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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 9.00 | ACUITE BBB | Stable | Assigned | - |
| Bank Loan Ratings | 40.70 | ACUITE BBB | Stable | Reaffirmed | - |
| Bank Loan Ratings | 7.00 | - | ACUITE A3+ | Reaffirmed |
| Total Outstanding Quantum (Rs. Cr) | 56.70 | - | - |
| Rating Rationale |
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Acuité has reaffirmed the long-term rating of ‘ACUITE BBB’ (read as ACUITE triple B) and the short-term rating of 'ACUITE A3+' (read as ACUITE A three plus) on the Rs.47.70 Cr bank facilities of Uniglobal Papers Private Limited (UPPL). The outlook remains 'Stable'.
Acuité has assigned the long-term rating of ‘ACUITE BBB’ (read as ACUITE triple B) on the Rs.9.00 Cr bank facilities of Uniglobal Papers Private Limited (UPPL). The outlook remains 'Stable'. Rationale for rating The rating reaffirmation factors in the rise in scale of operations of the company. The rating further considers the experience of the management and the above average financial risk profile of UPPL, marked by low gearing and comfortable debt coverage metrics. These strengths are, however, offset by the working capital intensive nature of operations of the company, and the competitive industry. |
| About the Company |
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Incorporated in 2003, Uniglobal Papers Private Limited (UPPL), [erstwhile Agio Industries Limited] is promoted by Mr. Rahul Tikmani. Based in Kolkata, UPPL is engaged in the production of coated duplex board. Currently the company has enhanced the production capacity from 33,000 MTPA to 49,500 MTPA by an expansion plan, completed in May, 2023.
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| Analytical Approach |
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Acuité has considered the standalone business and financial risk profile of Uniglobal Papers Private Limited (UPPL) to arrive at this rating.
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Key Rating Drivers
| Strengths |
| Established operations and experienced management
UPPL has a long track record of operations of around two decades in the paper industry. The company is supported by the decade long expertise of the director, Mr. Rahul Tikmani, along with a set of experienced professionals. Acuité believes that, going forward, the established clientele relationships and the experienced management will continue to support the company’s growth plans. In FY2023, the company acquired Duncan Industries Ltd., which has tea gardens in Dooars, Terai and Darjeeling from NCLT in consortium with the clutch of Singapore based investors for a sum of Rs.20.43 Cr. Further, UPPL has also submitted a resolution plan before the NCLT to acquire BKM Industries Limited and has paid an earnest money deposit of Rs.10.00 Lacs. The matter is pending before the NCLT. Going forward, the new additions by the company may open horizons for diversification and segmentation. Consistent improvement in the scale of operations The company has achieved revenues of Rs.146.60 Cr (provisional) in FY2023 as compared to Rs.117.25 Cr in FY2022. The steady rise in the operating income is supported by the growing demand from the evolving e-commerce segment and the surge in demand for biodegradable and eco-friendly packaging. However, the operating profit margin of the company declined to 9.02 per cent in FY2023 (provisional) as compared to 9.81 per cent in FY2022 owing to increase in raw material costs. Acuité believes that going forward, the company’s scale of operations will further improve owing to capacity addition and the growing stress on substituting paper packaging. Above average financial risk profile The company’s above average financial risk profile is marked by improving net worth, low gearing and comfortable debt protection metrics. The tangible net worth of the company increased to Rs.66.11 Cr as on March 31, 2022 from Rs.39.69 Cr as on March 31, 2021 due to accretion to reserves. Going forward, the networth is expected to range between Rs.67-80 Cr backed by the gradually improving accruals. Acuité has treated unsecured loans of Rs.27.16 Cr in FY2023 as quasi equity as the management has undertaken to maintain this amount in the business over the medium term. The gearing of the company stood comfortable at 0.49 times as on March 31, 2022 as against 0.79 times as on March 31, 2021, whereas, Total Outside Liabilities/Tangible Net Worth (TOL/TNW) stood comfortable at 0.70 times as on March 31, 2022 as against 1.18 times as on March 31, 2021. However, the gearing is expected to slightly rise but remain comfortable over the medium term due to the additional loans taken for the capacity enhancement project. The comfortable debt protection metrics is marked by Interest Coverage Ratio at 3.23 times as on March 31, 2022, however, the Debt Service Coverage Ratio stood moderate at 1.49 times as on March 31, 2022. The Net Cash Accruals/Total Debt (NCA/TD) stood at 0.25 times as on March 31, 2022. Acuité believes that the financial risk profile will remain above average over the medium term in spite of the debt funded capex plan undertaken. Revised project scope The company has revised the expansion plan undertaken in Nov, 2021 of enhancing the capacity of duplex paper board from 33,000 MTPA to 49500 MTPA. The plan has been revised pertaining to the installment of an imported machinery for capacity addition. However, the changes in the initial plan and the procedure of acquiring and importing the machinery led to delays in execution of the project, which has resulted both - time and cost overruns. The expected date of completion extended from Nov, 2022 to April, 2023, anticipating that the commercial operations are starting in May, 2023. Currently, the project is complete, and the trial run has started. The total cost of the project increased from Rs.22.00 Cr to Rs.30.63 Cr. While fundin the additional expenditure of Rs.8.63 Cr, the company has availed a term loan of Rs.4.00 Cr., and the rest is financed by internal accruals. Acuité believes that the leverage ratios will remain comfortable regardless of the additional debt taken for the new capex plans. |
| Weaknesses |
| Working capital intensive nature of operations
The company’s working capital intensive operations is marked by improving but a moderate Gross Current Assets (GCA) of 120 days as on March 31, 2022 as compared to 175 days in 31st March 2021. The GCA days improved on account of improvement in the inventory period. The inventory holding stood at 96 days as on March 31, 2022 as compared to 121 days as on 31st March 2021 due to reduction in the lead time of imported materials. Moreover, the debtor period stood comfortable at 10 days as on March 31, 2022 as compared to 35 days as on 31st March 2021. Acuité believes that the working capital operations of the company will remain around similar level as evident from the efficient collection mechanism over the medium term. Highly fragmented and competitive industry The recycling industry is highly fragmented with several organized and unorganized players, thereby impacting the company's profitability. Players in the industry have to comply with stringent, and effluent treatment norms of pollution control boards and complete discretion of the government, which led to high compliance risks. However, most pulp-based paper mills has adopted environment friendly technologies to minimize wastage and maximize recycling/reuse materials to produce eco-friendly paper. Also, the domestic industry faces immense competition of imports from Asian countries, which are of superior quality and of lower prices. Acuité believes that adherence to several environmental regulations and continuous investments are required to comply with the norms, which is likely to impact the profitability. |
| 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’s adequate liquidity position is marked by steady net cash accruals of Rs.8.05 Cr as on March 31, 2022 as against long term debt repayment of Rs.4.24 Cr for the same period. The net cash accruals are expected to improve further and range between Rs.8-9 Cr over the medium term. The current ratio stood moderate at 1.33 times as on March 31, 2022 as compared to 1.38 times as on March 31, 2021. The cash and bank balances of the company stood at Rs.0.06 Cr as on March 31, 2022. However, the fund based limit utilization remained high at 93 per cent over the six months ended March, 2023. The working capital management of the company is intensive in nature marked by Gross Current Assets (GCA) of 120 days as on March 31, 2022 as compared to 175 days in 31st March 2021. Acuité believes that going forward the company will maintain adequate liquidity profile owing to the gradually improving accruals.
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| Outlook: Stable |
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Acuité believes that the outlook of the company will remain 'Stable' over the medium term on account of the long track record of operations, experienced management, improving operating income and above average financial risk profile. The outlook may be revised to 'Positive' in case of significant growth in revenue while achieving sustained improvement in operating margins, capital structure and working capital management. Conversely, the outlook may be revised to ‘Negative’ in case of decline in the company’s revenues or profit margins, or in case of deterioration in the company’s financial risk profile or further elongation in its working capital cycle.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 22 (Actual) | FY 21 (Actual) |
| Operating Income | Rs. Cr. | 117.25 | 81.76 |
| PAT | Rs. Cr. | 4.54 | 2.06 |
| PAT Margin | (%) | 3.87 | 2.51 |
| Total Debt/Tangible Net Worth | Times | 0.49 | 0.79 |
| PBDIT/Interest | Times | 3.23 | 2.30 |
| Status of non-cooperation with previous CRA (if applicable) |
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Not Applicable
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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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