| Manugraph India Limited | ||||||
| Ratings downgraded to 'CRISIL B / Negative / CRISIL A4 ' | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has downgraded its ratings on the bank facilities and commercial paper programme of Manugraph India Ltd (Manugraph) to ‘CRISIL B/Negative/CRISIL A4’ from ‘CRISIL BB-/Negative/CRISIL A4+’.
The downgrade reflects significant decline in the financial performance of the company in the first nine months of fiscal 2021 as operations were disrupted for almost five months owing to the lockdown imposed to contain Covid-19. Continued low capital expenditure (capex) demand and absence of new orders impacted the performance, reflected in revenue of Rs 14 crore during the first nine months of fiscal 2021, compared with Rs 87 crore for the corresponding period of the previous fiscal. Post closure of one of the manufacturing units, the company reduced its employee count from 702 in March 2020 to 350-400 in March 2021. The company had an outgo of Rs 11.5 crore towards the separated employees in the nine months ended Dec 2020. While reduction in employees is expected to curtail fixed cost and benefit the company going forward, the severance package awarded to the separated employees resulted in higher loss. The loss was funded through debt, which increased to Rs 18.5 crore as on March 31, 2021, from Rs 9 crore as on March 31, 2020. Scaling up of operations and improvement in profitability amid the slowdown in the newsprint industry will be key monitorables.
The ratings reflect the company’s susceptibility to cyclicality inherent in the end-user industry, weak capital structure and poor liquidity. These weaknesses are partially offset by its established position in the printing machinery industry in India. |
Analytical Approach CRISIL Ratings has taken a consolidated view of Manugraph and its wholly owned subsidiary, Manugraph Americas, Inc.
Please refer Annexure - Details of Consolidation, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Weaknesses
Demand for newspaper printing machinery is linked to the capex plans of print media houses and macroeconomic scenario. The newspaper industry is moving from the traditional print format to the more user friendly digital format. As a result, demand for newsprint is expected to remain low owing to decline in the circulation of newspapers and preference for digitised content. The situation has been further accentuated by the Covid-19 pandemic, significantly impacting revenue and profitability and resulting in the erosion of networth despite the management’s efforts to control cost, such as reduction in employee base. Scaling up of operations and improvement in profitability will remain key monitorables.
The company diversified into the plastic packaging industry in March 2018 to counter volatility in performance. Although the company receives inquiries, only a few have converted to work orders. The company has also started manufacturing components used in the engineering industry by taking orders from vendors as company already has capacity to manufacture such components. The performance is expected to remain subdued over the medium term because of stable low demand and absence of new orders.
The company does not have any long-term debt, and only depends on working capital loans. Cash credit increased to Rs 18.5 crore as on March 31, 2021, from Rs 9 crore as on March 31, 2020. Gearing was 0.49 time as on December 31, 2020, driven by high debt and networth of Rs 49 crore.
Strength
The company has been operating in the domestic single- and double-width web offset printing machine segment for 50 years. It uses superior technology, acquired through tie-ups with leading European printing machine manufacturers, such as VEB Polygraph and Manroland AG. It also has a strong research and development (R&D) team, which has facilitated the creation of new products such as the Smartline 4X1 machine (double-width) for high-end applications, and M360 Bookline press and folder for low-end applications, resulting in a large product portfolio. |
Liquidity: Poor Liquidity was constrained by negative cash accrual in the past three fiscals. Unencumbered cash and equivalent reduced to Rs 12 crore as on March 31, 2021, from Rs 24 crore as on March 31, 2020. Fund-based limit also reduced to Rs 23 crore in March 2021 from Rs 45 crore in March 2020. Increase in borrowing and lower sanction lines has resulted in increase in utilisation from 31% in April 2020 to 80% in March 2021. |
Outlook: Negative CRISIL Ratings believes Manugraph’s business risk profile will remain constrained over the medium term in the absence of work orders because of subdued demand and weakening liquidity. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company Incorporated in 1971 and promoted by Mr Sanat Shah, Manugraph manufactures single- and double-width web offset printing machines. It is the market leader in India and has an established presence overseas. The manufacturing facility is in Kolhapur, Maharashtra. The company has been recognised as an R&D house by the Department of Scientific and Industrial Research. Its strong R&D capability has facilitated the development of products such as the Smartline 4X1 machine (double-width) with a speed of 70,000 copies per hour (cph), Dreamline 4X1 machine (double-width) with a speed of 50,000 cph, and Ecoline 2X1 machine (single width) with a speed of 25,000 cph.
In fiscal 2018, the company entered the plastic packing industry by manufacturing flexo-machines, used for printing food packaging. It has partnered with Carraro Srl, Italy, and delivered its first order in March 2018.
Revenue and net loss were Rs 14 crore and Rs 27 crore, respectively, in the first nine months of fiscal 2021, as against Rs 86 crore and Rs 21 crore, respectively, in the corresponding period of the previous fiscal. |
Key Financial Indicators
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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)
**Cash credit facility is completely fungible with letter of credit and bank guarantee |
Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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