Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL A+/Stable/CRISIL A1’ ratings on the bank facilities of Plastiblends India Limited (PBIL).

 

The ratings continue to derive strength from PBIL's established market position in the masterbatch industry, diverse product portfolio and strong financial risk profile backed by negligible debt and healthy liquidity. These strengths are partially offset by the exposure to volatility in raw material prices and intense competition.

 

Revenue increased by around 4% on-year to Rs 802 crore in fiscal 2024, driven by around 14% on-year volume growth, while the contraction in realisations due to softening raw material price had a moderating impact on revenue growth during this period. Volume growth was driven by healthy growth witnessed in black masterbatches owing to favourable schemes such as the Jal Jeevan Mission implemented by the Government of India (GOI).

 

Operating margins improved by 30 basis points (bps) to around 6.8% during fiscal 2024 owing to softening of raw material prices; that said, the higher cost of operations emanating from the increase in power and labour costs, and sales commission expenses, had a dampening impact on the operating margins during the said fiscal period.

 

The company’s revenue is expected to grow by around 5-6% over the medium term on account of steady demand growth for black masterbatches and gradual volume offtake in engineering masterbatches. Operating margins are expected to improve by 50-80 bps over fiscal 2024 operating margins owing to favorable product mix, stable raw material prices, and cost optimisation measures initiated by the company, for instance, increasing the adoption of renewable energy to reduce overall power costs. The same can also be witnessed in the quarterly trend in operating margins which having contracted for the first three consecutive quarters of fiscal 2024 improved to around 7.9% in the fourth quarter of fiscal 2024 owing to favourable product mix and commercialisation of renewable energy consumption at the manufacturing facility in Roorkee, Uttarakhand, and thereby taking the overall energy consumption through renewable sources at all manufacturing facility locations to 1.4 megawatt (MW). Over the medium-term, the company shall incur capital expenditure (capex) spends of around Rs. 18-22 crore per annum towards installing solar power panels to increase renewable energy consumption from the existing 1.4MW to 6MW over the next two-three years covering all manufacturing locations.

 

The financial risk profile continues to remain strong on the back of robust capital structure reflected by the absence of long-term debt obligations coupled with the minimal reliance on working capital debt and strong debt protection metrics. Capital structure marked by total outside labilities to adjusted networth (TOL / ANW) continued to remain strong at 0.19 time as on March 31, 2024, and over the medium term as well, the same is expected to remain around 0.15-0.20 time owing to the sustenance of an unlevered capital structure and efficient working capital management resulting in the sustenance of low payable days and minimal dependance on working capital borrowings.

Analytical Approach

CRISIL Ratings has evaluated the business and financial risk profile of PBIL on a standalone basis.

Key Rating Drivers & Detailed Description

Strengths:

• Established market position in the masterbatch segment: PBIL is among the largest manufacturers of masterbatches in India, accounting for 10-12% of the organised domestic masterbatch industry. The company’s units manufacture a diverse product portfolio catering to varied customer bases across domestic and overseas markets. The company manufactures white, black, and coloured masterbatches and compounds used primarily as colouring agents in plastics. Over the past three fiscals, the company has witnessed healthy volume offtake in black masterbatches owing to favourable GOI schemes and demand for the same is expected to continue in the near to medium term. The company has also forayed into engineering masterbatches, which have high application in the automotive and white goods product categories, and the management expect healthy volume offtake during the current fiscal year.

 

Apart from the domestic presence, the company also benefits from moderate export presence in the Asian, African, and LATAM markets. Exports contribution in overall revenue mix stood at 18% during fiscal 2024. While the export contribution has reduced from 22% in fiscal 2021 owing to multiple factors such as adverse economic conditions in Africa and Sri Lanka, the management is focusing on improving its export share in the overall revenue mix by penetrating the Southeast Asian markets. Besides, the improvement in macro-economic conditions will further improve the company’s export share.

 

• Strong financial risk profile: The strong financial risk profile of PBIL is driven by a robust capital structure owing to the minimal dependence on external sources of funds. While the company has maintained an unlevered capital structure since fiscal 2020 owing to more than sufficient coverage of capex spends through internal accruals, the reliance on working capital debt has also been negligible owing to the efficient working capital management. Gross current assets (GCA) days (net of cash) has consistently improved over the past four fiscals (around 148 days during fiscal 2021 to around 105 days during fiscal 2024) owing to the improvement in debtor days emanating from various steps undertaken by the management, for instance, higher cash discounts on early payments, etc., thereby resulting in lower working capital requirements and negligible working capital debt as on March 31, 2024. As a result of a robust capital structure followed by efficient working capital management, TOL / ANW stood at 0.19 time as on March 31, 2024, and over the medium term the same is expected to remain at similar levels on account of limited reliance on external borrowings. The financial risk profile is further strengthened by healthy unencumbered cash surplus of Rs. 49 crore as on March 31, 2024.

 

Weaknesses:

• Profitability susceptible to fluctuation in raw material prices: Profitability is susceptible to the prices of polymer, which accounts for 45-50% of the total raw material cost. In addition, the company is not able to fully pass on the cost escalations due to intense competition. Thus, the operating margin declined to 6.8% in fiscal 2024 from around 8.7% in fiscal 2022. That said, the management is taking various initiatives to improve profitability margins such as improving the product mix towards higher margin products and also optimising the cost structure by increasing the adoption of renewable energy. During the third quarter of fiscal 2024, the company commercialised solar power energy consumption at the Roorkee manufacturing plant, and the combined energy consumption through renewable energy covering all manufacturing facilities is around 1.4MW and over the next two-three years intend to increase the capacity to 6MW across all manufacturing locations.

 

• Exposure to intense competition: The masterbatch industry in India is characterised by the presence of a large, unorganised sector, accounting for almost 35% of the market share. The consequent intense competition along with the commoditised nature of products and limited product differentiation may continue to constrain scalability, pricing power and scalability.

Liquidity: Strong

Expected net cash accruals of Rs. 35-40 crore per annum over the medium term and unencumbered cash surplus of around Rs. 49 crore as on March 31, 2024, will sufficiently cover working capital requirements and yearly capex spends of Rs. 18-22 crore with limited dependence on external borrowing requirements. Besides, the company has access to fund-based limits of Rs. 94 crore which was on average during the last twelve months through to March 2024 was utilized around 6%.

Outlook: Stable

The business risk profile of PBIL shall remain stable over the medium term backed by its established market position in the masterbatch industry and improving product mix towards higher margin products. The financial risk profile shall also continue to remain strong owing to the sustenance of a robust capital structure and strong debt protection metrics on the back of healthy cash accruals & reserves as against yearly capex and working capital requirements.

Rating Sensitivity factors

Upward factors

• Substantial increase in scale of operations with operating margins improving to around 11-12% on a sustained basis.
• Sustenance of maintenance of strong financial risk profile.

 

Downward factors

• Weakening of business performance or the company continuing to operate at below 7% operating margins on a sustained basis.
• Any large, debt-funded capex or sizeable stretch in the working capital cycle, leading to material impact on the debt protection metrics or capital structure.

About the Company

Incorporated in 1991, PBIL is a part of the Kolsite group of companies. The company manufactures white, black and coloured masterbatches and compounds used primarily as colouring agents in plastics. The masterbatches are marketed under the trade names - Polyclear, Polynuc, Polyultra, Antimicrobial, Polyrodent, PolyFR and Anti-fibrillation. PBIL’s plants in Daman; Roorkee, Uttarakhand; and Surat, Gujarat; have combined manufacturing capacity of around 125,000 tonne per annum.

Key Financial Indicators(CRISIL Ratings-adjusted numbers)

As on / for the period ended March 31,	Unit	2024*	2023
Operating income	Rs crore	802	769
PAT	Rs crore	35	27
PAT margin	%	4.30	3.49
Adjusted debt/adjusted networth	Times	0.00	0.00
Adjusted interest coverage	Times	53.63	25.97

*Fiscal 2024 financial figures as based on abridged financials published by the company

Any other information: Not applicable