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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 1.60 | - | ACUITE A4+ | Reaffirmed |
| Bank Loan Ratings | 11.40 | ACUITE BB | Stable | Reaffirmed | - |
| Total Outstanding Quantum (Rs. Cr) | 13.00 | - | - |
| Total Withdrawn Quantum (Rs. Cr) | 0.00 | - | - |
| 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'. The rationale for the rating reaffirmation The reaffirmation of the rating reflects established track record, as well as the extensiv e experience of its promoters in plastic films and flexible packaging industry, established clientele, stable operating performance and moderate working capital management. However, the ratings also reflect stretched liquidity position, below average financial risk profile, susceptibility of its profits to volatility in raw material prices and risks of withdrawal of capital by partners.
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| 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 specification received from customers. The manufacturing facilities are situated in Manur and Kolar districts of Karnataka with an installed production capacity of 4000 tons per annum in FY22 and utilization of 84 percent over the same period.
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| 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 is operating since 1990 promoted by Mr. Jose James and Mrs. Sindhu James, have 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. We believe that the experience of the management is expected to support in improvement of the business risk profile over the medium term.
The firm generated revenue in the range of Rs 36.85 Cr to Rs 49.17 Cr over past 3 years ended FY2022. While maintaining the operating margins in the range of 5.69 percent to 7.17 percent over the same period. Acuité believe the company will be able to maintain its revenue and margins.
The working capital management of the firm remained moderate with gross current asset days (GCA) days at 68 days as on March 31, 2022 as against 77 days as on March 31, 2021. Inventory days stood at 14 days as on March 31, 2022 as against 13 days as on March 31, 2021. Subsequently, the payable period stood at 6 days as on March 31, 2022 as against 2 days as on March 31, 2021 respectively. The debtors day stood at 60 days as on March 31, 2022 as against 61 days as on March 31, 2021. Further, the average bank limit utilization in the last six months ended August, 2022 remained at ~90 percent for fund based. Acuité believes that the operations of the JBE will remain moderate over the medium term.
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| Weaknesses |
The firm’s below average financial risk profile is marked by low net worth, high gearing and weak debt protection metrics. The net worth of the company stood at Rs.7.39 Cr and Rs.6.92 Cr as on March 31, 2022 and 2021 respectively. The gearing of the company has been deteriorating over the last 2 years ending March 31, 2022. It stood at 1.46 times as on March 31, 2022 against 1.44 times as on March 31, 2021. The deterioration is on account of high debt and low net worth. Debt protection metrics – Interest coverage ratio and debt service coverage ratio stood at 3.33 times and 0.92 times as on March 31, 2022 respectively as against 3.33 times and 0.60 times as on March 31, 2021 respectively. TOL/TNW stood at 1.65 times and 1.53 times as on March 31, 2022 and 2021 respectively. The deterioration in DSCR ratio is on account of low net cash accruals and high repayment.The debt to EBITDA of the company stood at 3.79 times as on 31 March, 2022(Prov.) as against 3.34 times as on 31st March, 2021. Acuité believes that the financial risk profile of the company would improve supported by increase in accruals in the medium term.
Entity, being a partnership firm, is exposed to adverse capital structure risk, where any substantial capital withdrawal could negatively impact its net worth and capital structure and the liquidity position.
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 hugely impact the profitability of firm, especially with major FMCG companies as major clients with whom, the firm does not have major bargaining power.
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| Rating Sensitivities |
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| Material covenants |
| None |
| Liquidity Position: Stretched |
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The firm’s liquidity is stretched marked by cash accruals in the range of Rs.1.67-1.71 Cr during last two years ending FY2022 as against its maturing long term debt obligations in the range of Rs.1.47-1.89 Cr for the same period. The current ratio stood at 1.15 times as on March 31, 2022 against 1.10 times in previous year and the fund based limit remains fully almost utilized over the six months ended August, 2022. Unencumbered cash and bank balances stood at Rs. 0.00 Cr as on March 31, 2022. JBE is expected to generate NCA in range of Rs.2.33-2.53 Cr against modest maturing debt obligations in range of Rs.1.39-1.44 Cr over the medium term. Acuité believes that the liquidity of the company will improve supported by increase in accruals in 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.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 22 (Actual) | FY 21 (Actual) |
| Operating Income | Rs. Cr. | 49.17 | 39.73 |
| PAT | Rs. Cr. | 0.67 | 0.66 |
| PAT Margin | (%) | 1.36 | 1.66 |
| Total Debt/Tangible Net Worth | Times | 1.46 | 1.40 |
| PBDIT/Interest | Times | 3.33 | 3.33 |
| 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 • 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 |
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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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