| Exxaro Tiles Limited | ||||||
| Rating outlook revised to 'Positive'; Rated amount enhanced | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has revised its rating outlook on the long-term bank facilities of Exxaro Tiles Limited (ETL) to ‘Positive’ from ‘Stable’ and reaffirmed the rating at 'CRISIL BBB+'. The short term rating has been reaffirmed at ‘CRISIL A2’.
The outlook revision reflects CRISIL Rating’s belief that ETL's business risk profile and financial risk profile is likely to strengthen over the medium term. The business risk profile with revenue improved by compounded annual growth rate (CAGR) of 14% during past six years with y-o-y growth of 25-26% to Rs 326 crore supported by healthy domestic demand. Revenue should further improve by compounded annual growth rate (CAGR) of 10-15% over medium term supported by expected healthy demand from domestic and expected growth in export revenue, diversification in product mix, and underway capex. Operating margin declined from 20% in FY21 to 15.2% in FY22 and expected to remain over 17% over the medium term. The decline in operating margin was on account of restrained revenue during Q1FY22 and rise in prices of gas led to lower absorption of fixed cost. Sustenance of improved profitability levels along with sales growth over the medium term remain a key rating sensitivity factor. The revision in outlook also factors in improved financial risk profile with healthy financial flexibility as reflected in networth of over Rs 265 crore and gearing of 0.2 times, as on March 31, 2022. Interest coverage ratio also improved to over 4.5 times in FY22. In absence of large debt funded capex, it is expected to strengthen over the medium term.
The rating reflects established market presence, sound operating efficiency and robust financial profile. These strengths are partially offset by improving, although moderate scale of operations, working capital intensive operations and susceptibility of its profitability to volatile raw material costs, fuel costs. |
Key Rating Drivers & Detailed Description Strengths: Established market presence and sound operating efficiency ETL has established market presence benefiting from the promoters' extensive experience, their strong understanding of market dynamics, and healthy distribution network. The key promoters have experience of over 2 decades which has enabled the company to grow over the years. ETL has a network of over 800 dealers and 2000+ touch points where its products are sold under “Exxaro” brand.
ETL’s sound operating efficiency is reflected in the healthy operating margin around 15% in FY22 although had declined from 18-20% due to restrained revenue during Q1FY22 and subsequent rise in prices of raw materials, power, and fuel cost. ETL benefits from its production being almost totally in house and sales in its own brand with presence in large sized tiles. Further, the lower gas prices at one of its two units supports the margin.
Robust financial profile The financial risk profile of company had sharply improved backed by full repayment of the outstanding term loans and reduction in working capital borrowings, from the IPO proceeds. The networth of company is healthy at Rs 266 crore and gearing of 0.2 times as on March 31, 2022. Debt protection metrics were also improved with interest coverage of 4.7 times and NCA/AD of 55% in FY22. In absence of large debt funded capex, financial profile expected to strengthen over the medium term.
Weakness: Improved, although moderate scale and working capital intensive operations ETL had clocked a revenue of Rs 326 crore in FY22 (registering 26% y-o-y growth), reflecting an average scale of operations. Further, its intensive working capital management is reflected in its gross current assets (GCA) of 274 days as on March 31, 2022. Over the last three GCA has ranged between 258 to 219 days. This is driven primarily by high inventory of around 4 months on account of wide range of designs, continuous changes in same with production being largely in-house. Also, company had debtors around 4 months driven by extension of large credit to its dealers. The working capital requirements are partially supported by extended credit received from suppliers. While ETL is undertaking measures to control the working capital cycle, the extent and sustenance of improvement remains a key monitorable.
Susceptibility of its profitability to volatile raw material costs Raw materials such as different types of clays, feldspar, silica, kaolin, and carbonates account for 40-45 per cent of the total cost of sales of ceramic tiles, while gas and power cost consist of 30-35 per cent of the total cost of sales. Therefore, operating margins to be susceptible to volatility in their prices. The risk has currently pronounced due to much increase volatility in the gas prices. |
Liquidity: Adequate Liquidity of company expected to remain adequate with expected generation of accruals over Rs 37-40 crore against term debt obligation of Rs 0.20-6 crore over the medium term; surplus funds would be sufficient to meet capex and incremental working capital requirement. Bank lines are utilized at less than 60% for past six months ended April 2022. |
Outlook: Positive CRISIL Ratings expects ETL’s business risk profile would strengthen over the medium term on the back of healthy demand from domestic and expected growth in export revenue, diversification in product mix, and underway capex, while maintaining robust financial risk profile. |
Rating Sensitivity Factors Upward factors
Downward factors
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About the Company ETL is engaged in the manufacturing and marketing of vitrified tiles that primarily used as flooring solutions. It was established 2007-08 as a partnership firm that manufactured frit, a raw material used in tile manufacturing and have over the years, diversified, expanded and evolved into a manufacturer for vitrified tiles. It has 2 manufacturing units in Gujarat (Unit 1 -Padra in Vadodara and Unit 2- Talod in Sabarkantha) and has total installed capacity of 13200000 sq.m. Company is listed on BSE and NSE. |
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 10-Aug-2022 in line with the lender-wise facility details as on 12-Nov-2021 received from the rated entity.
Criteria Details
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