| Emmbi Industries Limited | ||||||
| Ratings reaffirmed at 'CRISIL BBB+ / Stable / CRISIL A2 ' | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its 'CRISIL BBB+/Stable/CRISIL A2' ratings on the bank facilities of Emmbi Industries Limited (EIL).
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: EIL was incorporated by Mr. Makrand Appalwar and Mrs. Rinku Appalwar, who have extensive experience of nearly three decades in the flexible packaging industry. The promoters' business acumen and healthy customer relations have helped EIL in establishing its presence across various geographies and with a diversified product profile.
* 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. Further EIL has continuously been making investments in its B2C business over the last 4-5 years ending March 2021 and is focusing on growing the revenue share from this segment especially under its water conservation segment. The ramp-up in revenue from this segment will remain a key monitorable. Company has funding tie-ups in place with banks for its B2C products. EIL supplies pond liners to farmers only on advance basis or follows a cash & carry model. Due to inability of majority of farmers to pay in advance, EIL’s management has signed MOUs (with non-recourse) with lenders, who will provide credit to the farmers. Company has generated an operating income of Rs 273.99 crore in fiscal 2021, which moderated from Rs 303.92 crore in fiscal 2020, on account of Covid-19 pandemic which affected the performance during H1 FY21. EIL sells its products in more than 60 countries with export sales contributing around 58% of total revenue and remaining 42% being contributed from domestic market. With EIL's track record of maintaining such revenue bifurcation, CRISIL Ratings believes that EIL will continue to maintain its geographical diversification over the medium term as well. Further, EIL's top five customers only contribute around 47% of total revenue and none of the other customers contribute more than 10% to its total revenue, leading to significant customer diversification.
* Comfortable financial risk profile: EIL's financial risk profile is healthy as reflected by a strong networth of around Rs 122.18 crore as on March 31, 2021. Given healthy net worth, despite the debt funded capital expenditure incurred in past (capital expenditure of around Rs 51.04 crores in the last three fiscals ended 2021) and continuous dependence on external debt to fund incremental working capital requirements, EIL's gearing has remained around 0.97-1.12 times over last five fiscals ended 2021 and is expected to remain around 1 times going ahead as well. Debt protection metrics are adequate as reflected in interest coverage of 2.5 times and net cash accrual to adjusted debt of 0.10 time in fiscal 2021. Debt protection metrics moderated in fiscal 2021 however the same is a one-off instance due to moderation in revenue and margin on account of Covid-19 related lockdown restrictions and the metrics are expected to revive from fiscal 2022 with improved performance.
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 170-230 days since last five years ending March 31, 2021. The intensity in working capital cycle is majorly due to high inventory for EIL. GCA days increased to 225 days as on March 31, 2021 as against 180 days in the previous fiscal due to increase in inventory days to 134 days as on March 31, 2021 (due to higher finished goods at fiscal end) from 108 days in the previous fiscal and due to increase in debtor days to 73 days as on March 31, 2021 from 57 days in the previous fiscal. This has however corrected in current fiscal with inventory days and debtor days improving to 87 days and 59 days, respectively, as on June 30, 2021. The inventory requirements are high due to batch manufacturing process followed by EIL for all its products to achieve maximum efficiency. This process leads to increase in production cycle which is expected to last around 50 days. Further, EIL keeps raw material inventory also of around 30 to 45 days to support any incoming order.
* 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. This restricts substantial ramp-up of operations and exerts pricing pressure on players. This, along with moderated performance due to Covid-19, has resulted in moderation in operating margin to around 10.4% for FY21 from 14.2% in FY19. However, with expected improvement in sales performance, the margin is expected to revive in fiscal 2022. |
Liquidity: Adequate Liquidity is adequate as reflected in expected net cash accruals of around Rs 22-32 crore per fiscal vis-à-vis repayments of Rs 13-18 crore per fiscal over medium term. EIL uses its remaining cash accruals for moderate capex requirements and incremental working capital requirements. However, due to operations being working capital intensive there is significant dependence on external debt to fund its working capital requirements which is reflected in high average bank limit utilization of 91% for the last 12 months ended July 2021. Expected enhancement in working capital limits is expected to support liquidity profile going ahead. Current ratio was 1.55 times as on March 31, 2021. Cash & bank balance stood at Rs 1.5 crore as on March 31, 2021. |
Outlook: Stable EIL’s business risk profile is expected to continue to benefit from extensive experience of its promoters over the medium term. |
Rating Sensitivity factors Upward factors * Healthy growth in revenue backed by higher offtake from B2C segment resulting in improved operating margin and net cash accruals of over Rs 25 crores on sustained basis. * Improvement in working capital cycle with sustained improvement capital structure and liquidity position.
Downward factors * Lower than expected growth in revenue or operating margins dropping below 11% resulting in lower than expected net cash accruals, impacting liquidity position. * Increase in working capital requirements, larger-than-expected, debt-funded capital expenditure (capex) or acquisition or dividend payout, weakening the financial risk profile. |
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: 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)
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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 27-Sep-2021 in line with the lender-wise facility details as on 31-Aug-2021 received from the rated entity.
Criteria Details
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