| Kokuyo Camlin 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 Kokuyo Camlin Limited (KCL) to ‘CRISIL A+/Stable’ from 'CRISIL A/Stable’. The rating on the short-term bank facilities has been reaffirmed at 'CRISIL A1'.
The rating upgrade reflects the sustained improvement in the credit risk profile of the company, driven by its improved business risk profile. The improvement in the business risk profile is driven by the company’s established market position in the stationery and artistic products segment, strong brand, diversified product mix and established dealer-distributor network. The company registered 26% compound annual growth rate (CAGR) over the last three years with revenue at Rs 816 crore in fiscal 2024, significantly outpacing the stable revenues pre-Covid. Operating margin increased by over 244 basis points to 9.46% in fiscal 2024 as compared to the corresponding period of the previous fiscal, aided by cost rationalisation steps undertaken by the company, along with stabilisation of key raw material prices. The operating margin is expected to remain range-bound at 9-10% over the medium term.
Improved profitability has led to healthy cash accrual, resulting in accumulation of funds. The company is currently debt-free (after prepayment of term debt obligation in fiscal 2023) and uses cash accrual to fund its working capital requirement. The financial risk profile has become stronger, as indicated by healthy gearing of ~0.2 time and above-average interest coverage ratio over 18 times.
The ratings continue to reflect the established brand of the company in the stationery industry in India, its improving profitability and a healthy financial risk profile. The ratings also factor in significant benefits derived from the business and financial linkages with the parent, Kokuyo & Co Ltd, Japan (Kokuyo). These strengths are partially offset by susceptibility to intense competition and volatility in input prices, leading to pressure on profitability. |
Analytical Approach The ratings of KCL factor in support expected from its parent, Kokuyo. CRISIL Ratings believes KCL will, in case of exigency, receive distress support from the parent considering Kokuyo’s holding of 74.44%, as well as operational, technical and need-based financial support. |
Key Rating Drivers & Detailed Description Strengths: Strong operational and financial support from the parentKokuyo is a leading player in office stationery and furniture products industry in Japan, particularly in notebooks, office supplies and office furniture. Technical collaboration for new product development with the parent has widened the product offerings of KCL. Strong financial support from the parent is reflected in the rights issue of Rs 103 crore in fiscal 2014, primarily for expansion. Additionally, the extensive industry experience of the parent an established player in the stationery and office furniture market in Japan, to aid the growth of KCL over the medium term.
Strong brand in the stationery segmentKCL has strong brands such as Camel and Camlin and more than 77 years of experience in the industry. The company has a diversified portfolio of over 2,000 products and pan-India presence. The Kokuyo group sells a wide variety of stationary products such as pencils, geometry boxes and scholastic colours. Its strong distribution network with more than 300,000 retail outlets and over 2,500 stock keeping units aid sales growth. It has leading market position across its core product segments.
Improving scale of operations while sustaining healthy operating marginDespite intense competition, KCL registered CAGR of 26% over the last three years with revenue at Rs 816 crore in fiscal 2024 and significantly outpacing rangebound revenues precovid. company has been able to improve its EBITDA margins in fiscal 2024 (and fiscal 2023) which further stood higher YoY during the first quarter of fiscal 2025. With KCL focusing on cost rationalisation measures and additionally looking at further strengthening its export segment, revenue is expected to grow over the medium term.
Healthy financial risk profileNetworth was healthy at Rs 294 crore as on March 31, 2024. Gearing is expected to sustain around 0.2 time over the medium term in the absence of large, debt-funded capital expenditure (capex). Sustenance of profitability and return on capital employed will remain key monitorable.
Weaknesses: Susceptibility of operating margin to fluctuations in raw material prices In the stationery industry, cost of production and profit margin depend heavily on raw material prices, which account for a major portion of the production cost. Prices of key materials, such as plastic, paper and pigments, have been volatile in the past few years and KCL is susceptible to fluctuations in these prices. However, on account of prudent management, operational efficiencies and ability to partly pass on the prices to customers, the operating margin improved to ~9.5% in fiscal 2024 from ~7% in fiscal 2023.
Exposure to intense competition The domestic stationery industry is highly fragmented with many unorganised players at the lower end of product segments, such as pens, pencils and adhesives. While brands in the stationery domain are limited, the company faces intense competition from cheap, non-branded variants, and Chinese stationery. |
Liquidity: Adequate Liquidity expected to be adequate over the medium term supported by projected cash accrual of Rs 55-70 crore. Fund-based limit of Rs 167 crore was utilised ~19% on average over the last 12 months. With nil term debt obligation and expected capex of Rs 40 crore in fiscal 2025, along with sufficient cash accrual, KCL is unlikely to raise debt. Moreover, the parent will continue to provide ongoing and need-based support in case of exigencies. |
Outlook: Stable CRISIL Ratings believes KCL will continue to benefit from its established market position and distribution network while maintaining comfortable financial risk profile over the medium term. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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About the Company KCL was set up in 1931 as Dandekar & Company by Mr Digambar Dandekar and Mr Govind Dandekar. The firm was reconstituted as a public limited company in 1946 and was listed in 1988. KCL is one of India’s leading stationery and art products company. The company designs, develops and manufactures a variety of stationery products at its plants in Tarapur and Patalganga in Maharashtra, and Samba in Jammu. After rights issue in fiscal 2014, Kokuyo’s stake went up to 70.66% from 50.74%. Currently, Kokuyo holds 74.44% stake in the company. |
Key Financial Indicators
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Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Fully interchangeable with vendor bill discounting |
| 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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**Fully interchangeable with overdraft
***Fully interchangeable with overdraft and vendor bill discounting