Rating Rationale
September 29, 2020 | Mumbai
Kabra Extrusiontechnik Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.54 Crore
Long Term Rating CRISIL A/Stable (Reaffirmed)
Short Term Rating CRISIL A1 (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL A/Stable/CRISIL A1' ratings on the bank facilities of Kabra Extrusiontechnik Limited (KEL).
 
During fiscal 2020, operating income declined by 10.2% fiscal-on-fiscal, due to subdued economic activity and lower execution of capex plans by major plastic pipe manufacturers during the fourth quarter of fiscal 2020, owing to disruptions caused by the Covid-19 pandemic. However, operating performance witnessed improvement during the first quarter of fiscal 2021 vis-a-vis corresponding period of the previous fiscal, despite the prolonged nationwide lockdown during the period. Company reported EBITDA (earnings before interest, tax, depreciation and amortization) of Rs 3 crore against operating loss reported during corresponding period of previous fiscal, led by cost-cutting measures resulting in lower fixed overheads costs.
 
Moreover, KEL has completed its major capex programme pertaining to manufacturing plant for lithium-ion battery packs for electric vehicles (EVs); with production being commenced during March 2020. Timely stabilization of operations in the segment, with growing scale and profitability will remain a key monitorable.
 
Despite the pandemic-led economic disruptions, KEL's business risk profile should sustain driven by established positon in the plastic extrusion machinery industry and healthy order book of more than Rs 125 crore as on August 31, 2020. Moreover, liquidity remains adequately supported by unencumbered cash equivalents/liquid investments of Rs 35 crore as on August 31, 2020.
 
The ratings continue to reflect KEL's established market position and strong financial risk profile. These strengths are partially offset by modest scale of operations, exposure to intense competition, and susceptibility to cyclicality in the plastic products industry.

Analytical Approach

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

Key Rating Drivers & Detailed Description
Strengths
* Established market position: 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, particularly in the pipes extrusion machinery market, wherein it has a market share of 25-30%. KEL also caters to the overseas market, with strong presence in African, West Asian, and South East Asian markets.
 
Favourable industry scenario, with higher investments envisaged in domestic irrigation, water supply and sanitation segments over the medium term backed by various government initiatives, should continue to support the business.
 
* Completion of major capex in the EV battery packs segment: KEL completed its major capex pertaining to the manufacturing plant for lithium-ion battery packs for EVs; the production commenced in March 2020. Against initial estimated capex of Rs 65 crore, the company incurred total capex of around Rs 50 crore over fiscals 2019 and 2020, with Rs 5-10 crore to be incurred in fiscal 2021. Though the pandemic-led lockdown resulted in disruption of production during the first quarter of fiscal 2021, gradual ramp-up of production and growing revenue contribution from the segment is expected from fiscal 2022 onwards.
 
Timely stabilisation of operations in the segment, with growing scale and profitability will remain a key monitorable.
 
* Strong financial risk profile: The financial risk profile remains healthy, backed by low debt and moderate networth Overall gearing remains comfortable at 0.12 time as on March 31, 2020, led by low working capital debt along with lower-than-envisaged debt availed for the major capex programme. Debt protection metrics were also robust, with interest coverage ratio of 10.62 times (11.09 times in the previous fiscal).
 
The financial risk profile should remain healthy over the medium term, backed by increasing cash accrual, adequate liquidity and absence of any large capex plans.
 
Weaknesses
* Exposure to intense competition: Domestic extrusion machinery segment is highly fragmented, characterised 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.
Liquidity Adequate

Liquidity remains adequate with cash equivalents/liquid investments of around Rs 35 crore as on August 31, 2020. Further, fund-based bank limit utilisation averaged 54% over the four months through July 2020, thereby providing additional liquidity in the form of unutilised bank limits. Available liquidity and expected annual cash accrual of Rs 15-25 crore in fiscals 2021 and 2022, should suffice to cover the debt obligation and moderate capex plan.

Outlook: Stable

KEL should continue to benefit from its established market position in the plastic extrusion machinery segment, while the financial risk profile should remain comfortable supported by adequate liquidity.
 
Rating sensitivity factors
Upward factors
* Strong revenue growth in the plastic extrusion segment along with significant scale up of operations in the EV battery packs business on a sustainable basis
* Sustained improvement in the operating margin above 11%, leading to higher cash accrual
 
Downward factors
* Delay in stabilisation of operations in the EV battery packs business, leading to lower-than-expected revenue contribution in fiscals 2021 and 2022
* Operating margin sustaining below 8%
* Any large, debt-funded capex

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 three months ended June 30, 2020, operating income was Rs 37 crore and net loss was Rs 0.2 crore, against Rs 35 crore and Rs 6 crore, respectively, during corresponding period of previous fiscal.

Key Financial Indicators
As on / for the period ended March 31 Unit 2020 2019
Operating income Rs crore 219 245
Profit after tax (PAT) Rs crore 7 24
PAT margin % 3.4 10.0
Adjusted debt/adjusted networth Times 0.12 0.04
Adjusted interest coverage Times 10.62 11.09

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
Annexure - Details of Instrument(s)
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue
(Rs Cr)		 Complexity level Rating outstanding with Outlook
NA Cash credit @ NA NA NA 9 NA CRISIL A/Stable
NA Cash credit @@ NA NA NA 20 NA CRISIL A/Stable
NA Working Capital Facility @@@ NA NA NA 20 NA CRISIL A/Stable
NA Letter of credit NA NA NA 1 NA CRISIL A1
NA Bank Guarantee NA NA NA 3 NA CRISIL A1
NA Proposed Long Term Bank Loan Facility NA NA NA 1 NA CRISIL A/Stable
@Interchangeable up to Rs 7.5 crore with export packing credit, packing credit in foreign currency, export bill discounting/rediscounting.
@@Fully interchangeable with working capital demand loan, export packing credit, standby letter of credit, letter of credit and Interchangeable up to Rs 5 crore with bank guarantee.
@@@Fully interchangeable with working capital demand loan; Interchangeable up to Rs 10 crore with cash credit, letter of credit, buyer's credit; Interchangeable up to Rs 10 crore with export packing credit, foreign bills purchase/discounting/negotiation, post-shipment credit in foreign currency; and Interchangeable up to Rs 5 crore with bank guarantee, standby letter of credit.
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  50.00  CRISIL A/Stable      19-06-19  CRISIL A/Stable  23-02-18  CRISIL A+/Stable  18-05-17  CRISIL AA-/Negative  CRISIL AA-/Negative 
            10-01-19  CRISIL A+/Negative           
            08-01-19  CRISIL A+/Negative           
Non Fund-based Bank Facilities  LT/ST  4.00  CRISIL A1      19-06-19  CRISIL A1  23-02-18  CRISIL A1+  18-05-17  CRISIL A1+  CRISIL A1+ 
            10-01-19  CRISIL A1           
            08-01-19  CRISIL A1           
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee 3 CRISIL A1 Bank Guarantee 3 CRISIL A1
Cash Credit@ 9 CRISIL A/Stable Cash Credit* 9 CRISIL A/Stable
Cash Credit@@ 20 CRISIL A/Stable Cash Credit** 40 CRISIL A/Stable
Letter of Credit 1 CRISIL A1 Letter of Credit 1 CRISIL A1
Proposed Long Term Bank Loan Facility 1 CRISIL A/Stable Proposed Long Term Bank Loan Facility 1 CRISIL A/Stable
Working Capital Facility@@@ 20 CRISIL A/Stable -- 0 --
Total 54 -- Total 54 --
@Interchangeable up to Rs 7.5 crore with export packing credit, packing credit in foreign currency, export bill discounting/rediscounting.
@@Fully interchangeable with working capital demand loan, export packing credit, standby letter of credit, letter of credit and Interchangeable up to Rs 5 crore with bank guarantee.
@@@Fully interchangeable with working capital demand loan; Interchangeable up to Rs 10 crore with cash credit, letter of credit, buyer's credit; Interchangeable up to Rs 10 crore with export packing credit, foreign bills purchase/discounting/negotiation, post-shipment credit in foreign currency; and Interchangeable up to Rs 5 crore with bank guarantee, standby letter of credit.
 
*Interchangeable up to Rs 7.5 crore with export packing credit, fully interchangeable with bill discounting, interchangeable up to Rs 7.5 crore with export bill discounting/negotiation.
**Fully interchangeable with packing credit, working capital demand loan, foreign bills purchase/discounting/negotiation, post-shipment credit in foreign currency, buyer's credit, and letter of credit (Rs 30 crore); interchangeable up to Rs 10 crore with bank guarantee
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
CRISILs Criteria for rating short term debt

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