Rating Rationale
October 15, 2024 | Mumbai
Alok Industries
Rating reaffirmed at 'CRISIL A/Stable'
 
Rating Action
Total Bank Loan Facilities RatedRs.2 Crore
Long Term RatingCRISIL A/Stable (Reaffirmed)
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL A/Stable’ rating on the long-term bank facilities of Alok Industries (AI; part of the Alok group).

 

The rating continues to reflect the established market position of the Alok group in the masterbatches industry, backed by pan-India presence and diversified clientele, and its healthy financial risk profile. These strengths are partially offset by the group’s working capital-intensive operations and modest scale of operations.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of AI and Alok Masterbatches Private Limited (AMPL). This is because the two entities, together referred to as the Alok group, have business synergies and common management.

 
Unsecured loan (Rs 160 crore as on March 31, 2024) extended by the promoters has been treated as neither debt nor equity as the loan is subordinated to bank debt and may remain in the business.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

  • Established market position: The promoters have more than two decades of experience in the masterbatches industry, leading to a strong understanding of market dynamics and healthy relationships with customers and suppliers, which should continue to support the business. The Alok group is a large, organised player in the masterbatches industry in India. Its product portfolio comprises filler, color and industry-specific masterbatches, such as polyethylene terephthalate and agriculture masterbatches. The group achieved compound annual growth rate (CAGR) of 8% in operating income over the three fiscals through 2024. Stabilised operations at the Ranipet (Tamil Nadu) plant and increased demand from the automobile, cement and packaging industries, among many others, along with the business acumen of the promoters, will continue to support the market position of the group. The operating income is expected at Rs 700-720 crore in fiscal 2025.

 

  • Healthy financial risk profile: The financial risk profile will remain supported by healthy networth expected at Rs 190-200 crore from fiscal 2025. The gearing has been below 0.5 time and is expected at a similar level from fiscal 2025, indicating sufficient headroom to take on additional debt to meet business requirements. The debt protection metrics are expected to remain comfortable with interest coverage at 2-3 times and net cash accrual to adjusted debt (NCAAD) above 0.3 times from fiscal 2025. With sustenance of the operating margin at 10-11% and no major debt proposed to be undertaken, the financial risk profile is expected to remain comfortable over the medium term.

 

Weaknesses:

  • Working capital-intensive operations: The gross current assets (GCAs) are expected at 160-175 days from fiscal 2025 onwards, driven by receivables of 90-100 days and inventory of 45-60 days. Considering the diversified product portfolio the inventory levels are expected to remain high over tge medium term. The working capital requirement of the group is met through credit of 30-40 days from suppliers and bank limit (average utilisation of ~75% for the 12 months through August 2024). Efficient working capital management amid the sustained increase in operating income and low reliance on bank lines will remain monitorable.

 

  • Modest scale of operations: The business risk profile is constrained by the group’s limited scale of operations in the intensely competitive plastics industry. The group has recorded sales in the range of Rs 630-650 crore in the last 3 fiscals ended 2024 with volumetric growth of 3-4%. Further till 31st August 2024, the group has recorded sales of ~ Rs 300 crore and expecting to achieve the revenue levels at Rs 700-720 crore (with volumetric growth of 5-7%) owing to operationalization of Ranipet plant. Growth in scale with sustenance of operating margins in the range of 10-11% will be monitored over the medium term.

Liquidity: Strong

Bank utilisation was moderate at 75% on average for the 12 months through August 2024. Cash accrual is expected at Rs 35-40 crore against annual term debt obligation of Rs 4.5-5.0 crore over the medium term and will cushion liquidity. The current ratio is expected to remain healthy at 2.16 times on March 31, 2025.

 

The promoters are likely to extend support in the form of equity and unsecured loans to meet working capital requirements and debt obligations. Unsecured loan of ~Rs 160 crore from the promoters as on March 31, 2024, supports the liquidity profile. Moreover, low gearing and moderate networth provide financial cushion to withstand adverse conditions or downturn in the business.

Outlook: Stable

The Alok group will continue to benefit from its strong market position and healthy financial risk profile.

Rating sensitivity factors

Upward factors:

  • Substantial increase in operating income and sustenance of operating margin at 10-11%, leading to more-than-expected net cash accrual
  • Efficient working capital management with low reliance on working capital lines, leading to improved financial risk profile

 

Downward factors:

  • Decline in operating income and operating falling below 9% leading to lower-than-expected net cash accrual
  • Any large capex weakening the financial risk profile and liquidity

About the Company

AI was established in 1993 and AMPL was incorporated in 1995 and. Both AMPL and AI manufacture masterbatches for the plastic industry. AMPL has facilities in Ranipet, and at Surangi in Dadra and Nagar Haveli, while AI has facilities in Delhi and at Bhiwadi in Rajasthan. Mr Vikram Bhadauria, Mr Aditya Bhadauria and Mr Amit Puri are promoters of the group.

 

AI is engaged in manufacture of masterbatches primarily for the plastics industry.

Key Financial Indicators

Combined

 

 

 

As on / for the period ended March 31

 

2024

2023

Operating income

Rs crore

670.82

655.08

Reported profit after tax (PAT)

Rs crore

29.64

22.70

PAT margin

%

4.42

3.47

Adjusted debt/adjusted networth

Times

0.34

0.42

Interest coverage

Times

4.2

3.76

 

AMPL

 

 

 

As on / for the period ended March 31

 

2024

2023

Operating income

Rs crore

526.20

501.80

Reported PAT

Rs crore

9.63

11.81

PAT margin

%

1.8

2.33

Adjusted debt/adjusted networth

Times

1.27

0.44

Interest coverage

Times

2.71

3.04

 

AI

 

 

 

As on / for the period ended March 31

 

2024

2023

Operating income

Rs crore

178.34

179.18

Reported PAT

Rs crore

12.53

11.01

PAT margin

%

7.01

6.14

Adjusted debt/adjusted networth

Times

0.89

0.34

Interest coverage

Times

8.19

7.05

Any other information: Not Applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name Of Instrument Date Of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs. Crore) Complexity Levels Rating Outstanding with Outlook
NA Cash Credit NA NA NA 2.00 NA CRISIL A/Stable

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Alok Industries

 

Full

Common management and business, and financial fungibility

Alok Masterbatches Private Limited

Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 2.0 CRISIL A/Stable   -- 25-07-23 CRISIL A/Stable 06-12-22 CRISIL A/Stable 27-09-21 CRISIL A/Stable CRISIL A-/Stable
      --   --   -- 17-11-22 CRISIL A/Stable   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 2 The Hongkong and Shanghai Banking Corporation Limited CRISIL A/Stable
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Chemical Industry
CRISILs Criteria for Consolidation

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