Rating Rationale
November 25, 2020 | Mumbai
Ecoplast Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.26.5 Crore
Long Term Rating CRISIL BBB-/Stable (Reaffirmed)
Short Term Rating CRISIL A3 (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its ratings on the bank facilities of Ecoplast Limited (Ecoplast; part of the Ecoplast group) at 'CRISIL BBB-/Stable/CRISIL A3'.
 
The ratings continue to reflect the Ecoplast group's established market position in manufacturing of multilayer extrusion films and diversification into industrial films, above average financial risk profile. These strengths are partially offset by average scale of operations and exposure to intense competition in the flexible packaging business.
 
Ecoplast group's revenues are impacted due to the nationwide lockdown imposed in March 2020. Although, operations resumed from May 2020, H1 performance was impacted leading to lower revenues and profit.  With improvement in capacity utilisation in recent months, revenues will improve in second half of fiscal 2021. Overall, scale of operation in fiscal 2021 is estimated to decline by 20-25%. Strong financial profile and adequate liquidity, will help sustain credit profile over the near term.

Analytical Approach

For arriving at its ratings, CRISIL has consolidated the business and financial risk profiles of Ecoplast, its subsidiary 'Synergy Films Private Limited, which is strategically important to, and have a significant degree of operational integration with Ecoplast Ltd. CRISIL considers the entity as being strategic to Ecoplast Ltd in view of their strong integration with Ecoplast 's operations.

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 presence in the domestic flexible packaging segment: Strong product development capability has enabled the group to tap business opportunities in specialty polyethylene film segment. Over the years, the Ecoplast group introduced several variants of multi-layer coextruded films used for packaging in all three segments which are Adhesive Films, Lamination Film and surface protection films. Ability to provide customised solutions has helped the group build strong relationships with key customers.
 
* Above-average financial risk profile: The financial risk profile is supported by comfortable capital structure and debt protection metrics. Networth was Rs 31.9 crore, while gearing and total outside liability to adjusted networth (TOLANW) were at 0.4 time and 0.7 time as on March 31, 2020. Capital structure is expected to remain comfortable over the medium term in absence of any large debt funded capital expenditure or expected increase in reliance on outside borrowings. Debt protection metrics remain comfortable, as indicated by interest coverage and net cash accrual to total debt ratios of 10.94 times and 0.43 time, respectively, for fiscal 2020. Going forward, debt protection metrics is estimated to remain at similar level supported by moderate operating margin.
 
Weaknesses:
* Modest scale of operations in a fragmented industry: The packaging industry has several unorganised and small players catering to local and regional demands. This limits the scope for organised entities to expand their geographical presence. As a result, the Ecoplast group's scale of operations remains average, as reflected in revenue of Rs 99 crore in the fiscal 2020. The group has reported a revenue of Rs28 crores in till Sept'20 and is estimated 20-25% decline in fiscal 2021 due to lower capacity utilisation during Q1 due to nationwide lockdown.
 
* Large working capital requirement: Ecoplast group has reported gross current asset (GCA) of 121 days as on March 31, 2020. Customers are offered credit of 60-65 days and inventory is maintained for nearly 45 days. Working capital is partly managed through credit received from suppliers of around 40-45 days.  Going forward, GCA is estimated to remain between 140-160 days with estimated stretch in payments from customers and expected increase in inventory days.
Liquidity Adequate

Ecoplast has adequate liquidity driven by expected cash accruals of Rs 3.8-5.1 crores per annum in fiscal 2021 and fiscal 2022, against long term repayment obligations around Rs 1.4 crore and Rs 1.96 crores, respectively. Cash and cash equivalents of Rs 0.48 crore as on March 31, 2020. Fund based limits of Rs 14 crores was utilized 39.14% on an average over the 12 months ended June 2020. CRISIL expects internal accruals, cash & cash equivalents and unutilized bank lines to be sufficient to meet its repayment obligations as well as incremental working capital requirements. Ecoplast group had availed moratorium till August 2020 as per RBI's new guidelines.

Outlook: Stable

CRISIL believes the Ecoplast group will continue to benefit from its established presence and above average financial risk profile.

Rating Sensitivity factors
Upward factors
* Sustainable growth of over 20-25% in revenue with sustained operating margin improving net cash accruals to Rs 8 crores
* Better management of working capital requirement, strengthening its TOLANW
 
Downward factors
* Operating margin decline by 300 basis points and pressure on topline, weakening its net cash accruals below 2.5 crores
* Unexpected large debt funded capex, putting pressure on liquidity and weakening the financial profile
About the Group

Incorporated in 1981, Ecoplast manufactures multi-layer extrusion films used in flexible packaging. It also produces industrial films, such as aluminum composite films and surface protection films, which are widely used in the construction and durable goods industries. The company is listed on the Bombay Stock Exchange (BSE).  Ecoplast is promoted by Mr. Jaymin B Desai.
 
Incorporated in 2007, Synergy manufactures industrial films such as aluminum composite films (ACP) and surface protection films (SPF). The operations of this entity have been discontinued in December 2019.

Key Financial Indicators Consolidated
As on / for the period ended March 31   2020 2019
Operating income Rs crore 99.03 101.82
Reported profit after tax (PAT) Rs crore 3.53 2.89
PAT margin % 3.6 2.8
Adjusted debt/adjusted networth Times 0.40 0.33
Interest coverage Times 10.94 4.72

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL 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. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
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-/Stable
NA Letter of Credit NA NA NA 6.5 NA CRISIL A3
NA Long Term Loan NA NA 28-Feb-22 5.85 NA CRISIL BBB-/Stable
 
Annexure - List of entities consolidated
Names of Entities Consolidated Extent of Consolidation Rationale for Consolidation
Ecoplast Ltd Full Operate in similar lines of business, have a common management team, and have significant operational linkages
Synergy Films Pvt Ltd Full Operate in similar lines of business, have a common management team, and have significant operational linkages
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fixed Deposits  FD    --    --    --    --  28-12-17  Withdrawal/Stable  FA-/Stable 
Fund-based Bank Facilities  LT/ST  19.85  CRISIL BBB-/Stable      05-11-19  CRISIL BBB-/Stable  31-12-18  CRISIL BBB-/Stable  28-12-17  CRISIL BBB-/Stable  CRISIL BBB-/Stable 
Non Fund-based Bank Facilities  LT/ST  6.65  CRISIL A3      05-11-19  CRISIL A3  31-12-18  CRISIL A3  28-12-17  CRISIL A3  CRISIL A3 
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee .15 CRISIL A3 Bank Guarantee .15 CRISIL A3
Cash Credit 14 CRISIL BBB-/Stable Cash Credit 14 CRISIL BBB-/Stable
Letter of Credit 6.5 CRISIL A3 Letter of Credit 6.5 CRISIL A3
Long Term Loan 5.85 CRISIL BBB-/Stable Long Term Loan 3.85 CRISIL BBB-/Stable
-- 0 -- Proposed Bank Guarantee 2 CRISIL A3
Total 26.5 -- Total 26.5 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Petrochemical Industry
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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