Rating Rationale
August 19, 2024 | Mumbai
Kaira Can Company Limited
Ratings downgraded to 'CRISIL BBB+/Stable/CRISIL A2'
 
Rating Action
Total Bank Loan Facilities RatedRs.51.5 Crore
Long Term RatingCRISIL BBB+/Stable (Downgraded from 'CRISIL A-/Negative')
Short Term RatingCRISIL A2 (Downgraded from 'CRISIL A2+')
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 downgraded its ratings on the bank loan facilities of Kaira Can Company Limited (KCCL) to ‘CRISIL BBB+/Stable/CRISIL A2’ from ‘CRISIL A-/Negative/CRISIL A2+’.

 

The downgrade in ratings reflects moderation in the business risk profile of the company. The scale has operations has declined in fiscal 2024 to Rs 225 crores compared to 253 crores for fiscal 2023. The decline is majorly on account of lower volume sales and fall in realizations with moderation in the demand. term. The company’s operating margin continues to remain low at around 3% during fiscal 2024 and 3.23% during Q1 of fiscal 2025. Consequently, net cash accruals has remained low at around Rs 5.7 crore in fiscal 2024. While the demand is expected to improve, better operating performance resulting in higher accruals will remain monitorable over the medium.

 

The financial risk profile of the company has remained strong on account of lower reliance on external debt. The company’s financial risk profile is expected to remain strong despite capex plans which will be funded through internal accruals and available free liquidity but will remain monitorable over the medium term.

 

The ratings continue to reflect KCCL's established market position in the tin can industry, its strong association with Gujarat Co-operative Milk Marketing Federation Ltd (GCMMF; rated 'CRISIL AAA/Stable'), and healthy financial risk profile. These strengths are partially offset by moderate scale of operations, and susceptibility of operating performance to volatility in input prices.

Key Rating Drivers & Detailed Description

Strengths:

  • Established market position in the tin can manufacturing industry: KCCL has established its market position over the past five decades as one of India’s largest tin can manufacturers. The company has diversified products which include open-top sanitary, general-line, and aerosol cans and rolled sugar cones. The company also has reputed clientele base which includes reputed players in the dairy, food processing and FMCG segment.

 

  • Long standing association with GCMMF: Sales to GCMMF, the largest food products marketing organisation in India, account for 85-90% of KCCL’s revenue. KCCL has been supplying tin cans to GCMMF since inception and meets around 95-97% of its ‘can’ requirement. The proximity of the company’s manufacturing operations to GCMMF also provides added advantage to the company.

 

  • Healthy financial risk profile: Financial risk profile is supported by moderate networth and low total outside liabilities to adjusted networth ratio of Rs.83.8 crore and 0.35 time, respectively, as on March 31, 2024. The company was debt free as on March 31, 2024 and likely to remain so over the medium term. Capital expenditure of Rs.18-20 crore is expected to be funded by internal accrual and available cash balances. Debt protection is expected to remain strong in the absence of external debt.

 

Weaknesses:

  • Moderate scale of operations: Revenue of Rs 225 crore in fiscal 2024, reflects the moderate scale of operations, which curtails benefits from economies of scale and bargaining power with customers and suppliers. The sales in fiscal 2024 were impacted on account of subdued demand from the end user industry. While it is expected to improve going forward but will remain monitorable over the medium term.

 

  • Exposure to volatility in input prices: Price of tin plate, the key raw material, tends to be volatile. Absence of long-term supply contracts further increases vulnerability to sharp price fluctuations. The company is also exposed to volatility in forex rates, as 45-50% of raw material used to be imported, while sales are largely rupee denominated. However, since April 2021, the Company had not been able to import tinplate because of the BIS certification norms implemented by Government of India in July 2021.

Liquidity: Adequate

Liquidity is adequate marked by net cash accruals of over Rs 5.7 crore against nil repayment obligations for fiscal 2024. Net cash accruals are expected to be over Rs 9 crore over medium term. Bank limit utilization is almost unutilized, and utilization was around 0% for 12 months ending March 2024. Bank limit utilization have been nil for the last 2-3 fiscal years. Comfortable current ratio of 2.70 times as on March 31,2024. The company presently has cash and cash equivalents of Rs.15 Crores out of which Rs 9 crores are unencumbered which will be used in capex.

Outlook: Stable

CRISIL Ratings believes KCCL will continue to benefit from its established customer relationships and healthy financial risk profile

Rating Sensitivity factors

Upward factors:

  • Significant growth in revenue, and sustained improvement in operating margin over 8% strengthens net cash accrual
  • Improvement in working capital cycle, especially inventory cycle and sustained capital structure and debt protection metrics

 

Downward factors:

  • Sharp decline in revenues or operating margin remaining below 3% weakens net cash accruals.
  • Large working capital requirement or larger-than-expected, debt-funded capital expenditure or acquisition or more than expected dividend payout, weakens the financial risk profile, particularly liquidity.

About the Company

KCCL, incorporated in 1962, manufactures metal tin cans and sugar cones. It has one manufacturing unit for cans at Kanjari, and one for sugar cones in Vitthal Udyog Nagar, in Gujarat. The company is promoted by the Kapadia family, and its operations are managed by professionals. It is listed on the Bombay Stock Exchange.

Key Financial Indicators

As on/for the period ended March 31

Unit 

2024

2023

Operating income

Rs.Crore

223.8

253.8

Reported profit after tax

Rs.Crore

3.77

8.04

PAT margins

%

1.68

3.17

Adjusted Debt/Adjusted Networth

Times

0

0

Interest coverage

Times

53.83

82.02

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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name of Instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs.Cr) Complexity Levels Rating Assigned with Outlook
NA Cash Credit NA NA NA 3 NA CRISIL BBB+/Stable
NA Letter of Credit NA NA NA 3 NA CRISIL A2
NA Proposed Working Capital Facility NA NA NA 13.5 NA CRISIL BBB+/Stable
NA Working Capital Facility NA NA NA 15 NA CRISIL BBB+/Stable
NA Working Capital Facility NA NA NA 17 NA CRISIL BBB+/Stable
Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 48.5 CRISIL BBB+/Stable   -- 29-12-23 CRISIL A-/Negative   -- 30-12-21 CRISIL A-/Stable CRISIL A2+ / CRISIL A-/Stable
      --   -- 02-01-23 CRISIL A-/Stable   --   -- --
Non-Fund Based Facilities ST 3.0 CRISIL A2   -- 29-12-23 CRISIL A2+   -- 30-12-21 CRISIL A2+ CRISIL A2+
      --   -- 02-01-23 CRISIL A2+   --   -- --
Fixed Deposits LT   --   --   --   --   -- Withdrawn
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 3 ICICI Bank Limited CRISIL BBB+/Stable
Letter of Credit 3 ICICI Bank Limited CRISIL A2
Proposed Working Capital Facility 13.5 Not Applicable CRISIL BBB+/Stable
Working Capital Facility 15 DBS Bank India Limited CRISIL BBB+/Stable
Working Capital Facility 17 Bank of Baroda CRISIL BBB+/Stable
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Fast Moving Consumer Goods Industry
CRISILs Criteria for rating short term debt
Understanding CRISILs Ratings and Rating Scales

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