| Emmbi Industries Limited | ||||||
| Rating outlook revised to 'Positive'; Ratings reaffirmed | ||||||
| Rating Action | ||||||
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| 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 revised its outlook on the long-term bank facilities of Emmbi Industries Limited to 'Positive' from 'Stable' and has reaffirmed the rating at 'CRISIL BBB+'. The short-term rating has been reaffirmed at 'CRISIL A2'.
Revision in outlook reflects expectation of improvement in both business as well as financial risk profile supported by improved revenue, enhanced operating profitability resulting in higher accruals. Sustenance of improved operating performance to remain key rating sensitivity factor.
Company's revenue substantially improved to RS 435 crore in fiscal 2022 against revenue of Rs 270-300 crore over past 3 years through fiscal 2021. The improvement seen in the scale of operations were because of higher demand not only in domestic market but also in international market. Revenue from B2C I.e., Avana Segment has also on an increasing trend. Company's operating margin is expected to remain above 11% over the medium term. Consequently, accruals were high at Rs 27 crore in fiscal 2022. With concerns regarding slowdown of economic situations especially in export segment, business risk profile and thus cash accruals generated will be key monitorable with repayments in range of Rs 16-18 crore over the medium term. For H1FY23 company has already achieved revenue of Rs 227.5 crore at an operating margin of around 10.5%. Company's new product range compliant with government policies will support the revenue profile of the company. Company's working capital cycle has improved during fiscal 2022 and financial risk profile continues to remain healthy with comfortable capital structure and debt protection metrics.
The rating continues to reflect extensive experience of promoters in flexible packaging industry, diversified business profile supported by a vast product profile presence across geographies and low customer concentration, and comfortable financial risk profile. These strengths are partially offset by working capital intensive nature of operations and exposure to competition leading to pressure on profit margins. |
Key Rating Drivers & Detailed Description Strengths: Extensive experience of promoters in flexible packaging industry: The promoters Mr. Makrand Appalwar & Mrs. Rinku Appalwar have an experience of over three decade in flexible packaging industry. The promoters have developed a strong understanding of the industry dynamics, which has helped them to maintain healthy relationships with their suppliers and customers resulting in healthy growth in revenue.
Diversified business profile supported by a vast product profile, presence across various geographies and low customer concentration: EIL has a diversified product profile as is reflected by portfolio of more than 40 products with continuous product addition being supported by its R&D division. EIL markets its products in both B2B and B2C segments. B2C segment mainly retails products under Avana Brand. Company has been investing heavily into the B2C segment and the revenue share is also on an increasing trend. Due to the new UK's plastic packaging Tax, company has launched the Reclaim 30 range which is sustainable plastic packaging which uses more than 30% recycled polypropylene. Company for fiscal 2022 has recorded sales growth of more than 50% year on year. Revenue for fiscal 2022 was Rs 435 crore compared to Rs 274 crore for fiscal 2021. For H1FY23, company has achieved revenue of Rs 227.5 crore. EIL sells its products to more than 60 countries with contributes around 60% of the total revenue, with concerns regarding slowdown of economic situations business risk profile will be key monitorable.
Comfortable financial risk profile: The financial risk profile is supported by adequate networth of over Rs 138 crore and gearing of 1.04 times as on March 31, 2022. Debt protection metrics were comfortable too as indicated by interest coverage and net cash accrual to adjusted debt ratio at 3.36 times and 0.19 time, respectively, in fiscal 2022. The scheduled repayment of term loan, accretion to reserve and absence of large debt-funded capex plan should help improve the financial risk profile over the medium term.
Weaknesses: Working capital intensive nature of operations: Company's operations are working capital intensive in nature as reflected by gross current assets (GCA) days ranging between 151-210 days since last four years ending March 31, 2022. The intensive working capital operations is because of higher inventory of EIL. GCA days have improved from 206 days as on March 31,2021 to 151 days as on March 31,2022. The improvement in GCA days is because of lower inventory maintained in fiscal 2022 compared to fiscal 2021. As on March 31,2022 the inventory days were 92 days and debtor's days were 54 days. The inventory requirements are high due to batch manufacturing process followed by EIL for all its products to achieve maximum efficiency. Also, company keeps raw material of around 30-45 days to support continuous production cycle. GCA days are expected to remain in the same range over medium term.
Exposure to competition leading to pressure on margins: The flexible intermediate bulk container (FIBC) industry is fragmented because of low entry barriers, such as limited capital and technology requirements, small gestation period, and easy availability of raw materials. Operating margins have been range bounded between 10-14% over past four years ending fiscal 2022. However, with expected improvement in sales performance, the margin is expected to improve. |
Liquidity: Adequate Bank limit utilisation is moderate at around 86.39 percent for the past twelve months ended August 2022. Cash accruals are expected to be over Rs 24 crore which are sufficient against term debt obligation of Rs 16-17 crore over the medium term. In addition, it will be act as cushion to the liquidity of the company. Current ratios are healthy at 1.54 times on March 31, 2022. Company has a cash and bank balance of Rs 0.99 crores as on March 31,2022. No major capex plans over medium term. |
Outlook: Positive CRISIL Ratings believes that EIL business risk profile will continue to benefit, over the medium term, from its longstanding relationships with suppliers & customers, and experience of the management. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company EIL was incorporated in 1994 by Mr. Makrand Appalwar and Mrs. Rinku Appalwar. EIL is engaged in manufacturing and sale of FIBC, woven sacks and various polymer-based packaging products like Container Liners, Protective Irrigation System, Pond Liners, Canal Liners, Flexi Tanks, Car Covers, Mulch Films, etc. EIL has 2 mother units which manufacture basic parts and 8 satellite units which manufacture the final product based on specific industry requirement |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 07-Dec-2022 in line with the lender-wise facility details as on 29-Oct-2021 received from the rated entity.
Criteria Details
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