| Jasch Industries Limited | ||||||
| Ratings removed from 'Watch Developing; Ratings reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL has removed its ratings on the bank facilities of Jasch Industries Ltd (JIL; part of the JIL group) from rating watch with developing implications and reaffirmed the ratings at 'CRISIL BBB/Stable/CRISIL A3+'. |
| Analytical Approach |
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For arriving at the ratings, CRISIL has combined the business and financial risk profiles of JIL and its wholly-owned subsidiary, Jasch North America Company (JNAC; electronic gauge business) and its subsidiary. That's because all these entities, together referred to as the JIL group, have common ownership and management. |
| Key Rating Drivers & Detailed Description |
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Strengths * Diversified revenue profile The group has diversified its operations from manufacturing synthetic leather to industrial gauges in 2000. The synthetic leather division accounted for 66% of the total revenue of Rs 116.9 crore in fiscal 2017, while the industrial gauge segment accounted for the rest. In the synthetic leather division, the polyvinyl chloride (PVC) and polyurethane (PU) segments accounted for 60% and 40%, respectively, of the revenue. Benefits from revenue diversification are likely to continue over the medium term with expected operating income of over Rs 125 crore in fiscal 2018. * Healthy financial risk profile Strong operational performance over the past four fiscals and prudent funding of capex through debt and equity have helped to strengthen the balance sheet. The total outside liabilities to tangible networth ratio was 1.31-1.57 times over the three fiscals ended March 31, 2017. Over the same period, the interest coverage ratio was 4.17-5.38 times and the net cash accrual to adjusted debt ratio at 0.31-0.39 time. The healthy financial risk profile is mainly because of the conservative stance towards debt. The financial risk profile is expected to remain comfortable over the medium term. * Weaknesses Modest scale of operations Operating income has remained modest at Rs 116.9 crore in fiscal 2017, a marginal improvement from Rs 112.9 crore in the previous fiscal. Continuous upgrade in machinery has helped to sustain revenue; despite this, the company remains a small player in the synthetic leather industry. * Exposure to intense competition and susceptibility to fluctuations in foreign exchange (forex) rates Several unorganised players and imports from China and Taiwan cater to most of the industry demand. The commoditised nature of the industry makes demand sensitive to price fluctuations. China is the major producer of synthetic leather and has more than 200 players in the PU-coated fabrics segment; however, China produces fabric of inferior perceived quality (low serviceability fabric used in accessories) than the JIL group, which manufactures durable and high-quality fabric. This fabric is used by premium footwear brands such as Nike, Reebok, Adidas, Bata, Liberty, and Lakhani. The group caters mainly to the footwear industry and is expected to continue doing so over the medium term. The operating margin has improved to around 12% in fiscal 2017 from 9.5% in the previous fiscal mainly on account of healthy profits of a subsidiary, Indev Gauging Systems Inc. The operating margin is susceptible to fluctuation in the value of the Indian rupee as the group is a net importer. While it imports 45-50% of its total raw material, only around 40% of the revenue from the industrial gauge unit (or around 15% of total revenue) is from exports. |
| Outlook: Stable |
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CRISIL believes that the JIL group will maintain its financial risk profile over the medium term, marked by low gearing and healthy debt protection measures. The outlook may be revised to 'Positive' if the group achieves significant improvement in its operating revenue and profitability, while it maintains its capital structure. Conversely, the outlook may be revised to 'Negative' if the JIL group's operating margin declines, leading to lower cash accruals, or if its financial risk profile deteriorates on account of higher reliance on external debt. |
| About the Group |
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JIL, incorporated as Jasch Polymers Ltd in 1985, got its current name in 1993. The company manufactures PU resin and PU/PVC-coated fabric, also known as synthetic leather. In 2000, it opened an industrial gauge division, which specialises in online measurement and control systems for flat sheet products, including instruments such as thickness gauge, coating thickness gauge, paint thickness gauge, and basis weight/ash/moisture measurement gauges, for industries such as paper, plastic films, and steel. The manufacturing unit is at Sonepat, Haryana. JIL, through its wholly-owned subsidiary, JNAC, purchased an industrial gauge unit, Indev Gauging System Inc, USA, in January 2012. |
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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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| Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||
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