| Orient Bell Limited | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
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| This Rating Rationale is published solely to update the bank-wise facility details as provided by the rated entity; other sections are same as the previous Rating Rationale dated June 27, 2022. |
Detailed Rationale CRISIL Ratings continue to reflect the Orient Bell Limited (OBL) established market position in the tiles industry, its diversified geographical reach and clientele, and comfortable financial risk profile. These strengths are partially offset by vulnerability to cyclicality in the end-user real estate industry and fluctuations in gas and raw material prices, as well as exposure to intense competition
CRISIL Ratings had upgraded its ratings on the bank facilities of OBL to ‘CRISIL A/Stable/CRISIL A1’ from 'CRISIL A-/Stable/CRISIL A2+’ on June 27, 2022.
The upgrade factors improvement in the overall business and financial risk profiles of OBL. Operating performance has improved by revenue growth of around 30% during fiscal 2022 from previous fiscal, backed by strong brand equity, and improved sales contribution from value added products leading to better operating profitability. Revenue should further improve by compounded annual growth rate (CAGR) of 10-12% over medium term supported by healthy demand from real estate industry, diversification in product mix, underway capex and upgradation of plants. The operating margin rose to 8.97% in fiscal 2022 from 6.90% in previous fiscals because of increased contribution of high margins products, long term contract for gases and modification in the plants, leading to better operating efficiency. Sustenance of improved profitability levels along with sales growth over the medium term remain a key rating sensitivity factor.
The rating also factors in improvement in the financial risk profile, as reflected in pre-payment of majority of term debt in fiscal 2022 and reducing dependence on working capital debt. Total outside liabilities to tangible networth (TOLTNW) ratio have improved to 0.59 time as on March 31, 2022, from 0.75 times as on March 31, 2021. Healthy unencumbered cash balance was of Rs. 32.29 crore as on March 31, 2022. Debt protection metrics have strengthened as reflected in interest coverage ratio of 13.55 times as on March 31, 2022 against 6.25 times as on March 31, 2021. |
Key Rating Drivers & Detailed Description Strengths: Established market position in the domestic tiles industry backed by strong pan-India distribution network With capacity of 31.8 million square meters (based on current mix of product), OBL is one of the leading organized tile manufacturers in India. After acquisition of Bell Ceramic Ltd in 2010, it has become a pan-India player with plants in the northern, southern, and western regions. The company has a diversified client base, comprising 285 tiles boutiques, institutional buyers and over 2,000 dealers across the country with market leadership in North India. The company has PAN India based presence with around 47% of revenues from North India, followed by South and East India which contributed around 24% each, of revenues each during fiscal 2022. Thus, revenue and profitability remain insulated from adverse fluctuations in the preferences of any customer or region. OBL is focused on improving its brand presence across India and has thus increased the budget for marketing and branding spends. Sustained improvement in operating performance and timely ramp-up of capex remains key monitorable factor for ratings.
Improving financial risk profile and robust debt protection metrics Steady reduction in debt and absence of any large, debt-funded capex will continue to support the capital structure. Gearing was healthy at 0.03 time as on March 31, 2022, driven by low (adjusted) debt of Rs 9.35 crore as on March 31, 2022. Debt protection metrics were robust driven by comfortable interest coverage and net cash accrual to total debt ratios were 13.55 times and 5.53 time in fiscal 2022 against 6.25 times and 1.61 times in fiscal 2021, respectively. The financial risk profile should remain adequate, supported by prudent working capital management leading to low debt.
Moderate working capital cycle The operations of the company are moderately working capital intensive driven by gross current assets (GCAs) of 102 days as on March 31, 2022 against 128 days in fiscal 2019. The GCAs comprise of moderate debtors and inventory of 57 days and 41 days, respectively as on March 31, 2022. Inventory is moderately high because of large product portfolio comprising multiple sizes and designs. The operations are partially supported by payables of 119 days as on March 31, 2022. The company maintains healthy unencumbered cash balance of Rs. 32.29 crore as on March 31, 2022. Commensurate with increase in scale of operations, working capital requirements is expected to remain moderately intensive over the medium term.
Weaknesses: Vulnerability to cyclicality in the end-user industry and exposure to intense competition OBL caters to the real estate, construction and infrastructure industries, which are strongly correlated to economic cycles. Due to economic recession in past, the construction sector faced a slowdown, with several projects getting delayed or cancelled, restraining the performance of the ceramic tiles industry. Besides, the ceramic tiles industry is intensely competitive, and dominated by unorganised entities. However, with changes such as closure of ceramic units running on coal gasifiers, and implementation of the Goods and Services Tax (GST) and Real Estate (Regulation and Development) Act, 2016 (RERA), the market share organised players have outpaced unorganised smaller players over the few fiscals and have gained market share in value terms.
OBL is one of the leading players in ceramic tiles industry, despite that company faces intense competition from the unorganised sector and reputed brands. The ability to pass on the increase in raw material cost given competitive scenario may remain key rating sensitivity factor for ratings. Further, any moderation in demand from real estate and its impact on pricing and offtake will be key monitorable.
Susceptibility to fluctuations in gas and raw material prices leading to fluctuating operating margins Raw materials (different types of clays, feldspar, silica, kaolin and carbonates) comprise 50-60% of total operating cost, while gas and power costs comprise 20-25%. Hence, even a slight variation in input prices will drastically impact profitability. With better demand in fiscal 2022 as well as various cost rationalization measures including solar energy and a long term contract with GAIL as well as de-bottlenecking of processes has resulted in control in overall power and fuel cost management and improvement in the operating margins to 8.97% in fiscal 2022. On account of OBL’s strong brand equity, the company undertook multiple price hikes during fiscal 2022 in line with the overall industry trend. Sustenance of improved operating profitability levels at around 9.0-10.0% would remain a key credit metrics over the medium term. |
Liquidity: Strong Liquidity is supported by generation of healthy cash accruals of over Rs. 50 crore against debt obligations of Rs. 5-10 crore over the medium term, minimal bank limit utilization and healthy financial flexibility. Utilisation of fund-based limits of Rs. 98 crore was 0.27% on average in the 13 months through ended in April 2022. Current ratio improved to 1.64 times and cash and cash equivalents was Rs. 32.92 crore as on March 31, 2022. |
Outlook: Stable CRISIL Ratings believes OBL will continue to benefit from its established market position and comfortable financial risk profile. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company OBL (formerly, Orient Ceramics and Industries Ltd) is a public limited company listed on the Bombay Stock Exchange and National Stock Exchange and promoted by Mr. Daga and his family members. It manufactures glazed ceramic wall, floor, and vitrified tiles under the Orient Bell brand. Facilities are in at Sikandrabad in Uttar Pradesh, Dora in Gujarat, and Hoskote in Karnataka. |
Key Financial Indicators
*Operating income also includes cash discount allowed of Rs. 12.65 crore in fiscal 2022 and Rs. 9.36 crore in fiscal 2021 |
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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)
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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 | |||
| Facility | Amount (Rs.Crore) | Name of Lender | Rating |
| Letter of credit & Bank Guarantee | 7 | Axis Bank Limited | CRISIL A1 |
| Letter of credit & Bank Guarantee | 10 | IDBI Bank Limited | CRISIL A1 |
| Letter of credit & Bank Guarantee | 10 | IDFC FIRST Bank Limited | CRISIL A1 |
| Letter of credit & Bank Guarantee | 22 | IndusInd Bank Limited | CRISIL A1 |
| Letter of credit & Bank Guarantee | 11 | Punjab National Bank | CRISIL A1 |
| Letter of credit & Bank Guarantee | 20 | State Bank of India | CRISIL A1 |
| Long Term Loan | 30 | Axis Bank Limited | CRISIL A/Stable |
| Proposed Fund-Based Bank Limits | 28.15 | Not Applicable | CRISIL A/Stable |
| Working Capital Facility | 23 | Axis Bank Limited | CRISIL A/Stable |
| Working Capital Facility | 5 | IDBI Bank Limited | CRISIL A/Stable |
| Working Capital Facility | 10 | IDFC FIRST Bank Limited | CRISIL A/Stable |
| Working Capital Facility | 16 | IndusInd Bank Limited | CRISIL A/Stable |
| Working Capital Facility | 9 | Punjab National Bank | CRISIL A/Stable |
| Working Capital Facility | 35 | State Bank of India | CRISIL A/Stable |
This Annexure has been updated on 19-Aug-22 in line with the lender-wise facility details as on 22-Jul-22 received from the rated entity.
Criteria Details
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