Rating Rationale
February 12, 2024 | Mumbai
Premier Polyfilm Limited
Ratings upgraded to 'CRISIL BBB+/Stable/CRISIL A2'
 
Rating Action
Total Bank Loan Facilities RatedRs.54 Crore
Long Term RatingCRISIL BBB+/Stable (Upgraded from 'CRISIL BBB/Positive')
Short Term RatingCRISIL A2 (Upgraded from 'CRISIL A3+')
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 upgraded its ratings on the bank facilities of Premier Polyfilm Ltd (PPL) to ‘CRISIL BBB+/Stable/CRISIL A2’ from ‘CRISIL BBB/Positive/CRISIL A3+’.

 

The upgrade factors in the improvement in the business risk profile of PPL, as reflected in compound annual growth rate (CAGR) of ~20% in operating income for the three years through fiscal 2023, supported by diversified product mix and customer base. Operating income was ~Rs 192 crore till December 2023 in fiscal 2024, and order book of ~Rs 70.0 crore which is to be executed in current fiscal. This, along with the management’s focus on scaling up sales of value-added products such as pool liners, will help boost operating income to Rs 270-280 crore in fiscal 2024. Focus on adding customers and diversifying the product mix with value-added products, which fetch higher realisations, and growth in operating income shall continue to support the business risk profile. Improvement in operating efficiency is indicated by better operating margin and return on capital employed (RoCE). The margin increased to 13% for the nine months through December 2023 from 9-10% for the three years through fiscal 2023. The RoCE is expected to improve to 20-25% over the medium term from 17-19% for the three years through fiscal 2023. The improvement in operating efficiency is expected to sustain with operating margin maintained at 12-13% over the medium term.

 

The rating upgrade also factors in sustenance of the financial risk profile, with gearing consistently lower than 1 time for the seven years through fiscal 2023. Despite debt-funded capital expenditure (capex) proposed in fiscal 2025, the capital structure is expected to remain comfortable, with gearing below 1 time. Debt protection metrics have been comfortable, too, with interest cover and net cash accrual to adjusted debt (NCAAD) ratio more than 8 times and 0.4 time, respectively, in fiscal 2023. The ratios will remain comfortable over the medium term, backed by sustenance of operating margin at 12-13%.

 

The ratings reflect the established market position of PPL and its comfortable financial risk profile. These strengths are partially offset by its limited track record of healthy profitability and modest scale of operations.

Key rating drivers and detailed description

Strengths:

  • Established market position supported by the extensive experience of the promoters: PPL promoters have an extensive industry experience of over three decades in PVC films industry. Over the years, promoters have developed a sound understanding of market dynamics and healthy relations with customers, suppliers, which has resulted in company achieving an operating income CAGR of ~20% for last 3 years through FY23. Diversified business segments insulates company from downturn in any particular industry. With year to date operating income of ~ Rs 192 crores till Dec23 and with continuous Focus on adding new value added products like pool liners along with addition of new customers in each segment of business,  the business risk profile of company is expected to support consistent improvement in operating income, with company expected to achieve operating income in range of Rs 280-290 crores in FY24.

 

  • Comfortable financial risk profile: The capital structure of company has been comfortable as reflected in gearing levels, have consistently been lower than 1 times for last 6-7 years through FY23. Further despite debt funded expenditure proposed to be undertaken in FY25, the capital structure is expected to remain comfortable, with gearing levels of less than 1 times expected over medium term. Debt protection metric of the company has been comfortable with interest cover and NCAAD of more than 8 times and 0.4 times respectively in FY23, the same is expected to remain at comfortable levels over medium term, with sustenance of operating margins in range of 12-13% over medium term.

 

Weaknesses:

  • Limited track record of healthy profitability: Operating margins of the company has improved to ~13% for 9M ended FY24, as against 9-10% of operating margins for last 3 years through FY23, majorly on account of focus of management on sale of value added products where margins are relatively higher and moderation in prices of raw materials. Going ahead, with focus of management on setting up backward integration processes to reduce dependency on external vendors and manufacturing of value added products, where margins are high with policy of price revision to completely pass through the increase in prices of raw material, operating margins are expected to improve. Sustenance of operating margins in range of 12-13% amid sustained improvement in operating income supported by volumetric growth, thereby further strengthening of financial risk profile would therefore remain a key rating sensitivity factor.

 

  • Modest scale of operations: Although the company has achieved an operating income CAGR of ~20% for last 3 years through FY23, the scale of operations continues to remain at moderate levels. With increased focus of management to manufacture value added products, Along with addition of more distributors to scale up sale of value added products, the operating income is expected to improve. Sustained improvement in operating income aided by volumetric growth amid sustenance of operating margins in range of 12-13% would therefore remain a key rating sensitivity factor.

Liquidity: Adequate

PPL is expected to generate net cash accruals around Rs 25-30 crores, which shall be sufficient to meet up with annual debt obligations of ~Rs 4-8 crores over medium term. Cash and bank balances have been ~Rs 12.0 crore as on Sep 31, 2023, which is expected to be in range of Rs 3-4  crores over medium term. PPL also has access to fund based limits of Rs 22.5 crores , where average utilisation has been ~16% for last 12 months through Dec’23. CRISIL Ratings expects internal accruals, cash & cash equivalents and unutilized bank lines to be sufficient to meet its repayment obligations as well as incremental working capital requirements.

Outlook: Stable

PPL will continue to benefit from the extensive experience of its promoters and established relationships with clients.

Rating sensitivity factors

Upward factors

  • Sustained increase in operating income aided by volumetric growth, with sustenance of operating margins in range of 12-13% leading to higher than expected net cash accruals.
  • Sustenance of financial risk profile with efficient management of working capital cycle.

Downward factors

  • Decline in revenue or operating margins falling below 10%, leading to lower than expected net cash accruals.            
  • Stretch in working capital cycle or large debt funded capex adversely affecting the financial risk profile, particularly liquidity profile.

About the company

Incorporated in 1992, PPL commenced operations in 1993. Based in Uttar Pradesh, the company manufactures PVC floor coverings, artificial leather, geomembranes, PVC films and sheeting at its facilities in Sahibabad and Sikandarabad. Mr A N Goenka and Mr Amitabh Goenka are the promoters. 

Key financials

Particulars

Unit

2023

2022

Revenue

Rs crore

253

213

Profit after tax (PAT)

Rs crore

11.6

9.7

PAT margin

%

4.6

4.6

Adjusted debt/adjusted networth

Times

0.45

0.46

Interest coverage

Times

8.2

9.5

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 crore)

Complexity

level

Rating assigned with

outlook

NA

Cash Credit

NA

NA

NA

18

NA

CRISIL BBB+/Stable

NA

Letter of credit & Bank Guarantee

NA

NA

NA

15

NA

CRISIL A2

NA

Proposed Fund-Based Bank Limits

NA

NA

NA

5.92

NA

CRISIL BBB+/Stable

NA

Term Loan

NA

NA

31-Mar-2024

15.08

NA

CRISIL BBB+/Stable
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 39.0 CRISIL BBB+/Stable   -- 25-07-23 CRISIL BBB/Positive 23-06-22 CRISIL BBB/Positive   -- CRISIL BBB/Stable
      --   -- 24-07-23 CRISIL A3+ / CRISIL BBB/Positive 30-03-22 CRISIL BBB/Positive   -- --
Non-Fund Based Facilities ST 15.0 CRISIL A2   -- 25-07-23 CRISIL A3+ 23-06-22 CRISIL A3+   -- CRISIL A3+
      --   -- 24-07-23 CRISIL A3+ 30-03-22 CRISIL A3+   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 18 Kotak Mahindra Bank Limited CRISIL BBB+/Stable
Letter of credit & Bank Guarantee 15 Kotak Mahindra Bank Limited CRISIL A2
Proposed Fund-Based Bank Limits 5.92 Not Applicable CRISIL BBB+/Stable
Term Loan 15.08 Kotak Mahindra Bank Limited CRISIL BBB+/Stable
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

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