Rating Rationale
September 14, 2022 | Mumbai
Ecoplast Limited
Rating outlook revised to 'Negative'; Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.31.5 Crore
Long Term RatingCRISIL BBB-/Negative (Outlook revised from 'Stable'; Rating Reaffirmed)
Short Term RatingCRISIL A3 (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has revised its  outlook on the long-term bank facilities of Ecoplast Limited (Ecoplast; part of the Ecoplast group) to ‘Negative’ from ‘Stable’ while reaffirming the rating at 'CRISIL BBB-' and reaffirmed its ‘CRISIL A3’ rating on the short-term bank facilities.

 

The revision in outlook reflects the weakening in the business risk profile of the company. Earnings before interest, tax, depreciation and amortisation (Ebitda) margin and revenue fell to 1.3% and Rs 94 crore, respectively, in fiscal 2022 from 5% and Rs 75 crore, respectively, in fiscal 2020. This is due to abnormal loss incurred on account of fire incident leading to PAT losses of Rs. 1.74 crore in fiscal 2022. Also, the operating margin was modest at 2.5%, owing to fluctuation in raw material prices, in the first quarter of fiscal 2023. However, financial profile and liquidity continue to remain stable. Increase in EBITDA margins would be a key monitorable over the medium term.

 

The ratings continue to reflect the company’s established market position and comfortable financial risk profile. These strengths are partially offset by modest scale of operations amid intense competition and large working capital requirement.

Analytical approach

CRISIL Ratings has combined the business and financial risk profiles of Ecoplast and its wholly owned subsidiary, Synergy Films Pvt Ltd (SFPL). These companies, together referred to as the Ecoplast group, have 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 and detailed description

Strengths:

  • Established market position and diversification into industrial films: The group has been manufacturing multilayer extrusion films for more than 30 years. It has introduced several variants of multilayer co-extruded films used for packaging and non-packaging applications. Ability to provide customised solutions has enabled the group to build strong relationships with key customers and sustain revenue. Revenue declined to Rs 75 crore in fiscal 2021 owing to the Covid-19 pandemic but picked up in fiscal 2022 and is expected to increase over the medium term.

 

  • Comfortable financial risk profile: Networth, gearing and total outside liabilities to adjusted networth ratio were moderate at Rs 29.72 crore, 0.48 time and 0.86 time, respectively, as on March 31, 2022. In the absence of major debt-funded capital expenditure (capex), the capital structure will remain strong over the medium term. Debt protection metrics had deteriorated , as indicated by interest coverage and net cash accrual to adjusted debt ratios of 1.12 times and 0.07 time, respectively, in fiscal 2022 due to decline in EBITDA margins, but are expected to improve over the medium term.

 

Weaknesses:

  • Modest scale of operations amid intense competition: The Ecoplast group primarily manufactures multilayer coextruded plastic films used for flexible packaging and other speciality applications. The plastic packaging industry is highly fragmented, with several unorganised players catering to regional demand. Intense competition restricts growth opportunities to expand into new geographies and scalability, as reflected in revenue of Rs 93.47 crore in fiscal 2022.

 

  • Susceptibility to volatility in raw material prices: The operating margin is vulnerable to fluctuations in raw material prices. The raw material, polymer resin, is a crude derivative and hence price remains volatile. The operating margin was 1.3-8.7% for the three fiscals through 2022. Sustenance of operating margin will remain a key monitorable over the medium term.

 

  • Large working capital requirement: Gross current assets (GCAs) were at 132 days as on March 31, 2022, driven by receivables and inventory of 78 and 51 days, respectively. Customers are offered moderate credit of 30-60 days while inventory of 30-60 days is maintained to meet customer requirement on time. The working capital cycle is partly supported by payables of 40-45 days. Working capital cycle is expected to remain large over the medium term.

Liquidity: Adequate

Cash accrual, expected at Rs 2.5-4.5 crore per annum in fiscals 2023 and 2024, will comfortably cover yearly debt obligation of Rs 1.6-1.8 crore. Fund-based limit of Rs 14 crore was utilised 36% on average during the 12 months through July 2022. Unencumbered cash and bank balance stood at Rs 0.44 crore as on March 31, 2022. Adequate cash accrual, unitilized bank lines and the cash and bank balance should be adequate to support the debt obligations and working capital requirement over the medium term.

Outlook: Negative

CRISIL Ratings believes the business risk profile of the Ecoplast group will deteriorate over the medium term driven by fluctuations in raw material prices.

Rating sensitivity Factors

Upward factors

  • Increase in revenue and rise in operating margin above 5% leading to higher cash accrual
  • Efficient working capital management, strengthening the financial risk profile

 

Downward factors

  • Decline in revenue or operating margins continue to remain below 2.5% leading to lower cash accruals of less than Rs. 2 crore
  • Large, debt-funded capex or further stretch in the working capital cycle weakening the financial risk profile

About the Group

Incorporated in 1981, Ecoplast manufactures multilayer extrusion films, which are used in flexible packaging. The company also produces industrial films, such as aluminium composite and surface protection films, which are widely used in the construction and durable goods industries. It is listed on the Bombay Stock Exchange and promoted by Mr Jaymin B Desai.

 

Incorporated in 2007, SFPL is engaged in trading. Manufacturing operations were discontinued in December 2019.

Key financial indicators

As on/for the period ended March 31

Unit 

2022

2021

Operating income

Rs.Crore

94.33

75.62

Reported profit after tax (PAT)

Rs.Crore

-1.74

0.20

PAT margin

%

-1.85

0.26

Adjusted debt / adjusted networth

Times

0.48

0.25

Interest coverage

Times

1.12

3.53

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)

ISIN

Name of instrument

Date of allotment

Coupon rate (%)

Maturity date

Issue size
(Rs.Crore)

Complexity level

Rating assigned

with outlook

NA

Bank Guarantee

NA

NA

NA

0.15

NA

CRISIL A3

NA

Cash Credit

NA

NA

NA

14

NA

CRISIL BBB-/Negative

NA

Letter of Credit

NA

NA

NA

6.5

NA

CRISIL A3

NA

Long Term Loan

NA

NA

Mar-23

1.15

NA

CRISIL BBB-/Negative

NA

Long Term Loan

NA

NA

Mar-25

5.85

NA

CRISIL BBB-/Negative

NA

Working Capital Term Loan

NA

NA

Mar-23

3.35

NA

CRISIL BBB-/Negative

NA

Proposed Fund-Based Bank Limits

NA

NA

NA

0.5

NA

CRISIL BBB-/Negative

Annexure - List of Entities Consolidated

Names of entities consolidated

Extent of consolidation

Rationale for consolidation

Ecoplast Ltd

Full

Same business and common management

Synergy Films Pvt Ltd

Full
Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 24.85 CRISIL BBB-/Negative   -- 26-07-21 CRISIL BBB-/Stable 25-11-20 CRISIL BBB-/Stable 05-11-19 CRISIL BBB-/Stable CRISIL BBB-/Stable
      --   -- 21-07-21 CRISIL BBB-/Stable   --   -- --
Non-Fund Based Facilities ST 6.65 CRISIL A3   -- 26-07-21 CRISIL A3 25-11-20 CRISIL A3 05-11-19 CRISIL A3 CRISIL A3
      --   -- 21-07-21 CRISIL A3   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 0.15 Bank of Baroda CRISIL A3
Cash Credit 14 Bank of Baroda CRISIL BBB-/Negative
Letter of Credit 6.5 Bank of Baroda CRISIL A3
Long Term Loan 5.85 Bank of Baroda CRISIL BBB-/Negative
Long Term Loan 1.15 Bank of Baroda CRISIL BBB-/Negative
Proposed Fund-Based Bank Limits 0.5 Not Applicable CRISIL BBB-/Negative
Working Capital Term Loan 3.35 Bank of Baroda CRISIL BBB-/Negative

This Annexure has been updated on 14-Sep-2022 in line with the lender-wise facility details as on 13-Dec-2021 received from the rated entity.

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
CRISILs Bank Loan Ratings
CRISILs Criteria for Consolidation

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