Rating Rationale
August 02, 2024 | Mumbai
Oricon Enterprises Limited
Ratings downgraded to 'CRISIL BBB/Stable/CRISIL A2'; Removed from ‘Watch Negative’
 
Rating Action
Total Bank Loan Facilities RatedRs.239.56 Crore
Long Term RatingCRISIL BBB/Stable (Downgraded from 'CRISIL A-'; Removed from ‘Rating Watch with Negative Implications’)
Short Term RatingCRISIL A2 (Downgraded from 'CRISIL A1'; Removed from ‘Rating Watch with Negative Implications’)
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 removed its ratings on the bank facilities of Oricon Enterprises Limited (OEL; part of the Oricon group) from 'Rating Watch with Negative Implications', and has downgraded its ratings to ‘CRISIL BBB/CRISIL A2’ from ‘CRISIL A-/CRISIL A1’ and assigned a ‘Stable’ outlook to long term rating.

 

CRISIL Ratings had placed the ratings on watch following the update given by the management on the sale of Manufacturing, trading and Sale of Plastic Closures and Preforms business to Manjushree Technopack Limited (CRISIL AA-/Stable/CRISIL A1+).

 

The downgrade in rating reflects the moderation in the business risk profile of the group with sale of business resulting in dip in revenue and operating margin. Around 72% of the total sales was achieved from the discontinued business. Going forward scale is expected to be around Rs 140-150 crores with modest operating margins.

 

Financial risk profile and liquidity remain comfortable and are expected to remain in the similar range over the medium term. Group had healthy cash and cash equivalents of above Rs ~175 crore as on March 31, 2024, supporting financial flexibility. Cash surplus has increased on account of realization from sale of business in July 2024. Although generation from business operation is expected to remain modest, non-operating income which includes dividend and rental income among others will support the accruals. Oricon has also repaid its debt.

 

The ratings continue to reflect the company's established market position, and its strong financial risk profile because of healthy networth, comfortable gearing and healthy debt protection metrics. These strengths are partially offset by moderate scale of operations, susceptibility to volatility in raw material prices, forex risk and exposure to risks related to product substitution.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of OEL and its subsidiaries Reay Road Iron & Metal Warehousing Private Limited (RRIMWPL), Oriental Containers Limited (OCL) and United Shippers Limited (USL), together referred to as the Oricon group. This is on account of the financial fungibility between the entities.

 

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 market position: Group has an established market position as manufacturer of metal closures in India. The promoters have developed a strong understanding of the industry dynamics, which has helped them successfully navigate several business cycles as well as build longstanding relationships with customers

 

  • Strong financial risk profile: Low gearing of sub 0.1 time on a healthy networth base of more than Rs 1000 crore as on March 31, 2024, represents comfortable capital structure. The total outside liabilities to adjusted networth ratio was around 0.2 time as on March 31, 2024. Debt protection metrics is expected to remain comfortable on account of no major debt over the medium term, sustaining overall financial risk profile.

 

Weaknesses:

  • Moderate scale of operations: Scale of operations is expected to moderate on account of sale of business which resulted in dip in revenue. Group has achieved scale of Rs 146 crores for fiscal 2024. Intense competition and fragmented industry may continue to constrain scalability, pricing power and profitability. Thus, improvement in scales of operations will remain a key monitorable factor.

 

  • Susceptibility to volatility in raw material prices and forex risk: Major revenue being generated form the packaging segment, company's primary raw materials include aluminum, tin-free steel, which are commodity products, and hence, their prices are volatile. While the group is able to revise product price, its margins will remain vulnerable to the extent of time lag between change in raw material prices and revision in product prices. Further, company is also exposed to forex risk.

 

  • Exposure to risks related to product substitution: Group manufactures closures, such as crown caps bottles and containers for beverages, liquor, food products, and pharmaceuticals. Group's scale of operations may witness a decline, if there is a significant shift towards newer packaging products, such as tetra packs, sachets, strips, and other flexible packaging, by end-user industries.

Liquidity: Strong

Strong liquidity as reflected in: Low BLU at ~7.5% in the last 12 months ended March 2024. Net cash accruals are expected to remain sufficient against nil repayment obligations. Group’s cash and cash equivalent including investments in equity were around Rs 400 crores as on March 31,2024. No major debt funded capex plans over medium term. From sale of plant company has received Rs 530 crores which are currently invested in liquid mutual funds and has been used for paying debt. Group has capex plans of ~Rs 10 crores which will be funded through internal accruals and available liquidity.

Outlook: Stable

CRISIL Ratings believes Oricon will continue benefit from its established market position in the packaging industry.

Rating Sensitivity factors

Upward Factors:

  • Substantial and sustained ramp up in scale of operations by over 30% with sustenance of operating margins leading to higher than expected net cash accruals.
  • Improvement in working capital cycle.

 

Downward Factors:

  • Subdued revenue growth or operating profits resulting in accruals below Rs 20 crore
  • Reduction in available surplus liquidity leading moderation in financial flexibility
  • Stretch in working capital cycle, significant debt-funded capex, or any change in existing risk management policies, weakening key credit metric.

About the Group

OEL is primarily engaged in manufacturing metal caps and closures. The company also manufactures mixed pentane, a petrochemical with industrial applications, and trades in metals and chemicals. The company is part of Parijat Group. Mr Adarsh Somani is the Managing Director of Oricon.

Key Financial Indicators

Particulars

Unit

2024

2023

Revenue

Rs crore

146.5

604.4

Profit after tax (PAT)

Rs crore

0.5

14.8

PAT margin

%

0.3

2.4

Adjusted debt/Adjusted networth

Times

0.1

0.1

Interest coverage

Times

(0.1)

8.6

 

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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN

Name of Instrument

Date of Allotment

Coupon
Rate (%)

Maturity

Date

Issue Size
(Rs.Cr)

Complexity

Level

Rating Assigned

with Outlook

NA

Cash Credit

NA

NA

NA

90

NA

CRISIL BBB/Stable

NA

Letter of Credit

NA

NA

NA

84.56

NA

CRISIL A2

NA

Proposed Working Capital Facility

NA

NA

NA

65

NA

CRISIL A2

 

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale For Consolidation

Oricon Enterprises Limited

Full

Subsidiaries with full management control

Oriental Containers Limited

Full

United Shippers Limited

Full

 

Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT/ST 155.0 CRISIL BBB/Stable / CRISIL A2 18-07-24 CRISIL A-/Watch Negative 16-11-23 CRISIL A-/Stable   -- 08-11-21 CRISIL A-/Stable CRISIL A-/Stable
      -- 19-04-24 CRISIL A-/Watch Negative 26-09-23 CRISIL A-/Stable   -- 29-10-21 CRISIL A-/Stable --
      --   -- 31-03-23 CRISIL A-/Stable   --   -- --
      --   -- 04-01-23 CRISIL A-/Watch Developing   --   -- --
Non-Fund Based Facilities ST 84.56 CRISIL A2 18-07-24 CRISIL A1/Watch Negative 16-11-23 CRISIL A1   -- 08-11-21 CRISIL A2+ CRISIL A2+
      -- 19-04-24 CRISIL A1/Watch Negative 26-09-23 CRISIL A1   -- 29-10-21 CRISIL A2+ --
      --   -- 31-03-23 CRISIL A1   --   -- --
      --   -- 04-01-23 CRISIL A2+/Watch Developing   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 30 RBL Bank Limited CRISIL BBB/Stable
Cash Credit 45 Central Bank Of India CRISIL BBB/Stable
Cash Credit 15 Kotak Mahindra Bank Limited CRISIL BBB/Stable
Letter of Credit 39.56 Central Bank Of India CRISIL A2
Letter of Credit 10 Kotak Mahindra Bank Limited CRISIL A2
Letter of Credit 35 RBL Bank Limited CRISIL A2
Proposed Working Capital Facility 65 Not Applicable CRISIL A2
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Criteria for rating short term debt
CRISILs Criteria for Consolidation

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