Rating Rationale
August 06, 2024 | Mumbai
Archidply Industries Limited
Rating reaffirmed at 'CRISIL BBB/Stable'; Rated amount enhanced for Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.100.5 Crore (Enhanced from Rs.80.5 Crore)
Long Term RatingCRISIL BBB/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 BBB/Stable’ rating on the long-term bank facilities of Archidply Industries Ltd (AIL).

 

Operating income grew to Rs 435 crore in fiscal 2024, from Rs 421 crore in fiscal 2023, with marginal volume growth. However, the operating margin moderated to 5.23% from 5.65% due to higher input cost in the third quarter of fiscal 2024 and claims and bad debts provided for. The margin is expected to improve with the increased scale of operations expected from the new unit, thus resulting in better absorption of fixed costs.

 

The newly set up subsidiary - Archidpanel Industries Pvt Ltd (AIPL) – commenced operations from March 29, 2024. The date of commencement of commercial operations got delayed due to technical issues faced during implementation; though the issues were subsequently rectified and there was no revenue booking in fiscal 2024. Ramp up in operations will remain monitorable.

 

The rating continues to reflect AIL's established market position in the plywood and laminates business supported by the extensive experience of the promoters, geographical diversity in revenue with an established dealership network and above-average financial risk profile. These strengths are partially offset by moderate working capital intensity of operations, and susceptibility to volatility in raw material prices and intense competition.

Analytical approach

CRISIL Ratings has combined the business and financial risk profiles of AIL and AIPL.

 

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

Key rating drivers and detailed description

Strengths:

  • Established market presence, supported by  extensive experience of the promoters: Supported by promoter’s industry experience of over four decades, AIL has established itself as a leading player in the plywood and laminates industry. The promoter’s strong understanding of local market dynamics has helped the company to develop a comprehensive range of products and widen its geographical reach. The company will continue to benefit from the experience and expertise of its management team and leverage its customer relationships.

 

  • Geographical diversification in revenue and established network: A well-established distribution network, wide geographic reach and robust clientele should continue to support the business risk profile. The company caters to different sectors such as state government, hospitals, corporates and retail segments. It has over five years of relationship with most customers/distributors. The northern and southern regions of India contribute 60-65% of the revenue, while exports account for around 5-10%. The top 10 customers accounted for around 14% of revenue in fiscal 2024.

 

  • Above-average financial risk profile: The capital structure should remain healthy due to lower reliance on external funds. Gearing increased to 1.32 times as on March 31, 2024, from 0.8 time a year ago, due to debt availed for the recently completed capital expenditure (capex); total outside liabilities to tangible networth ratio stood at 1.94 times as on March 31, 2024. Debt protection metrics have been adequate due to low leverage and steady profitability. The interest coverage ratio was at 3.28 times and net cash accrual to total debt ratio at 0.08 time for fiscal 2024.

 

Weaknesses:

  • Moderate working capital intensity of operation: Gross current assets have been 131-172 days for the three fiscals ended March 31, 2024, driven by inventory of around 60-70 days (which can rise during seasons) and debtors of around 90 days. The working capital is partially supported by credit of around 60 days extended by the suppliers along with working capital bank lines.

 

  • Susceptibility to volatility in raw material prices and intense competition: Intense competition in the plywood and laminates industry may continue to constrain scalability, pricing power and profitability. Further, as cost of procuring the major raw material (kraft paper) accounts for bulk of total operating revenue, even a slight variation in price can drastically impact the operating margin.

Liquidity: Adequate

 Liquidity should remain supported by the ample surplus available in cash accrual and bank lines. Expected annual cash accrual of Rs 17-30 crore per annum, should comfortably cover debt obligation of Rs 4.05-16.20 crore per year over the medium term. Bank limit utilisation was around 86% for the 12 months through June 2024. Current ratio stood at 1.24 times as on March 31, 2024.

Outlook: Stable

AIL will continue to benefit from its established market presence and the extensive experience of the promoters.

Rating sensitivity factors

Upward factors:

  • More-than-expected revenue growth, driven by sharp ramp-up in sales from the new capacity, and improvement in operating margin, leading to cash accrual over Rs 25 crore on a sustained basis
  • Sustenance of financial and liquidity risk profiles at healthy levels

 

Downward factors:

  • Lower-than-expected revenue and operating margin, resulting in net cash accrual less than Rs 15 crore on a consistent basis
  • Weakening in the financial risk profile and liquidity due to stretch in the working capital cycle or larger-than-expected, debt-funded capex
  • Significant delay in ramping up of AIPL’s operations

About the company

AIL, was incorporated in 1995 and promoted by Mr Deen Dayal Daga and his family members. The company is engaged in manufacturing and exporting a comprehensive range of plywood and laminates. It has a manufacturing unit at Rudrapur in Uttarakhand and well-diversified networks of branches, distributors and dealers across India.

 

AIPL was set up as a 100% subsidiary of AIL in February 2022 and commenced commercial operations from March 29, 2024.

Key Financial Indicators

As on/for the period ended March 31

Unit

2024

2023

Operating income

Rs crore

435.67

421.75

Reported profit after tax (PAT)

Rs crore

7.09

12.25

PAT margin

%

1.62

2.90

Adjusted debt/adjusted networth

Times

1.32

0.80

Interest coverage

Times

3.28

4.17

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

ISIN Name of the
instrument		 Date of
Allotment		 Coupon
Rate (%)		 Maturity
Date		 Issue size
(Rs. Crore)		 Complexity
Level		 Rating assigned
with outlook
NA Cash credit NA NA NA 100.5 NA CRISIL BBB/Stable

Annexure - List of entities consolidated

Names of entities consolidated

Extent of consolidation

Rationale for consolidation

Archidply Industries Ltd

Full

AIPL is the subsidiary of AIL. They will be operating in the same line of business and are under common management.

Archidpanel Industries Pvt Ltd

Full
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 100.5 CRISIL BBB/Stable 31-01-24 CRISIL BBB/Stable   -- 13-10-22 CRISIL BBB/Stable   -- --
      -- 10-01-24 CRISIL BBB/Stable   --   --   -- --
Non-Fund Based Facilities ST   --   --   -- 13-10-22 CRISIL A3+   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 40 State Bank of India CRISIL BBB/Stable
Cash Credit 20 Axis Bank Limited CRISIL BBB/Stable
Cash Credit 40.5 HDFC Bank Limited CRISIL BBB/Stable
Criteria Details
Links to related criteria
CRISILs Bank Loan Ratings
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Approach to Financial Ratios
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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