Rating Rationale

Key Rating Drivers & Detailed Description

Strengths:

Strong market position in the domestic laminates industry: Being one of the largest organised players in the domestic laminates industry, MIL caters to a diversified clientele. The promoters have been in engaged in this business for around five decades and have built a vast distribution network, comprising nearly 3,000 dealers. Products are sold under well-known brands - ‘Merino’ (decorative laminates), ‘My Space’ (furniture and panel products) and ‘Vegit’ (potato flakes), both in the domestic and international segments. Strong brand recall and about 20% share in the domestic market will continue to drive revenue growth. Revenue is estimated to be around Rs 2,300 crore in fiscal 2024, vis-à-vis around Rs 2,181 crore in fiscal 2023, with around 75% coming from the laminates segment. With the new particle board unit likely to be operational from the third quarter of fiscal 2025, timely ramp up in divisional operations and subsequent growth in the scale of operations are key monitorables.

Healthy financial risk profile: Networth was strong at Rs 1,413 crore as on March 31, 2024, backed by steady accretion to reserve. Gearing and total outside liabilities to total networth (TOL/TNW) ratios were comfortable at 0.51 time and 0.82 time, respectively, as on March 31, 2024. Over fiscals 2022 to 2024, MIL had undertaken capital expenditure (capex) of around Rs 850 crore, towards setting up annual capacity of 2,47,500 CBM for particle board and 1,78,000 CBM for pre-lam particle board. Capex was funded via external debt of Rs 325 crore. With additional term debt of around Rs 100 crore raised to fund routine capex and partial repayment of existing term debt in fiscal 2025, capital structure should remain strong over the medium term. Debt protection metrics were robust, as indicated by interest coverage and net cash accrual to total debt ratios of about 12 times and 0.31 time, respectively, in fiscal 2024.

Weaknesses:

Exposure to intense competition and changes in demand in the real estate sector: The decorative laminates and panel boards industry has several unorganised and organised (Greenlam Industries Ltd and Century Plyboards India Ltd) domestic players as well as some international brands. Competition may intensify further with the advent of large foreign brands and veneer players into the laminates segment. Moreover, large organised players in the domestic market have also undertaken capex to capture market share and meet the growing demand. Though replacement demand supports operations during lean phases, new users and the construction industry remain key growth drivers.

Susceptibility of profitability to volatility in raw material prices: Raw material cost forms 55-60% of the cost of sales. Key raw materials include kraft and design paper and chemicals such as phenol, methanol, melamine, etc. MIL imports 60-70% of its raw material from USA, Europe, Japan, China, and Europe and sources the rest from the domestic market. Volatility in prices of raw material and freight charges has exerted pressure on profitability, as reflected by operating margin of 12% for fiscal 2024. Revision in prices of finished products and sufficient pass through of cost, along with stabilisation of ongoing capex, is critical for improvement in profitability.

Large working capital requirement: Intense competition necessitates offering of substantial credit to distributors. The company also needs to hold large inventory, because of a variety of designs and need to minimise delays in delivery to customers. Gross current assets ranged from 150 to 164 days over the three fiscals ended March 31, 2024. Efficient working capital management amid increasing scale will remain a key monitorable over the medium term.