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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 38.00 | ACUITE BBB+ | Stable | Assigned | - |
| Bank Loan Ratings | 125.00 | ACUITE BBB+ | Stable | Downgraded | - |
| Bank Loan Ratings | 175.00 | - | ACUITE A2 | Downgraded |
| Total Outstanding Quantum (Rs. Cr) | 338.00 | - | - |
| Rating Rationale |
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Acuité has assigned and downgraded the long-term rating to ‘ACUITÉ BBB+ (read as ACUITÉ triple B plus) from ‘ACUITÉ A-’ (read as ACUITÉ A minus) and downgraded short term rating to ‘ACUITÉ A2’ (read as ACUITÉ A two) from ‘ACUITÉ A2+’ (read as ACUITÉ A two plus) on the Rs.338 Cr bank facilities of Manaksia Coated Metal and Industries Limited (MCMIL). The outlook remains ‘Stable’.
Rationale for the rating The downgrade is primarily on account of consistent decline in profitability margins of the company in FY2022 and 9MFY2023. The downgrade further factors deterioration in the financial risk profile characterized by high gearing apart from working capital intensive nature of operations of the company. However, the rating also considers improvement in the scale of operations driven by favorable demand scenario. In addition to this, the company has a diversified geographical presence as MCMIL caters to both domestic and overseas markets. |
| About the Company |
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MCMIL is a Kolkata-based company managed by Mr. Sushil Agrawal and Mr. Ajay Chakraborty. It was incorporated in 2010 and was a dormant company till 2013. Subsequently, the coated metal division and mosquito coil division of Manaksia Ltd (ML) was transferred under the scheme of demerger. Manaksia Ltd is a multi-division conglomerate with 17 manufacturing plants in India and 3 abroad; two in Nigeria, one in Ghana. Prior to the demerger, Manaksia Ltd. had four divisions viz. steel division, packaging division, coated metal & mosquito coil division and aluminum division. MCMIL is primarily engaged in the manufacturing of value added steel flat products like galvanized steel sheets & coils and pre painted steel sheets & coils. The coated steel division of the company has an operational capacity to produce 1,08,000 MT per annum of galvanized steel coils, an operational capacity of 60,000 MT per annum of pre painted steel coils and the home insecticide division of the company can produce 432 million mosquito coils per annum. The company's manufacturing facilities are located in Gujarat, Madhya Pradesh, Telangana and Assam. The company has also commenced contract manufacturing of Robin Blue for Reckitt Benckiser India Pvt Ltd since FY20.
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| Analytical Approach |
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Acuité has consolidated the business and financial risk profiles of MCMIL, Manaksia International FZE (MIF) and JPA Snacks Private Limited (JPASPL) together referred to as the 'Manaksia Group' (MG) to arrive at the rating. The consolidation is in view of the similarities in the lines of business, operational and financial synergies and common management. Further, MIF and JPASPL are wholly owned subsidiaries of MCMIL.
Extent of Consolidation: Full. |
Key Rating Drivers
| Strengths |
| Long track record of operations and experienced management
MCMIL has been engaged into manufacturing of coated metal & mosquito coil since 2013, prior to 2013 the operations were under Manaksia Ltd (ML). ML is the flagship company of the group. ML has been engaged in this industry for more than 40 years and is promoted by Mr. Sushil Kumar Agrawal who is the Managing Director of MCMIL and has experience of about three decades in steel industry. Acuité believes that the long track record of operations and the vast experience of the promoters will continue to support the growth plans of the group, going forward.
Improvement in scale of operations coupled with geographical diversification
The company has achieved a revenue of Rs. 648.03 Cr in FY22 as against Rs. 449 Cr in FY21 and Rs. 247 Cr in FY20, registering a 2-year CAGR of 61%. Further, in 9MFY23, the company has already achieved revenue of Rs 469.08 Cr. The significant growth in the revenue of the company is primarily on account of rise in capacity utilization of galvanizing unit due to increase in demand from both domestic and overseas markets. Moreover, major portion of the company’s revenue comes from domestic markets through its distribution channel for coated metal products. The company has 24 dealers spread across Gujarat, Rajasthan and Kerala. The company caters to 20 countries in the overseas markets. In 9MFY23, revenue from domestic markets will contribute around 84 per cent of total revenue. Moderate financial risk profile
The financial risk profile of the company is moderate marked by healthy net worth, higher than unity gearing and moderate debt protection metrics. The net worth of the company stood at Rs.108.76 Cr as on March 31, 2022 as compared to Rs.99.86 Cr as on March 31, 2021. The gearing of the company stood at 1.63 times as on March 31, 2022 as compared to 1.48 times as on March 31, 2021. TOL/TNW stood high at 3.45 times as on March 31, 2022 as against 3.39 times as on March 31, 2021. The moderate debt protection metrics of the company is marked by Interest coverage ratio (ICR) at 1.88 times in FY2022 as against 1.86 times in FY2021 and debt service coverage ratio (DSCR) at 1.22 times in FY2022 as against 1.29 times in FY2021. The net cash accruals against total debt (NCA/TD) stood low at 0.10 times as on March 31, 2022 similar as previous year. Acuité believes the financial risk profile of the company will remain at similar level in medium term in absence of any large debt led capex plan.
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| Weaknesses |
| Dip in profitability margin
There is a substantial dip in the profitability margins of the company as EBITDA margin has declined to 6.49 per cent in FY2022 from 7.87 percent in FY2021 and 10.94 percent in FY2020. Further, the company has achieved EBITDA margin of 5.97 per cent in 9MFY2023. In FY2022, the decline in the profitability margin is predominantly due to increase in freight charges and additionally in 9MFY2023, the deterioration in the margin is on account of hike in input prices. Acuite believes that the profitability margins of the company will continue to remain vulnerable as company is exposed to raw material fluctuation risk and a key rating monitorable.
Working capital intensive nature of operations
The working capital intensive nature of operations of the company is marked by high Gross Current Assets (GCA) of 165 days as on 31st March 2022 as compared to 195 days as on 31st March 2021. The high level of GCA days is primarily on account of high inventory levels during the same period, this is due to stocking up of large quantity of raw materials and finished goods. The inventory holding stood at 121 days as on 31st March 2022 as compared to 135 days as on 31st March 2021. However, the debtor period also stood comfortable at 27 days in 31st March 2022 as compared to 35 days in 31st March 2021. Acuité believes that the working capital operations of the company will remain at same level as evident from high inventory levels over the medium term.
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| ESG Factors Relevant for Rating |
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Not Applicable
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| Rating Sensitivities |
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| Material covenants |
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None
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| Liquidity Position: Adequate |
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The company has adequate liquidity position as reflected from its net cash accrual of Rs. 17.52 Cr in FY2022 as against long term debt repayment of Rs 10.11 Cr for the same period. Further, the fund based bank limit utilization of 6 months ended February 2023 stood at around 82 per cent. The current ratio stood moderate at 1.14 times in FY22. However, the working capital intensive nature of operations of the company is marked by high Gross Current Assets (GCA) of 165 days as on 31st March 2022 as compared to 195 days as on 31st March 2021. Acuité believes the liquidity position of the company will remain adequate over the medium term backed by steady accruals.
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| Outlook: Stable |
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Acuité believes the outlook on MCMIL will remain ‘Stable’ over the medium term backed by the company’s established track record and part of a reputed group. The outlook may be revised to ‘Positive’ if the company is able to sustain its turnover growth momentum along with improvement in the profitability margins. Conversely, the outlook may be revised to ‘Negative’ in case of a deterioration in the liquidity profile due to higher inventories and debtor build up.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 22 (Actual) | FY 21 (Actual) |
| Operating Income | Rs. Cr. | 648.03 | 446.70 |
| PAT | Rs. Cr. | 8.62 | 5.85 |
| PAT Margin | (%) | 1.33 | 1.31 |
| Total Debt/Tangible Net Worth | Times | 1.63 | 1.48 |
| PBDIT/Interest | Times | 1.88 | 1.86 |
| Status of non-cooperation with previous CRA (if applicable) |
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Infomerics vide its press release dated 24.01.2023, had reaffirmed the the company to IVR BB+/Negative ; INC
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| Any other information |
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Not Applicable
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| 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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