| Alok Industries | ||||
| Rating upgraded to 'CRISIL A / Stable' | ||||
| Rating Action | ||||
| ||||
| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has upgraded its rating on the bank facilities of Alok Industries (AI; a part of the Alok group) to ‘CRISIL A/Stable’ from ‘CRISIL A-/Stable’.
The upgrade reflects constantly improving business risk profile as indicated by improvement in scale of operations over the last 5 years where revenue has improved from Rs 299 Cr in FY17 to over Rs 500 Cr in FY21. The growth has been supported by the established position of the group in the masterbatches segment and diversified product portfolio of the group catering to diversified industries. The group is setting up another plant which is to be internally funded would further support the business risk profile of the group.
Financial risk profile of the group has also improved over the years with healthy networth of over Rs 120 Cr, healthy capital structure marked by gearing of below 0.1 time as on 31st Mar 2021 and healthy debt protection metrics marked by interest coverage of over 5 times. Going forward, it is expected to remain comfortable as well.
CRISIL Ratings on the bank facilities of AI continues to reflect the Alok group's strong market position in the masterbatches industry, backed by pan-India presence with a well-diversified clientele, and a healthy financial risk profile. These strengths are partially offset by exposure to intense competition and fluctuations in raw material prices. |
Analytical Approach For arriving at its rating, CRISIL Ratings has combined the business and financial risk profiles of Alok Masterbatches Pvt Ltd (AMPL) and Alok Industries (AI). This is because the two entities, together referred to as the Alok group, have business synergies and common management.
Unsecured loans of Rs 93.69 crore extended to the Alok group by the promoters as on March 31, 2021, have been treated as neither debt nor equity, as the loans are subordinated to bank debt and are likely to remain in the business.
Please refer Annexure - Details of Consolidation, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
The Alok group is a large organised player in the masterbatches industry in India. The group’s product portfolio comprises filler, colour and industry-specific masterbatches, such as polyethylene terephthalate and agriculture masterbatches. The two-decade-long experience of the promoters, their strong understanding of the local market dynamics and healthy relationships with customers and suppliers should continue to support the business. With the expansion in new segment as well, the market position of the group is expected to improve further.
Networth and gearing were comfortable at over Rs 120 crores and 0.1 time, respectively, as on March 31, 2021. Debt protection metrics are adequate, with net cash accrual to adjusted debt and interest coverage ratios at 0.04 time and 5 times, respectively, in fiscal 2021. With no major debt-funded capex plan over the medium term, the group’s financial risk profile is expected to remain healthy.
Weaknesses:
Operations are working capital intensive, as reflected in gross current assets of 162 days, driven by receivables of 101 days, as on March 31, 2021 as the group extends credit period of around 3 months to its customers. The group maintains inventory of 1-2 months as indicated by inventory days of 39 days as on March 31, 2021. Going forward, operations are expected to remain working capital intensive.
More than half of the overall masterbatches segment comprises the unorganised sector. Although organised players such as the Alok group offer superior quality products, local players are able to cater to regional customers with ease. In addition, profitability is contingent upon product mix. The group generates a bulk of its revenue via sale of filler and black and white masterbatches. It sells a low proportion of high-end masterbatches, such as those used in the agriculture industry. Intense competition may continue to constrain scalability, pricing power and profitability.
Since the cost of procuring the major raw materials (polymers, additives and pigments) accounts for a bulk of the production expense, even a slight variation in price can drastically impact profitability. Operating margin have remained volatile over the last five years ended fiscal 2021. Despite comfortable profitability and the ability to pass on price hike to a certain extent, the group will remain vulnerable to any sharp volatility in raw material prices. |
Liquidity: Strong Bank limit utilisation is low at around 26.26 percent for the past twelve months ended Dec-20. Cash accrual are expected to be over Rs 30 Cr which are sufficient against term debt obligation of Rs 1 Cr over the medium term. In addition, it will be act as cushion to the liquidity of the company. Current ratio is healthy at 2.23 times on March31, 2021. The promoters are likely to extend support in the form of equity and unsecured loans to meet its working capital requirements and repayment obligations. Low gearing and moderate net worth support it’s financial flexibility, and provides the financial cushion available in case of any adverse conditions or downturn in the business. |
Outlook Stable CRISIL Ratings believes the Alok group will continue to benefit from its strong market position and a healthy financial risk profile. |
Rating Sensitivity factors Upward factors
Downward factors
|
About the Group AMPL, incorporated in 1995, and AI, established in 1993, manufacture masterbatches for the plastic industry. AMPL has facilities in Ranipet, Tamil Nadu, and Surangi, Dadra and Nagar Haveli, while AI has facilities in Delhi and Bhiwadi, Rajasthan. Mr Vikram Bhadauria, Mr Aditya Bhadauria and Mr Amit Puri are the promoters of the group. |
Key Financial Indicators- AI
*Provisional |
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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
|
Annexure – List of entities consolidated
|
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||
| Facility | Amount (Rs.Crore) | Rating |
| Cash Credit | 2 | CRISIL A/Stable |
Criteria Details
|