Rating Rationale
December 03, 2024 | Mumbai
Archidply Industries Limited
Rating downgraded to 'CRISIL BBB-/Stable'
 
Rating Action
Total Bank Loan Facilities RatedRs.100.5 Crore
Long Term RatingCRISIL BBB-/Stable (Downgraded from 'CRISIL BBB/Stable')
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 downgraded its rating on the long-term bank facilities of Archidply Industries Ltd (AIL) to ‘CRISIL BBB-/Stable’ from ‘CRISIL BBB/Stable’. 

 

The downgrade factors in the weaker-than-expected operating performance, largely on account of the delay in commencement of operations of the newly set up subsidiary, Archidpanel Industries Pvt Ltd (AIPL), amid stagnant fixed costs. The consolidated operating income was Rs 243 crore in the first half of fiscal 2025, as against Rs 435 crore in fiscal 2024. Intensifying competition and delay in offtake for AIPL lead to a decline in the consolidated operating margin to 3.03% in the first half of fiscal 2025 from 5.2% in fiscal 2024, with a reported loss of Rs 5.50 crore in the first half of this fiscal.

 

AIPL commenced operations from March 29, 2024. The date of commencement of commercial operations was delayed due to technical issues during the project implementation. Though the issues were subsequently rectified, there was no revenue booking in fiscal 2024 and lower-than-expected booking in the first half of fiscal 2025. With quarterly principal repayment in the subsidiary starting from January 2025, ramp-up of operations and improvement in performance 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 moderate financial risk profile. These strengths are partially offset by working capital-intensive operations, and susceptibility to volatility in raw material prices and to intense competition.

Analytical approach

CRISIL Ratings has combined the business and financial risk profiles of AIL and AIPL since both entities have operational, financial linkages and are under common management.

 

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 presence, supported by the extensive experience of the promoters: The promoters’ industry experience of over four decades has helped establish AIL as a leading player in the plywood and laminates industry. The promoters’ strong understanding of local market dynamics has enabled 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: The 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 departments, hospitals, corporates and retail. It has relationships of over five years with most customers/distributors. The northern and southern regions of India contribute 60-65% to its revenue, while exports account for 5-10%. The top 10 customers accounted for around 14% of AIL’s revenue in fiscal 2024.

 

  • Moderate financial risk profile: The financial risk profile has weakened, but remains moderate for the current rating. The gearing increased to 1.71 times as on September 30, 2024, from 1.32 times as on March 31, 2024, due to use of working capital lines and debt for the recently completed capital expenditure (capex), while the total outside liabilities to tangible networth ratio rose to 2.64 times from 1.94 times. The capital structure will be supported over the medium term by low reliance on external funds and absence of debt-funded capex plans. The interest coverage ratio dipped to 0.99 times in the first half of fiscal 2025 from 3.2 times for fiscal 2024 amid lower profitability.

 

Weaknesses:

  • Working capital-intensive operations: Gross current assets were at 131-172 days for the three fiscals ended March 31, 2024, driven by inventory of 60-70 days (which can rise during peak season) and receivables of around 90 days. The working capital management is partially supported by credit of around 60 days from suppliers and 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. Moreover, as the cost of procuring the major raw material (kraft paper) accounts for the bulk of the operating revenue, even a slight variation in the input price can drastically impact the operating margin. The consolidated operating margin declined in to 3.03% in the first half of fiscal 2025 and its return to the historical level & improvement remains monitorable.

Liquidity: Adequate

Liquidity should remain supported by sufficient cash accrual and bank lines. Annual cash accrual is expected at Rs 13-24 crore per annum and should cover yearly debt obligation of Rs 4.05-16.20 crore over the medium term. Bank limit utilisation averaged 87% for the 12 months through October 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 the operating margin, leading to cash accrual of over Rs 18 crore on a sustained basis
  • Improvement of the financial risk profile and liquidity.

 

Downward factors:

  • Lower-than-expected revenue and operating margin, resulting in net cash accrual less than Rs 9 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 manufactures and exports a comprehensive range of plywood and laminates. It has a manufacturing unit at Rudrapur in Uttarakhand and a 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

3.2

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(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 100.50 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 wholly owned subsidiary of AIL. They operate 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 06-08-24 CRISIL BBB/Stable   -- 13-10-22 CRISIL BBB/Stable   -- --
      -- 31-01-24 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 40.5 HDFC Bank Limited CRISIL BBB-/Stable
Cash Credit 40 State Bank of India CRISIL BBB-/Stable
Cash Credit 20 Axis Bank Limited CRISIL BBB-/Stable
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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