| Kabra Extrusiontechnik Limited | ||||||
| Long-term rating upgraded to 'CRISIL A+/Stable'; Short-term rating 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 upgraded its rating on the long-term bank facilities of Kabra Extrusiontechnik Limited (KEL) to ‘CRISIL A+/Stable’ from ‘CRISIL A/Positive’, while reaffirming its ‘CRISIL A1’ rating on the short-term bank facilities of the entity.
The upgrade in ratings reflects improvement in business risk profile on account of ramping up of volumes witnessed in the battery business vertical resulting in increase in overall scale of operations. The strong growth momentum in the said business division is expected to sustain over the medium term on account of high order inflows backed by healthy demand for 2-wheeler electric vehicles. Furthermore, extrusion machinery business vertical is also expected to remain resilient and witness moderate growth over the medium term, driven by improvement in private capex cycle. As a result, of increase in overall scale of operations, operating profitability is also expected show healthy growth.
Revenues during fiscal 2022 increased by nearly 47% year-on-year (y-o-y), on the back of first full year of operation of the battery division vertical, while the extrusion machinery business division witnessed moderate growth of approximately 9% y-o-y.
Operating margins contracted by 130 basis points (bps) to 13.5% during fiscal 2022, on account of change in business mix with increasing proportion of business from battery division which carries lower gross margins vis-à-vis extrusion business, however, operating profit levels increased by 35% y-o-y to Rs. 55 crores.
Revenue stood at Rs 492 crore and operating profit at Rs 51 crore for the nine months through December 2022. During this period, the battery division continued its strong growth momentum, registering y-o-y growth of 475%, while extrusion machinery grew by 10%. KEL’s battery division witnessed robust growth on account of new product launches, OEM partnerships, and strong market share gains. Operating margins contracted to 10.3% for the said period from 13.5% during fiscal 2022, owing to skewness towards the battery division.
KEL expect strong order inflows for EV battery packs and plan to expand into 3-wheeler and 4-wheeler in the second half of fiscal 2024. To leverage on the market opportunity, the company had announced Rs. 100 crores capital expenditure (capex) investments announced on December 25, 2021, to enhance production capacity to approx. 2 Gwh p.a. from previous levels of 0.25 Gwh; the capacity stands at 0.50 Gwh p.a. as on December 31, 2022, with utilization levels of 70-80%. This capex is funded entirely through issuance of equity warrants of preferential basis and should get completed by the end of fiscal 2024. While the battery division is expected to witness healthy growth, any change in technology and ability of KEL to adapt towards the same (given the evolving nature of the industry) would remain monitorable. This apart, any major liability arising on account of warranty claims would also be a rating monitorable.
The financial risk profile continues to remain strong, backed by strong capital structure and healthy debt protection metrics. Capital structure marked by adjusted gearing (Gross Debt / Adjusted Networth) stands at 0.18 times as on March 31, 2022, and the said metric shall remain between 0.20-0.30 times over the medium term owing to rise in short-term working capital debt. Key debt protection metrics remain robust as indicated by interest coverage which stands at 21.45 times as on March 31, 2022, and over the medium term the same is expected to remain above ~10.0 times, thereby providing sufficient buffer to cash flows.
The ratings continue to reflect KEL’s healthy business risk profile as indicated by successful implementation and offtake in battery business division, along with resilient performance from extrusion business vertical. The ratings also factor in the strong financial risk profile and commitment of promoters. These strengths are partially offset by industry cyclicality for capital goods, customer concentration risk under battery business division, and working capital intensive operations. |
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 Improving business risk profile backed by strong value addition by battery division business vertical and established market position in the extrusion machinery business vertical: KEL battery division vertical witnessed robust growth during fiscal 2022 with continued momentum during nine months ended December 31, 2022, on the back of consistent increase in OEM partnerships within the 2-wheeler EV category resulting in market share gains, which at current stand at 15%. The company expect to further strengthen and improve upon its established market position by foraying into 3-wheeler and 4-wheeler EV category during the second half of fiscal 2024. To leverage on the market opportunities, the company plan to increase annual production capacity to 2 Gwh in fiscal 2024 from current capacity of 0.50 Gwh.
KEL has an established track record of more than three decades, in manufacturing and commissioning of plastic extrusion machinery. The company is among the largest manufacturers of plastic extrusion machinery in India, wherein it has a market share of 30-40% in the organized space. KEL also caters to the overseas market, with strong presence in African, West Asian, and South-East Asian markets. Improvement in private capex cycle over the medium term should continue to support the business.
Strong financial risk profile: The company’s reliance on long-term external sources of funds is minimal and largely relies on short-term borrowings to fund working capital requirements on account of high working capital intensity. With foray into battery division the working capital intensity has increased given the longer credit period offered to OEM’s vis-à-vis extrusion business along with increased requirement for maintaining raw material inventory (mainly cells) given its largely imported having longer lead time. KEL’s capital structure marked by adjusted gearing continues to remain robust. Adjusted gearing stands at 0.18 time as on March 31, 2022, and over the medium term the said metric is expected to remain marginally higher between 0.20-0.30 time on account of higher working capital borrowings owing to growing scale of operations. Key credit protection metrics as indicated by interest coverage stand at 21.45 times as on March 31, 2022, and the same is expected to remain above 10.0 times over the medium term, thereby providing sufficient buffer to cash flows.
Weaknesses Exposure to intense competition in the extrusion machinery segment: Domestic extrusion machinery segment is highly fragmented, characterized by presence of various small and micro players which limits pricing power. Therefore, KEL is exposed to competition from domestic players and imported extrusion machinery. Also, the segment is technology-intensive and is susceptible to the risk of technological obsolescence. However, the same is mitigated partly through 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).
Cyclicality in plastic products industry: The demand for extrusion machinery is mainly linked to the capex programmes of 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.
Customer concentration risk in the revenue profile of battery business vertical: Top-customer accounts for 42% of revenues (fiscal 2022 and 9M’FY23) and top-5 customers account for over 90% of revenues. However, going forward, increase in customer base through further OEM partnerships shall result in gradual decline in customer concentration. |
Liquidity: Strong Expected cash accruals of Rs. 45-60 crores over fiscal 2023 and 2024 along with existing cash surplus of Rs. 34 crores as on September 30, 2022, is more than sufficient to cover debt re-payment obligations of nearly Rs. 6 crores over the same period. Aggregate capex spends of Rs. 130 crores over fiscal 2023 and 2024 shall be covered through call-up of balance equity warrants and internal accruals and working capital requirements shall be covered by short-term borrowings. Furthermore, the Company has access to fund based limits of Rs. 149 crores, which has been used to the tune of 64% over the last 12 months through to January 2023. |
Outlook: Stable CRISIL Ratings believes that KEL’s credit profile shall continue to benefit from its established market position in the EV battery pack space and extrusion machinery segment, coupled with healthy operating efficiency and strong financial risk profile. |
Rating Sensitivity factors Upward factors
Downward factors
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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 into 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 Department of Scientific and Industrial Research (Government of India) approved in-house research and development division, which enables the launch of new models and upgrade of existing models.
For the nine months ended December 31, 2022, operating income was Rs 492 crore and Profit after tax (PAT) was Rs. 26 crore, against Rs. 244 crore and Rs. 19 crore, respectively, during corresponding period of previous fiscal. |
Key Financial Indicators: (CRISIL Ratings adjusted)
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Interchangeable with WCDL up to Rs. 35 crores; Interchangeable with Cash Credit up to Rs. 15 crores; Interchangeable with EPC / |
| 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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PCFC I up to Rs. 35 crores; Interchangeable with FBN / FBD / FBP / PSFC up to Rs. 35 crores; Interchangeable with EPC / PCFC II up to Rs. 10 crores
**Interchangeable with sales bill discounting up to Rs. 20 crores; Interchangeable with purchase bill discounting up to Rs. 20 crores; Interchangeable with SBLC up to Rs. 20 crores; Interchangeable with Bank Guarantee up to Rs. 20 crores; Interchangeable with preshipment finance up to Rs. 20 crores; Interchangeable with post-shipment finance up to Rs. 20 crores; Interchangeable with sales invoice financing up to Rs. 10 crores; Interchangeable with Working Capital Demand Loan and Cash Credit up to Rs. 25 crores
^Interchangeable up to Rs 7.5 crore with export packing credit, packing credit in foreign currency, export bill discounting/rediscounting.
***Interchangeable with Working Capital Demand Loan up to Rs. 40 Crores, Overdraft up to Rs. 2 Crores and Export Bill Discounting up to Rs. 20 Crores
Criteria Details
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