| MMP Industries Limited | ||||||
| Ratings removed from 'Watch Developing'; Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has removed its ratings on the bank loan facilities of MMP Industries Limited (MMP) from 'Rating Watch with Developing Implications' and has reaffirmed its ratings at ‘CRISIL BBB+/CRISIL A2’ while assigning a 'Stable' outlook to the long-term rating.
The ratings had been placed on rating watch with developing implications on Dec 28, 2021, following an announcement of a fire incident at the company’s plant in Umred. As per the announcement, a fire had broken out at the rolling mill section of the company’s foil plant at Umred at night on Dec 16, 2021. As per the corporate announcement, there were no injuries or fatalities and the fire was brought under control quickly. However, clarity regarding the quantum of loss (including inventory loss, if any), amount covered under insurance claim, tentative timelines by when the plant would be able to resume operations and accordingly, estimated production/ revenue loss, were not available and awaited. Hence, the ratings were placed on watch developing.
CRISIL Ratings has now resolved the watch after receiving clarity from the management on the outcome of the fire incident. The actual quantum of loss/damage caused to plant and equipment due to fire accident was around Rs 0.30 crore. The plant was shut down for around 10 days for repairs, etc. All the plant and equipment damaged during the fire accident are covered under insurance and accordingly company has submitted its claim with the insurer for the same. The insurance money is around Rs 0.25-0.27 crore and is expected to be received in 1-2 months. Hence, there is no impact expected on the company's business and financial risk profiles.
The ratings reflect an established position in the aluminium powder products industry and established clientele, aided by the extensive experience of the promoters. The ratings also factor in a healthy financial risk profile. These strengths are partially offset by vulnerability to volatility in raw material prices and working capital-intensive operations. |
Key Rating Drivers & Detailed Description Strengths: * Extensive experience of the promoters: The promoters have been in the aluminium powder industry for more than 30 years. Mr Arun Bhandari, the main promoter, is a chemical engineer and has worked in the industry in various roles, gaining significant technical expertise and capability. Over the years, the promoters have updated technology through continuous research and development and leveraged this to build a strong clientele. Despite the de-growth in volumetric sales due to Covid-19 induced lockdown restriction, company reported an operating income of Rs 230.73 crore with operating margin of 11.4% in fiscal 2021 with the performance being supported by higher realization on account of rising aluminium prices. During 9M FY22, company has achieved revenue of Rs 294.85 crore (as against Rs 153.4 crore during 9M FY21) and this is driven by significantly higher realization as well as improved demand on the back of offtake from aluminium foil plant and steady demand for other products in portfolio. The volumetric growth is expected to continue in the near-to-medium term as well and would be supported by continued offtake from Aluminium foil along with increased demand for other products.
* Healthy financial risk profile: The financial risk profile is supported by a healthy networth of Rs 194.22 crore and a low gearing of 0.21 time as on March 31, 2021. Networth and gearing are expected to be around Rs 213-214 crore and around 0.25 time as on March 31, 2022. Debt protection metrics were healthy, as indicated by interest coverage and net cash accrual to total debt ratios of 15.9 times and 0.50 time, respectively, for fiscal 2021. Interest coverage and net cash accrual to total debt ratios are expected to be around 11.5 times and around 0.5 time, respectively for fiscal 2022.
Weaknesses: * Vulnerability to volatility in raw material prices: Prices of raw materials such as aluminium ingots and foils, the cost of which accounts for 70-75% of sales, are volatile and governed by demand-supply dynamics. The company may be able to pass on increase in input prices albeit with a time lag, leading to volatility in operating margin.
* Working capital-intensive operations: Gross current asset (GCA) days were 153 days as on March 31, 2021, driven by receivables of 73 days and inventory of 89 days. These are adequately supported by working capital debt and creditors (which stood at 21 days as on March 31, 2021). GCA days are expected to be around 130-140 days over the medium term. |
Liquidity: Adequate MMP is expected to generate net cash accruals of around Rs 24-29 crore per year in fiscal 2022 and fiscal 2023 against nil repayments. Post this, it is expected to generate net cash accruals of around Rs 34 crore against minimal repayments of around Rs 3 crore in fiscal 2024. The fund-based bank limits have been utilized at an average of 61% over the 12 months ended Dec-21. The non-fund-based limits have been utilized at an average of 62% over the 12 months ended Dec-21. Cash and cash equivalents stood at Rs 5.21 crore as on March 31, 2021. Current ratio was 1.75 times as on March 31, 2021 and expected to be around 1.76 times as on March 31, 2022. Dividend payout is expected to be around 10% of equity share capital going ahead. |
Outlook: Stable CRISIL Ratings believes MMP’s business risk profile will continue to benefit from its established industry presence and the extensive experience of the promoters. |
Rating Sensitivity Factors Upward Factors:
Downward Factors:
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About the Company Incorporated in 1984 and based in Nagpur, Maharashtra, MMP is promoted by Mr Arun Bhandari and his father-in-law, Mr P M Lodha. The company manufactures aluminium-based products such as pyro and flake aluminium powder, atomised aluminium powder, aluminium paste, and aluminium conductors. |
Key Financial Indicators
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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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
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| 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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This Annexure has been updated on 24-Feb-2022 in line with the lender-wise facility details as on 05-Aug-2021 received from the rated entity.
Criteria Details
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