Detailed Rationale

Crisil Ratings has downgraded its rating on the long-term bank facilities of Kabra Extrusiontechnik Ltd (KEL) to ‘Crisil A/Negative’ from ‘Crisil A+/Negative’ and reaffirmed its ‘Crisil A1’ rating on the short-term bank facilities.

 

The downgrade and continuation of negative outlook factors in the weaker-than-expected operating performance in the Battery division which has resulted in moderation in business risk profile of KEL. Diversification benefits expected from ramp up of Battery division has not panned out as expected. Further, the operating efficiency of the company has been further impacted owing to increase in the net working capital cycle (NWC) which is expected above 230 days in the near term compared with 150-160 days in the previous fiscals.

 

Revenue declined 23% on year in the nine months to December in fiscal 2025 primarily due to 60% decline in the revenue from the Battery division even as revenue from the extrusion division grew 14%. The recovery in the Battery division is expected to be gradual over the medium term and the improvement in the business risk profile as envisaged earlier will take longer than expected. The Total revenue of KEL is expected to decline by 15-20% year on year in fiscal 2025. Improvement in the operating performance of the battery division translating to overall recovery in margin and return metrics shall remain key monitorable.

 

Despite moderation in revenue, overall profitability has improved with the significantly better profitability of the extrusion division making up for the losses in Battery division. The company’s operating margin improved to 13.4% during the first nine months of fiscal 2025 from 7.4% during the corresponding period of the previous fiscal, driven by improvement in the product mix in the extrusion division with more complex and higher-margin machines. The operating margin is expected at 12-13% in fiscal 2025, with battery division likely to continue incurring losses at the operating level.

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The working capital cycle is streched to 230-240 days on account of increased inventory due to changes in the product mix towards complex machineries having higher gestation period of 6-9 months from previous 3-5 months. This necessitated higher inventory funding needs leading to increase in debt to Rs 127 cr as on December 2025 from March 2024 (Rs 86 crore). Also ~31% of the receivables as on December 2024 was from one customer facing liquidity challenges. Any provisioning for the same will be monitorable.
 

The financial risk profile of the company is expected to remain comfortable, despite increase in debt, due to healthy networth and limited long-term debt and capital expenditure (capex) obligations. Liquidity remains comfortable with free cash and liquid investment of Rs 40 crore as on December 31, 2024.

 

The ratings continue to reflect KEL’s established market position in the extrusion machinery business and its adequate financial risk profile. These strengths are partially offset by exposure to intense competition in the extrusion machinery segment, working capital-intensive operations, and susceptibility to changes in government policies and customer concentration in the battery division.

Analytical Approach

For arriving at the rating, Crisil Ratings has evaluated the business and financial risk profiles of KEL on a standalone basis.

Key Rating Drivers & Detailed Description

Strengths:

• Established market position in the extrusion machinery business: KEL has an established track record of more than four decades in manufacturing and commissioning of extrusion machinery. The company is among the largest manufacturers of extrusion machinery in India, with a market share of 30-40% in the organised space. KEL also caters to overseas markets, with strong presence in Africa, West Asia and South-East Asia. The revenue growth in the extrusion division depends on the capex cycles of original equipment manufacturers (OEMs) and any improvement in private capex cycle over the medium term should continue to support this segment.

 

• Comfortable financial risk profile: The Financial risk profile of the company expected to remain healthy despite increase in debt due to healthy networth and limited long term debt and capex obligations. Adjusted gearing (gross debt / adjusted networth) was 0.19 time as on March 31, 2024, and is expected to remain below 0.3 time over the medium term. Key debt protection metrics are expected to remain healthy, with interest coverage and net cash accruals to adjusted debt (NCAAD) ratio projected at above 5 times and 30% respectively over the medium term. Liquidity continues to remain comfortable with free cash and liquid investment of Rs.84 crore as on March 31, 2024 (Rs. 45crore as on December 31, 2024).

 

Weaknesses:

• Exposure to intense competition in the extrusion machinery segment: The domestic extrusion machinery segment is highly fragmented. The presence of various small and micro players limits pricing power. KEL faces competition from domestic players as well as imported extrusion machinery. Also, the segment is technology-intensive and is susceptible to the risk of technological obsolescence. However, this risk is mitigated by KEL’s technological tie-ups and strategic collaborations with international players such as Battenfeld-Cincinnati (Germany), Penta Srl (Italy), Unicor GmbH (Germany) and Mecanor Oy (Finland). The demand for extrusion machinery is linked to the capex cycle of PVC and plastic products manufacturers, rendering KEL vulnerable to investment plans of its customers, especially during an economic slowdown when many companies may defer or postpone their capex plans.

 

• Battery business division susceptible to changes in government policies and customer concentration risk:  The domestic electric vehicle (EV) industry is driven by the Government of India’s initiatives through its FAME subsidy schemes (FAME-1 and FAME-II among others). The government regulates the safety and battery norms and subsidy levels, amongst other initiatives. Any changes in these schemes have a larger impact on the overall EV industry as reflected in June 01, 2023 when the subsidies on the electric vehicle were reduced in the FAME-II schemes, resulting in a steep rise in the EV prices. As a result, month-on-month sales volume of EVs (especially electric two-wheelers) declined sharply since June 2023. On account of the industry-wide impact, KEL’s battery business witnessed sharp contraction in operating margin, thereby weighing on the company’s overall operating efficiency. During fiscal 2024 the top-5 customers account for over 90% of revenues. However, the expansion in customer base through further OEM partnerships in the 3-wheeler and high voltage EV segment, shall result in gradual decline in customer concentration. Also KEL is entering into battery energy storage systems (BESS) and expected to partner with the bigger players in the energy storage systems, over the medium term. This will significantly improve the market position of KEL is the battery division. 

 

• Working capital intensive operations:. The working capital cycle of the company stretched to 230-240 days in the first nine months of fiscal 2025 and is expected to remain large in the near term, compared with 160-170 days in fiscal 2024. The stretch is on account of increased inventory due to changes in the product mix towards complex machinery with gestation period of 6-9 months compared with 4-5 months earlier. Majority of the inventory (70-75%) is to the extrusion division. Realisation of receivables remained in line with previous levels and is expected at 70-80 days. However, ~31% of the outstanding debtors as on December 31, 2024 was from one customer which is facing liquidity challenges. Any provisioning towards this outstanding and further stretch in the working capital cycle will be key monitorable.

Liquidity: Adequate

Expected cash accrual of Rs 35-40 crore per annum over the medium term along and unencumbered cash surplus of around Rs 40 crore as on December 31, 2024, will be sufficient to cover debt obligation of Rs 6 crore in fiscal 2026 and capex of Rs 25-45 crore per annum. Any incremental working capital requirement will likely be managed through customer advances, bank limits and internal resources. Furthermore, the utilisation of fund-based limits was moderate at 69% on average over the 12 months through February 2024.

Outlook: Negative

Lower-than-expected ramp-up and continued losses in battery division, along with stretch in the working capital cycle, may impact the overall credit risk profile of KEL over the medium term.

Rating sensitivity factors

Upward Factors:

• Increase in scale of operations through business diversification with sustained operating margins sustained above 11-12% and improvement in the overall net-working capital cycle.
• Sustenance of strong financial risk profile.

 

Downward Factors:

• Decline in overall revenue with operating margins falling below 7% with continued losses in battery division impacting overall cash generation
• Large, debt-funded capex or major liability arising from warranty claims or sizeable stretch in the working capital cycle, constraining the debt protection metrics or adjusted gearing on a sustained basis

About the Company

Incorporated in 1982, KEL is a part of the Kolsite group of companies. It manufactures plastic extrusion machinery and mono and multilayer blown film plants, used in industries such as pipes and packaging. Its manufacturing facilities are in Daman. During fiscal 2020, KEL also entered the EV battery packs segment, with a new manufacturing facility in Pune. The company has technological tie-ups with Battenfeld Extrusiontechnik GmbH, Germany, which is valid till 2026 and Unicor Gmbh. KEL also has a R&D division, which enables the launch of new models and upgrade of existing models.

 

For the nine months ended December 31, 2024, operating income was Rs 337 crore and profit after tax (PAT) was Rs 21 crore, against Rs 440 crore and Rs 15 crore, respectively, during the corresponding period of the previous fiscal.

Any other information: Not Applicable