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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 306.49 | ACUITE BBB+ | Negative | Reaffirmed | Stable to Negative | - |
| Bank Loan Ratings | 60.07 | - | ACUITE A2 | Reaffirmed |
| Total Outstanding | 366.56 | - | - |
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Rating Rationale |
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Acuité has reaffirmed its long-term rating to 'ACUITE BBB+’ (read as ACUITE triple B plus) and its short-term rating to 'ACUITE A2' (read as ACUITE A two) on the Rs.366.56 crore bank facilities of Kanpur Plastipack Limited (KPL). The outlook revised to 'Negative' from 'Stable'.
Rationale for reaffirmation and revision of outlook The rating reaffirmation and revision in outlook is driven by a significant deterioration KPL’s profitability margin in FY2024 and FY2023. The EBITDA margins of the company stood at 3.92 percent in FY2024, 5.51 percent in FY2023 as against 9.71 percent in FY2022. The PAT margins of the company stood at 0.07 percent in FY2024, 0.87 percent in FY2023 as against 4.18 percent in FY2022.
The rating further takes into account muted growth in operating income and a moderate deterioration in the financial risk profile of the company. The operating income of the company stood at Rs.492.73 Cr. in FY2024 as against Rs.476.85 Cr. in FY2023. The gearing of the company is moderate, which stood at 1.25 times as of March 31, 2024, compared to 0.92 times as of March 31, 2023. The ratings further remain constrained by the working capital-intensive operations and the susceptibility of profitability margins to fluctuations in raw material prices and foreign exchange fluctuations. Going forward, the ability of the company to improve profitability margins while maintaining an adequate liquidity position and a healthy capital structure will remain key monitorable. |
| About the Company |
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Kanpur-based Kanpur Plastipack Limited was incorporated in July 1971 as a private limited company by Mr. Mahesh Swarup Agarwal. The company is engaged in the manufacturing and exporting of flexible intermediate bulk containers (FIBCs), PP woven fabrics, and multifilament yarn (MFY). The company has an installed capacity of 30,300 MT, with an additional 5000 MT added in FY2022. KPL is listed on the BSE and NSE.
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| Unsupported Rating |
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Not Applicable
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| Analytical Approach |
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Acuite has considered the standalone financial and business risk profiles of KPL to arrive at the rating.
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| Key Rating Drivers |
| Strengths |
| Experienced management and an established track record of operations
Incorporated in 1971, the company commenced its operations under the leadership of Mr. Mahesh Swarup Agarwal, and thus, the company boasts a long track record of operations spanning five decades in the packaging industry. KPL started manufacturing high-density polyethylene woven fabric, sacks, and plastic. Currently, the company is engaged in the manufacturing and exporting of flexible intermediate bulk containers (FIBCs), PP woven fabrics, and multifilament yarn (MFY). Further, KPL started manufacturing cast polypropylene from September 2023. The established presence of the company, along with experienced management, has helped KPPL maintain a long relationship with its customers, which has aided the company in maintaining healthy revenue. The key customers of the company include names like Pema Verpackung Gmbh, King Bag, and Manufacturing, among others, with no major concentration in revenues. Acuité believes KPL will continue to benefit from its long track record of operations, its strong presence in the export market, and the rich experience of its management over the medium term. Moderate financial risk profile albeit low debt protection metrics The financial risk profile of the company is moderate, with moderate net worth, moderate gearing, and low debt protection metrics. The net worth of the company stood at Rs.179.92 crore as of March 31, 2024, compared to Rs.180.50 crore as of March 31, 2023. The total debt of the company stood at Rs.224.11 crore as of March 31, 2024, compared to Rs. 165.63 crore as of March 31, 2023. The gearing of the company is moderate, which stood at 1.25 times as of March 31, 2024, compared to 0.92 times as of March 31, 2023. The TOL/TNW ratio stood at 1.64 times as of March 31, 2024, against 1.26 times on March 31, 2023. The debt protection metrics deteriorated with interest coverage ratio at 1.83 times in FY2024 as against 2.14 times in FY2023 and debt service coverage ratio at 0.86 times in FY2024 and 0.91 times in FY23. Acuite believes that the financial risk profile of the company may improve in the medium term as CPP project commences in FY2024 and company is not planning any other debt-financed capex plans in the near future. |
| Weaknesses |
| Moderation in operating performance.
The company achieved a turnover of Rs. 492.73 crore in FY2024, Rs. 474.68 crore in FY2023 as compared to Rs. 626.77 crore in FY2022. The company has shown a sharp decline in the top-line and bottom-line of business due to the absence of fabric sales in Brazil and a recession in the EU countries. In results, a lack of demand and a highly competitive market environment led to lower realisations. The EBITDA margins of the company stood at 3.92 percent in FY2024, 4.56 percent in FY2023 as against 9.71percent in FY2022. Acuite believes that in the medium term, the company may improve its operating performance as compared to FY2024 and FY2023 on account of a commencement of CPP project operations in September 2023. Working capital-intensive nature The working capital of the company is intensive, as marked by gross current asset days, which stood at 139 days as of March 31, 2024, compared to 114 days as of March 31, 2023. The increase in GCA days is on account of the increase in debtor and inventory days; debtor days stood at 38 days for FY2023 and stretched to 56 days for FY2024. Further, the inventory days of the company stood at 76 days for FY2024 as against 66 days for FY2023. On the other hand, the creditors of the company stood at 21 days for FY2024 against 17 days for FY2023. Acuite believes that the working capital operations of KPL may continue to be intensive, considering the nature of the business. Susceptibility of profitability margins to fluctuations in raw material prices and foreign exchange fluctuations The basic raw materials required by KPL are plastic granules, which are crude oil derivatives. The prices of the commodities are subject to volatility in line with those of global crude oil prices. Furthermore, KPL exports 70%-75% to Europe, the United States, and some Asian countries while importing only 5% of raw materials. Thus, it is exposed to adverse fluctuations in foreign currency exchange rates. However, KPL generally enters into forward contracts, which partially mitigate the forex risk. |
| Rating Sensitivities |
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| Liquidity Position: Stretched |
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The liquidity profile of the company is stretched. The company generated net cash accruals of Rs.13.20 crore in FY2024 against a debt repayment obligation of Rs. 18.00 crore in the same period. However, the shortfall will be paid off through grants received from the government and sale of property of subsidiary company. In the coming years, the company is expected to generate enough net cash accruals to repay its debt obligations in the near term. The unencumbered cash and bank balance stood at Rs.2.74 crore in FY2024. Also, the current ratio of the company stood average at 1.04 times in FY2024.
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| Outlook: Negative |
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Acuité has revised the outlook on Kanpur Plastipack to 'Negative' which is driven by significant deterioration in the profitability margins in FY2023 and continuation in FY2024. The rating may be 'downgraded' if there is further deterioration in operating performance and profitability margins. The outlook may be revised to 'Stable ' if company is able to improve its profitability along with improving its working capital cycle and financial risk profile.
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| Other Factors affecting Rating |
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None
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| Particulars | Unit | FY 24 (Actual) | FY 23 (Actual) |
| Operating Income | Rs. Cr. | 492.73 | 476.85 |
| PAT | Rs. Cr. | 0.36 | 4.13 |
| PAT Margin | (%) | 0.07 | 0.87 |
| Total Debt/Tangible Net Worth | Times | 1.25 | 0.92 |
| PBDIT/Interest | Times | 1.83 | 2.14 |
| Status of non-cooperation with previous CRA (if applicable) |
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Not Applicable
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| 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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