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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 11.40 | ACUITE BB | Stable | Reaffirmed | - |
| Bank Loan Ratings | 1.60 | - | ACUITE A4+ | Reaffirmed |
| Total Outstanding | 13.00 | - | - |
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Rating Rationale |
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Acuité has reaffirmed its long-term rating of ‘ACUITE BB’ (read as ACUITE Double B) and short-term rating of ‘ACUITE A4+’ (read as ACUITE A Four Plus) to the Rs. 13.00 Cr bank facilities of Jo Bland Enterprises (JBE). The outlook is 'Stable'.
Rationale for the rating reaffirmation The rating reaffirmation takes into account the improved operating income albeit slight moderation recorded in EBITDA margin and below average financial profile of JBE. The operating income of the firm has been consistently growing since the last two years from FY2021. The firm's revenue stood at Rs.59.14 Cr in FY2023 as against Rs. 49.17 Cr in FY2022. The operating margins stood at4.87 percent in FY2023 as against 5.69 percent in FY2022. The financial risk profile of the firm continues to remain below average with moderate debt protection metrics and gearing levels. The overall gearing of the firm stood at 1.21 times as on March 31, 2023 as against1.46 times as on March 31, 2022. The debt service coverage ratio stood at 1.11 times in FY2023 as against 2.96 times in FY2022. The working capital operations are efficient in nature with GCA days of 62 days as on March 31, 2023 as against 76 days as on March 31, 2022. The rating is however constrained on account of risk associated with withdrawal of capital by partners, and susceptibility of profitability to volatility in raw material prices. |
| About the Company |
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JBE is a partnership firm established in the year 1990 is engaged in manufacturing of plastic films and flexible packaging products consisting of LPDE Bags, Stretch films, Shrink films and HMHDPE bags. In addition, the firm manufactures printed bags as per specifications received from its customers. The manufacturing facilities are situated in Manur and Kolar districts of Karnataka with an installed production capacity of 4000 tons per annum in FY2023 with utilization levels of~ 84 percent over the same period.
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| Unsupported Rating |
| Not Applicable |
| Analytical Approach |
| Acuité has considered the standalone business and financial risk profiles of JBE to arriv e at the credit rating. |
| Key Rating Drivers |
| Strengths |
JBE has been operating since 1990 promoted by Mr. Jose James and Mrs. Sindhu James, having extensive experience of almost three decades in the packaging industry. Their extensive experience has enabled JBE to establish relationship with reputed market player such as Nestle, HUL and ITC. Acuite believes that the experience of the management is expected to support the improvement of the business risk profile over the medium term.
The firm has reported revenues of Rs.59.14 Cr in FY2023 with YOY growth of 20.27 percent as against Rs. 49.17 Cr in FY2022. While maintaining the operating margins in the range of 4.87 percent to 5.69 percent over the same period. Acuité believe the firm will be able to maintain its revenue and margins.
The working capital management of the firm remained efficient with GCA days at 62 days as on March 31, 2023 as against 76 days as on March 31, 2022. Inventory days stood at 13 days as on March 31, 2023 as against 14 days as on March 31, 2022. Subsequently, the payable period stood at 6 days as on March 31, 2023 as against 6 days as on March 31, 2022 respectively. The debtor day stood at 49 days as on March 31, 2023 as against 60 days as on March 31, 2022. Further, the average bank limit utilization in the last six months ended November 2022 remained at ~68 percent for fund based limits. Acuité believes thatthe operations of JBE will remain efficient over the medium term.
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| Weaknesses |
The financial risk profile of the firm remained below average. It is marked by low net worth, moderate gearing, and below average debt protection metrics. The net worth of the firm stood at Rs.7.82 Cr and Rs.7.39 Cr as on March 31, 2023 and 2022 respectively. The gearing of the firm stood at 1.21 times as on March 31, 2023 against 1.46 times as on March 31, 2022. The improvement in gearing is on account of repayment of long term debt. Debt protection metrics – Interest coverage ratio and debt service coverage ratio stood at 2.92 times and 1.11 times as on March 31, 2023 respectively as against 3.33 times and 2.96 times as on March 31, 2022 respectively. TOL/TNW stood at 1.38 times and 1.64 times as on March 31, 2023 and 2022 respectively. The deterioration in the DSCR ratio is on account of decrease in net cash accruals. The debt to EBITDA of the firm stood at 3.25 times as on March 31, 2023 as against 3.79 times as on March 31, 2022. Acuité believes that the financial risk profile of the company would improve supported by expected increase in accruals over the medium term.
The Firm is susceptible to the inherent risk of capital withdrawal given its constitution as a partnership. Any significant withdrawal from the partner’s capital will have a negative bearing on the financial risk profile of the firm.
The prices of plastic polymers, being a derivative of crude, are highly volatility in nature. Margins of the firm are susceptible to volatility in raw material prices. Any unfavorable movement in raw material pricing will may significantly impact the profitability of firm, especially with major FMCG companies as major clients with whom, the firm does not have adequate bargaining power.
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Stable operating performance
Efficient Working capital management| Rating Sensitivities |
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| Liquidity Position: Adequate |
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The firm’s liquidity is adequate marked by generation of adequate net cash accruals to its maturing debt obligations. The firm generated cash accruals of Rs.1.60 Cr in FY2023, against its maturing debt obligations of Rs. 1.34 Cr during the same period. Going forward the firm is expected to generate net cash accruals of Rs. 2.12- 2.80 Cr in FY 2024-25 against Rs.1.23-1.58 Cr debt obligations. The current ratio stood at 1.14 times as on March 31, 2023 against 1.16 in previous year.Further, the average fund-based bank limit utilization in the last six months ended November 2023 remained at ~68 percent.. Acuité believes that the liquidity of the firm will improve supported by expected increase in accruals over the medium term.
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| Outlook: Stable |
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Acuité believes that JBE will maintain a 'Stable' outlook over the medium term supported by it's experienced management. The outlook may be revised to 'Positive' in case the firm registers higher than -expected growth in its revenue and profitability, while managing working capital cycle efficiently. Conversely, the outlook may be revised to 'Negative' in case the firm registers lower than-expected growth in revenues or in case of deterioration in the firm’s financial risk profile.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 23 (Actual) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 59.14 | 49.17 |
| PAT | Rs. Cr. | 0.69 | 0.67 |
| PAT Margin | (%) | 1.16 | 1.36 |
| Total Debt/Tangible Net Worth | Times | 1.21 | 1.46 |
| PBDIT/Interest | Times | 2.92 | 3.33 |
| Status of non-cooperation with previous CRA (if applicable) |
| Not applicable |
| 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 • 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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