment Institution (ECAI) for Bank Loan Ratings under BASEL-II norms in the year 2012. Acuité has assigned ratings to various securities, debt instruments and bank facilities of entities spread across the country and across a wide cross section of industries. It has its Registered and Head Office in Kanjurmarg, Mumbai. Disclaimer: An Acuité rating does not constitute an audit of the rated entity and should not be treated as a recommendation or opinion that is intended to substitute for a financial adviser's or investor's independent assessment of whether to buy, sell or hold any security. Ratings assigned by Acuité are based on the data and information provided by the issuer and obtained from other reliable sources. Although reasonable care has been taken to ensure that the data and information is true, Acuité, in particular, makes no representation or warranty, expressed or implied with respect to the adequacy, accuracy or completeness of the information relied upon. Acuité is not responsible for any errors or omissions and especially states that it has no financial liability whatsoever for any direct, indirect or consequential loss of any kind, arising from the use of its ratings. Ratings assigned by Acuité are subject to a process of surveillance which may lead to a revision in ratings as and when the circumstances so warrant. Please visit our website (www.acuite.in) for the latest information on any instrument rated by Acuité. Please visit https://www.acuite.in/faqs.htm to refer FAQs on Credit Rating.