Rating Rationale
December 28, 2020 | Mumbai
Manugraph India Limited
Long-term rating downgraded to 'CRISIL BB-/Negative'; short-term rating reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.118 Crore (Reduced from Rs.131.5 Crore)
Long Term Rating CRISIL BB-/Negative (Downgraded from 'CRISIL BB+/Negative')
Short Term Rating CRISIL A4+ (Reaffirmed)
 
Rs.10 Crore Commercial Paper CRISIL A4+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has downgraded its rating on the long-term bank facilities of Manugraph India Limited (Manugraph) to 'CRISIL BB-/Negative' from 'CRISIL BB+/Negative' and reaffirmed its rating on the short-term bank facilities and commercial paper programme at 'CRISIL A4+'.

CRISIL has withdrawn its rating on the proposed fund-based bank facility of Rs.13.5 crore at the company's request as the facility was not availed. The rating action is in-line with CRISIL's policy on withdrawal of ratings on bank loan facilities.  

The downgrade reflects deterioration in the credit profile of Manugraph as reflected in the significant weakening in its performance in the first half of fiscal 2021 as the operations was disrupted for almost five months due to the lockdown imposed to contain Covid-19. Further, continued low demand and absence of new work orders also impacted the performance. Operating losses have been incurred as revenue dropped significantly to Rs 8 crore during the first half of fiscal 2021 as compared to Rs 57 crore for the corresponding period of the previous fiscal. By shutting down one of its factories, Manugraph's employee base as on September 30, 2020 has reduced to two-third of its employee base as on March 31, 2020. While this is expected to curtail the fixed cost and benefit the company going forward, the severance package awarded to separated employees has resulted in higher losses. The loss has been largely funded through debt, which increased to Rs 25 crore as on September 30, 2020 from Rs 9 crore as on March 31, 2020. Scaling up of operations and improvement in profitability amidst the slowdown in the newsprint industry will remain key rating sensitivity factors.

The ratings continue to reflect the company's established presence in the domestic printing machinery industry, moderate capital structure and liquidity. These strengths are offset by susceptibility to cyclicality inherent in the end-user industry, weak debt protection metrics and large inventory requirement.

Analytical Approach

CRISIL has taken a consolidated view of Manugraph and its wholly-owned subsidiary, Manugraph Americas Inc.

Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description
Strengths 
* Established presence in the domestic printing machinery industry
The company has an established presence of around 50 years in the domestic single/double-width web offset printing machine segment. It uses superior technology, acquired through tie-ups in the past with leading European printing machine manufacturers such as VEB Polygraph and Manroland. Moreover, it has its own 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. This has resulted in a large product portfolio catering to an established clientele.
 
* Moderate capital structure
The company does not have any long-term debt and only depends on working capital borrowings. Utilisation of short-term debt in the form of cash credit has increased to Rs 25 crore as on September 30, 2020 from Rs 9 crore as on March 31, 2020. Moderate debt and networth (Rs 55 crore as adjusted by CRISIL) has resulted in gearing of 0.45 time as on September 30, 2020.
 
Weaknesses
* Exposure to cyclicality inherent in the end-user industry
Demand for newspaper printing machinery is linked to the capital expenditure programmes of print media houses, which in turn is linked to macroeconomic growth. The newspaper industry is moving from the traditional print format to the more user friendly digital platform. 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 is further accentuated by the Covid-19 crisis. This has significantly impacted revenue and consequently profitability resulting in the erosion of networth despite the management's cost controlling efforts such as reduction in employee base. Scaling up of operations and improvement in profitability will remain key rating sensitivity factors.

The company diversified into the plastic packaging industry in order to counter the volatility in its performance due to cyclicality in the end-user segment by delivering its first flexo-machines order in March 2018. However, orders from this segment have been limited in the past few years. The performance is expected to remain muted in the medium term due to sustained low demand and absence of new orders.  Continued losses have resulted in negative debt protection metrics.
 
* Large inventory requirement
Sizeable raw material inventory of more than 150 days (because of the need to maintain numerous components and spares) leads to large working capital requirement. Further, stock keeping has been volatile as reflected in inventory days of 110-151 over the past three fiscals. As on September 30, 2020 inventory remained at similar level as at March 31, 2020. Inventory days have shot up because of lower execution as reflected in operating income of only Rs 8 crore in first half of fiscal 2021.  Sustained large inventory constrains financial flexibility in operations.
Liquidity Stretched

Liquidity has weakened due to negative cash accrual in the past three fiscals. Unencumbered cash and equivalents reduced to Rs 17 crore as on September 30, 2020 from Rs 24 crore as on March 31, 2020. Moreover, fund-based limit utilisation increased from 31% in April 2020 to 65% in September 2020. Although there is no long-term debt, continuous losses will erode the liquidity levels and increase dependence on debt, and hence remain a key monitorable.

Outlook: Negative

CRISIL believes that Manugraph's business risk profile will remain constrained over the medium term in the absence of work orders due to muted demand.

Rating Sensitivity factors
Upward factors:
* Substantial improvement in revenue of over Rs 100 crore, with cash accrual of Rs 15-20 crore in fiscal 2022
* Stable capital structure and liquidity
* Sustenance of working capital at moderate level
 
Downward factors:
* Continued operating losses, resulting in negative cash accrual in fiscal 2021
* Deterioration in liquidity marked by significant decline in cash and equivalents
* Large working capital requirement or increase in debt, weakening the financial risk profile
About the Company

Incorporated in 1971 and promoted by Mr Sanat Shah, Manugraph manufactures single/double-width web-offset printing machines. It is the market leader in this segment in India and also has an established position overseas, with global sales contributing 13% to total revenue in fiscal 2019. The company has two manufacturing facilities in Kolhapur, Maharashtra. Over the years, it has entered into technology tie-ups with leading overseas printing machine manufacturers. 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, which involves manufacturing of flexo-machines used for printing in plastic packaging, particularly food packaging. It has partnered with CARRARO S.R.L., Italy, and delivered its first order in March 2018.
 
Revenue and net loss were Rs 8 crore and Rs21 crore, respectively, in the first six months of fiscal 2021, as against Rs 57 crore and Rs 21 crore, respectively, in the corresponding period of the previous fiscal.

Key Financial Indicators (Consolidated)
Financials as on/for the period  Unit 2020 2019
Revenue Rs.Crore 118 251
Profit After Tax (PAT) Rs.Crore -35 -16
PAT Margin % -29% -6.5%
Adjusted debt/adjusted networth Times 0.12 0.0
Interest coverage Times -15.4 -2.43

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL 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. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
Annexure - Details of Instrument(s)
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size
(Rs crore) 		Complexity level Rating outstanding with outlook
NA Bank guarantee^ NA NA NA 14.0 NA CRISIL A4+
NA Cash credit NA NA NA 23.0 NA CRISIL BB-/Negative
NA Cash credit** NA NA NA 22.0 NA CRISIL BB-/Negative
NA Letter of credit^ NA NA NA 10.0 NA CRISIL A4+
NA Proposed fund-based bank limits NA NA NA 13.5 NA Withdrawn
NA Proposed long-term bank loan facility NA NA NA 49.0 NA CRISIL BB-/Negative
NA Commercial paper NA NA 7-365 days 10.0 Simple CRISIL A4+
**Cash credit facility is completely fungible with letter of credit and bank guarantee
^Letter of credit is fungible with bank guarantee of up to 50% of the limit
 
Annexure - List of entities consolidated
Entity consolidated Extent of consolidation Rationale for consolidation
Manugraph Americas Inc Full Wholly owned subsidiary
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  10.00  CRISIL A4+  20-05-20  CRISIL A4+  09-12-19  CRISIL A3  28-08-18  CRISIL A2+  18-07-17  CRISIL A2+  CRISIL A1 
            10-05-19  CRISIL A2  31-07-18  CRISIL A2+       
Fund-based Bank Facilities  LT/ST  94.00  CRISIL BB-/Negative  20-05-20  CRISIL BB+/Negative  09-12-19  CRISIL BBB-/Negative  28-08-18  CRISIL A-/Stable  18-07-17  CRISIL A-/Negative  CRISIL A/Stable 
            10-05-19  CRISIL BBB+/Negative  31-07-18  CRISIL A-/Stable       
Non Fund-based Bank Facilities  LT/ST  24.00  CRISIL A4+  20-05-20  CRISIL A4+  09-12-19  CRISIL A3  28-08-18  CRISIL A2+  18-07-17  CRISIL A2+  CRISIL A1 
            10-05-19  CRISIL A2  31-07-18  CRISIL A2+       
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee^ 14 CRISIL A4+ Bank Guarantee^ 14 CRISIL A4+
Cash Credit 23 CRISIL BB-/Negative Cash Credit 23 CRISIL BB+/Negative
Cash Credit** 22 CRISIL BB-/Negative Cash Credit** 22 CRISIL BB+/Negative
Letter of Credit^ 10 CRISIL A4+ Letter of Credit^ 10 CRISIL A4+
Proposed Fund-Based Bank Limits 13.5 Withdrawn Proposed Fund-Based Bank Limits 13.5 CRISIL BB+/Negative
Proposed Long Term Bank Loan Facility 49 CRISIL BB-/Negative Proposed Long Term Bank Loan Facility 49 CRISIL BB+/Negative
Total 131.5 -- Total 131.5 --
**Cash credit facility is completely fungible with letter of credit and bank guarantee
^Letter of credit is fungible with bank guarantee of up to 50% of the limit
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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