| Malu Paper Mills Limited | ||||||
| Ratings Reaffirmed and Withdrawn | ||||||
| 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 reaffirmed its ratings to the bank facilities of Malu Paper Mills Limited (MPML). Also, subsequently withdrawn the rating at the company’s request and on a receipt of a ‘No-objection Certificate’ from the bankers. The withdrawal is in line with CRISIL Ratings’ policy on withdrawal of bank loan ratings.
The ratings continue to reflects the extensive experience of the promoters in the paper industry and expectation of funding support from the promoters and group companies. These strengths are partially offset by the company's susceptibility to fluctuations in raw material prices and working capital intensive nature of operations. |
Analytical Approach Unsecured loans and inter-corporate deposits of Rs 65.94 crores as on March 31st 2022, extended to MPML by the promoters and group companies, have been treated as 75% equity and 25% debt, as loans are subordinated to all forms of bank borrowings, interest on same is ploughed back into the company and are expected to be retained in the business over the medium term. |
Key Rating Drivers & Detailed Description Strengths: Extensive experience of the promoters: MPML benefits from the two-decade long experience of the promoters and their understanding of dynamics of the market and their long-standing relationships with customers and suppliers.
Funding support from the promoters and group companies: Reduced debt levels and healthy financials risk profile of the company is emanating from the continuous support of promoters and group companies in the form of unsecured loans and inter-corporate deposits. This support is expected to continue in the case of an exigencies. Support is derived from decades of experience of the group in various industries. Unsecured loans from the promoters stood at around Rs 78 Cr as on March 23, 2023.
Weaknesses: Susceptibility to fluctuations in raw material prices: Cyclical downturns and adverse variability in the demand supply balance, and cyclical price of the major raw material wastepaper required by the company, results in volatile operating performance of the company. Operating margins of the company have remained volatile up to 5.53% along with operating loss in the last three quarters ended Q3 FY 23 due to volatility of raw material and finished goods prices.
Working capital intensive nature of operations: Although on an improving trend, the operations of the company are working capital intensive as evidenced by gross current assets (GCA) days of around 128 days in as on March 31, 2022, mainly due to higher inventory days of around 74 days which were around 54 days as on September 30,2022. Overall GCA days are expected to remain in the same range over medium term. |
Liquidity: Stretched Company incurred net cash losses in fiscal 2022 and fiscal 2021 and is likely to incur cash losses in current fiscal against repayment obligation of around Rs 1-1.8 crore, constraining liquidity. Bank limit utilization is high at around 93 percent for the past twelve months ended October 2022. Current ratio is below average at around 1 time on March 31, 2022. Cash and cash equivalents balance as on March 31,2022 was low at Rs 0.04 Cr. There is track record of timely support from the promoter in the past and timely fund infusion is likely to continue, in case of exigencies, to meet its working capital requirements and repayment obligations, supporting liquidity profile |
Outlook: Stable CRISIL Ratings believes MPML will benefit from the promoters’ extensive experience and established relationship with customers and suppliers. |
Rating Sensitivity factors Upward Factors * Significant increase in scale of operations and operating margin leading to net cash accruals sustaining above Rs 3 crores * Improvement in working capital cycle
Downward Factors * Sustained decline in revenue (10-15% per annum over the medium term) and operating margin resulting in higher cash losses * Higher-than-expected debt-funded capital expenditure or acquisitions or stretch in working capital cycle weakens key credit metrics. |
About the Company MPML, part of the Malu group, was incorporated in January 1994 as Malu Solvex Ltd. The name was changed with effect from April 24, 1998. The company manufactures kraft paper, newsprint and writing and printing paper at its plants in Saoner Taluka, Maharashtra. |
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)
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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 30-Mar-23 in line with the lender-wise facility details as on 07-Feb-23 received from the rated entity.
Criteria Details
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