Product Quantum (Rs. Cr) Long Term Rating Short Term Rating
Bank Loan Ratings 56.80 ACUITE BBB | Stable | Reaffirmed -
Bank Loan Ratings 3.20 - ACUITE A2 | Reaffirmed
Total Outstanding Quantum (Rs. Cr) 60.00 - -
 
Rating Rationale

Acuité has reaffirmed the long-term rating of ‘Acuité BBB’ (read as Acuité triple B) and the short-term rating of ‘Acuité A2’ (read as Acuité A Two) on the Rs. 60.00 crore bank facilities of Ostern Private Limited. The outlook is 'stable'.

Rationale for Rating
Acuite takes into account the experience of the management in the same line of business and the increase in operating income in the financial year 2023 (provisional). The operating revenue of the company has increased and stood at Rs. 163.96 crore in FY 2023 (provisionals) as against Rs. 121.30 crore in FY 2022. Although operating income has increased in FY 23, operating margins have declined by 88 basis points. The EBITDA margin stood at 7.26% in FY 23 as compared to 8.14% in FY 22. The decline is due to the rise in prices of the raw materials, which the company was not able to pass on further. The operating income of the company is expected to increase further, and to cater to the demand, the company is enhancing its capacity to 25 lac pieces per day. The above factors are underpinned by stiff competition between organised and unorganised players. Albeit there has been improvement in GCA days, it has remained high and hence is a rating constraint.

About the Company

Incorporated in 1978, Ostern Private Limited (OPL) is a Kolkata-based company promoted by Mr. Jagdish Agarwal and Mr. Vishesh Agarwal. The company is engaged in the manufacturing of writing instruments such as ball pens, gel pens, makers, and highlighters, among others, with an installed capacity of 20 lakh pieces per day. OPL is an ISO 9001:2008 certified company, with its manufacturing facility located in Kolkata.
 
Analytical Approach
­Acuité has considered the standalone business and financial risk profile of OPL to arrive at the rating.
 

Key Rating Drivers

Strengths

Experienced management and a long track record of operation
The promoters, Mr. Jagadish Agarwal and Mr. Vishesh Agarwal, have more than two decades of experience in the pen manufacturing industry. The long track record of operations has helped the company build long-term relationships with customers as well as with suppliers, resulting in growth in operations.
Improved scale of operations
The operating revenue of the company has increased and stood at Rs. 163.96 crore in FY 2023 (provisionals) as against Rs. 121.30 crore in FY 2022. The total income of the company is expected to increase further due to better demand prospects, and to cater to such demand, the company is increasing its capacity from 20 lac pieces per day to 25 lac pieces per day.
Improved financial risk profile
The financial risk profile of the company is marked by improved net worth, comfortable gearing, and debt protection metrics. The net worth of the company stood at Rs. 32.12 crore in FY 2023 (provisional) as against Rs. 28 crore in FY 2022. This improvement is due to the retention of profits in FY 23. The gearing of the company stood at 0.78 times in FY 23 as against 1.04 times in FY 22. The DSCR for the company improved to 2.48 times in FY 23 as against 1.38 times in FY 22.

Weaknesses

Susceptibility of operating margin to raw material price change
The operating margin of the company is susceptible to changes in the raw material price as the company is unable to pass on the increase completely to its customers. The same is apparent from the change in operating margin in the past three years. Though the value of EBITDA has increased, the EBITDA margins have declined in FY23, which stood at 7.26% in FY23 as compared to 8.14% in FY22.
Strong competition
The market is highly competitive with large and organised players; further, the competition includes local and unorganised players in the same domain of business. As a result of stiff competition from other players in the market, the company is unable to pass on its increase in costs, and hence the margins have seen a declining trend.
Stretched though improving gross current asset days
Although the company has shown improvement in working capital management in FY 23 (provisional) as compared to the last financial year, the GCA days stood stretched at 142 days in FY 23 and 165 days in FY 22.
Project implementation risk
The company is undergoing CAPEX to increase its current capacity from 20 lac pieces per day to 25 lac pieces per day, with a total capital outlay of Rs. 24.50 crore. The implementation of the same will be done in another six months, and hence it remains a key monitorable. Though the risk of implementation and commencement of operation is there, the same is mitigated up to a limit by the experience of management and the robust demand in the market.

Rating Sensitivities
  1. ­Revenue growth over the medium term while maintaining the operating margins.
  2. Ability to maintain the conservative capital structure.
  3. Any material deterioration in working capital parameters.
  4. Deterioration in the coverage indicators.
 
Material covenants
­None
 
Liquidity Position
Adequate
The company has adequate liquidity, marked by comfortable net cash accruals of Rs. 7.56 crore as against Rs. 1.35 crore in long-term debt obligations in FY2023. The current ratio of the company stood comfortably at 1.30 times in FY2023. The company has fund-based limits of Rs. 30.15 crore, which are utilised at 67.37% in the last 6 months ending March 2023, and non-fund-based limits of Rs. 8.20 crore, which are utilised at 69.53% in the last 6 months ending March 2023. The debt EBITDA of the company stood at 2.11 times in FY 23 as against 3.08 times in FY 22.
 
Outlook: Stable
Acuité believes that OPL will continue to benefit over the medium term from the management’s experience and its long track record. The outlook may be revised to 'positive' if OPL is able to generate higher than expected revenues and profitability while improving its financial risk profile. Conversely, the outlook may be revised to 'negative' if the company is unable to revert to its earlier revenue levels or if there is a deterioration in its financial risk profile due to higher than expected working capital requirements.
 
Other Factors affecting Rating
­None
 

Particulars Unit FY 23 (Provisional) FY 22 (Actual)
Operating Income Rs. Cr. 163.96 121.30
PAT Rs. Cr. 4.47 1.44
PAT Margin (%) 2.73 1.19
Total Debt/Tangible Net Worth Times 0.78 1.04
PBDIT/Interest Times 4.19 2.77
Status of non-cooperation with previous CRA (if applicable)
­Crisil vide its press release dated 20.06.2022 had rated the company to CRISIL B+/Stable/A4; Issuer Not Cooperating.
 
Any other information
­None
 
Applicable Criteria
• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm
• Manufacturing Entities: https://www.acuite.in/view-rating-criteria-59.htm
• Trading Entitie: https://www.acuite.in/view-rating-criteria-61.htm
• Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm
Note on complexity levels of the rated instrument
­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.
 

Date Name of Instruments/Facilities Term Amount (Rs. Cr) Rating/Outlook
21 Mar 2022 Cash Credit Long Term 5.20 ACUITE BBB | Stable (Reaffirmed)
Letter of Credit Short Term 1.00 ACUITE A2 (Reaffirmed)
Cash Credit Long Term 11.95 ACUITE BBB | Stable (Reaffirmed)
Cash Credit Long Term 4.80 ACUITE BBB | Stable (Reaffirmed)
Letter of Credit Short Term 1.70 ACUITE A2 (Reaffirmed)
Letter of Credit Short Term 0.55 ACUITE A2 (Reaffirmed)
Cash Credit Long Term 4.80 ACUITE BBB | Stable (Reaffirmed)
Bank Guarantee Short Term 1.50 ACUITE A2 (Reaffirmed)
Bank Guarantee Short Term 1.00 ACUITE A2 (Reaffirmed)
Cash Credit Long Term 5.00 ACUITE BBB | Stable (Reaffirmed)
Proposed Bank Facility Long Term 17.88 ACUITE BBB | Stable (Reaffirmed)
Working Capital Demand Loan Long Term 2.20 ACUITE BBB | Stable (Assigned)
Working Capital Demand Loan Long Term 0.60 ACUITE BBB | Stable (Assigned)
Bank Guarantee Short Term 0.50 ACUITE A2 (Reaffirmed)
Working Capital Demand Loan Long Term 1.32 ACUITE BBB | Stable (Assigned)
21 Dec 2020 Proposed Bank Facility Long Term 6.85 ACUITE BBB | Stable (Reaffirmed)
Bank Guarantee Short Term 0.50 ACUITE A2 (Reaffirmed)
Letter of Credit Short Term 1.70 ACUITE A2 (Reaffirmed)
Cash Credit Long Term 14.25 ACUITE BBB | Stable (Reaffirmed)
Cash Credit Long Term 6.00 ACUITE BBB | Stable (Reaffirmed)
Bank Guarantee Short Term 1.50 ACUITE A2 (Reaffirmed)
Bank Guarantee Short Term 0.80 ACUITE A2 (Reaffirmed)
Letter of Credit Short Term 0.55 ACUITE A2 (Reaffirmed)
Cash Credit Long Term 6.25 ACUITE BBB | Stable (Reaffirmed)
Term Loan Long Term 3.00 ACUITE BBB | Stable (Reaffirmed)
Cash Credit Long Term 6.50 ACUITE BBB | Stable (Reaffirmed)
Letter of Credit Short Term 1.00 ACUITE A2 (Reaffirmed)
Letter of Credit Short Term 5.10 ACUITE A2 (Reaffirmed)
Cash Credit Long Term 6.00 ACUITE BBB | Stable (Reaffirmed)
­

Lender’s Name ISIN Facilities Date Of Issuance Coupon Rate Maturity Date Quantum (Rs. Cr.) Complexity Level Rating
Standard Chartered Bank Not Applicable Bank Guarantee/Letter of Guarantee Not Applicable Not Applicable Not Applicable 0.50 Simple ACUITE A2 | Reaffirmed
Standard Chartered Bank Not Applicable Cash Credit Not Applicable Not Applicable Not Applicable 17.15 Simple ACUITE BBB | Stable | Reaffirmed
ICICI Bank Ltd Not Applicable Cash Credit Not Applicable Not Applicable Not Applicable 18.00 Simple ACUITE BBB | Stable | Reaffirmed
Standard Chartered Bank Not Applicable Letter of Credit Not Applicable Not Applicable Not Applicable 2.70 Simple ACUITE A2 | Reaffirmed
Not Applicable Not Applicable Proposed Long Term Bank Facility Not Applicable Not Applicable Not Applicable 3.65 Simple ACUITE BBB | Stable | Reaffirmed
Standard Chartered Bank Not Applicable Term Loan Not available Not available Not available 9.00 Simple ACUITE BBB | Stable | Reaffirmed
ICICI Bank Ltd Not Applicable Term Loan Not available Not available Not available 9.00 Simple ACUITE BBB | Stable | Reaffirmed

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