| Extensive experience of the promoters, an established position in the paper industry, and an established dealer network.
GPBL is the flagship company of the G. N. Agarwal group, which is engaged in the manufacturing of premium coated paper boards (duplex boards). The chairman and managing director of the company, Mr. G. N. Agarwal, has been associated with the paper industry for more than three decades. The extensive experience of the promoters and the management has helped the company build a strong presence in the market. GPBL and KPMPL have a diversified presence on a pan-India basis, with more than 150 distributor and dealer networks. The sales of duplex boards and kraft paper are made through dealers to reputed clients for the manufacturing of packaging products. GPBL and KPMPL have tied up with the printing companies, which in turn carry out printing jobs for the end user. The group has had a healthy relationship with the dealers for two decades, which further reduces the counterparty risk. The group has the advantage of the distribution network, as dealers provide access to a wide range of packing industries such as food products, personal care, FMCG products, oral care and hygiene products, and the e-commerce industry, among others. The group caters to a healthy portfolio of end consumers, including AMUL, Hindustan Unilever Ltd., Colgate Palmolive India Ltd., Kellogg Company, and Anchor Health and Beauty Care Pvt. Ltd., among others. Acuité believes that the group will continue to benefit from its extensive experience in the paper industry and established market presence through a healthy network of dealers and distributors. In addition, the business risk profile of the group will continue to derive support from a strong dealer network.
Augmentation of profitability, albeit moderation in operating income
The group has generated revenue of Rs. 1073.09 crore in FY2024 (Prov.) as against Rs. 1335.53 crore in FY2023. The decline in revenue of the group is on account of decline in realisation prices and marginal decline in sales volume. However, the operating margin stood at 10.93 percent in FY2024 (Prov.) as against 8.23 percent in FY2023. The PAT margin stood at 3.71 percent in FY2024 (Prov.) as against 2.30 percent in FY2023.
The group, however, is currently undertaking a capital expansion plan to set up a tissue manufacturing unit with a capacity of 36,000 TPA. This capacity is expected to lead to incremental revenues for the group. The project is expected to be completed by H1FY2025, and the additional revenues are likely to accrue from FY2025 onwards. The company plans to export 50% of the produce from the new unit.
Acuite expects the new tissue manufacturing capacity to contribute significantly in improving the group’s scale of operations and profitability.
Moderately Efficient Working Capital Operations
The working capital operations are moderately efficient with GCA of 118 days as on March 31, 2024 (Prov.) as against 95 days on March 31, 2023. The GCA days are driven by inventory days and debtor days. The inventory days stood at 49 days on March 31, 2024 (Prov.) as against 42 days on March 31, 2023. The debtor collection period stood at 53 days on March 31, 2024 (Prov.) as against 47 days on March 31, 2023. Average creditor days stood at 66 days on March 31, 2024 (Prov.) as against 65 days on March 31, 2023.
The average working capital utilisation stood at 88.24 percent for seven months ended March 2024.
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| Average Financial Risk Profile
The group has a average financial risk profile, marked by moderate tangible networth of Rs. 339.08 crore on March 31, 2024 (Prov.) as against Rs. 230.48 crore on March 31, 2023. The increase in networth is on account of accretion of profits to reserves along with equity infusion in Gayatrishakti Tissue Private Limited (GTPL) . The gearing level of the group stood at 1.48 times as on March 31, 2024 (Prov.) as against 1.76 times on March 31, 2023. Debt-EBITDA stood at 4.22 times on March 31, 2024 (Prov.) as against 3.55 times on March 31, 2023. TOL/TNW improved to 2.10 times on March 31, 2024 (Prov.) as against 3.06 times on March 31, 2023.
The group is currently undertaking capex of Rs. 265 crore to install a tissue manufacturing unit under a new entity, GTPL. The capex will lead to a new tissue manufacturing capacity of 36,000 TPA. The capex is expected to be completed by September 2024. The capex is funded by a term loan of Rs. 210 crore and equity of Rs. 55 crore. The gearing is expected to deteriorate moderately in the near term, due to the ongoing capex.
A project of this magnitude remains sensitive to cost and time overruns. While the capex is critical for the group to improve its business and financial risk profiles, any unexpected increase in leverage levels or delay in the commencement of capacity is likely to impart a negative basis to the rating.
The debt protection indicators remain average with Interest Coverage Ratio at 2.75 times on March 31, 2024 (Prov.) as against 2.70 times on March 31, 2023. The Debt Service Coverage Ratio (DSCR) stood at 1.11 times on March 31, 2024 (Prov.) as against 1.08 times on March 31, 2023.
Susceptibility of margins to fluctuations in raw material prices
The duplex board and kraft paper manufacturers in India are exposed to the risk of volatility in wastepaper prices, largely due to intense competition. On account of competitive pressures, players face challenges in passing on increased costs to end users. The business risk profile will remain constrained by exposure to the downturn in the paper industry. The rise in the price of duplex paper over that of wastepaper is expected to be gradual, rendering profitability susceptible to volatility in the price of paper.
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