| Prima Plastics Limited | ||||||
| Rating outlook revised to 'Positive'; Ratings Reaffirmed; Rated amount enhanced | ||||||
| Rating Action | ||||||
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| 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 revised its outlook on long term bank loan facilities of Prima Plastics Limited (Prima; part of the Prima group) to ‘Positive’ from ‘Stable’ while reaffirming the rating at ‘CRISIL BBB‘. Rating on short term bank loan facilities has been reaffirmed at 'CRISIL A3+'.
The outlook revision reflects expectation of sustained improvement in Prima Group’s credit profile, led by healthy and sustained growth in revenue and improved operating profitability margin, resulting in healthy cash accrual. Company’s operating income is expected to grow by around 25% y-o-y to around Rs 184 crore in fiscal 2023, which is backed by better demand for furniture. Company has been focusing on improving Gautemala business and sales from pellet segment. Growth in operating income should sustain over the near-to-medium term aided by healthy demand prospects, a diversified product portfolio, offtake from new machinery and a expected strong orders from wide distribution network.
Operating margin has remained more than 10.5% during 9MFY23 against less than 7.1% in the previous fiscal. The improvement in the business risk profile is backed by healthy demand of the key products in the domestic market and ramp up of operations in domestic market. The outlook revision also factors in the sustenance of the company’s financial risk profile and its healthy liquidity. Capital structure remained comfortable, as indicated by low total outside liabilities to adjusted networth (TOLANW) ratio of 0.5 times expected as on March 31, 2023.
The ratings continue to reflect the group's healthy financial risk profile, promoters’ extensive experience in the plastic-moulded furniture industry and healthy relationships with customers and suppliers. These strengths are partially offset by large working capital requirements and susceptibility to volatility in raw material prices and to intense competition in the domestic market. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of Prima and Prima Union Plasticos SA (PUPS) as the entities, together referred to as the Prima group, are in the same business, and have common promoters and fungible cash flow. Furthermore, Prima owns 90% stake in PUPS.
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: Well established position in the plastic-moulded furniture industry Promoters' extensive experience in the plastic-moulded furniture industry: The Prima group was set up by Mr Manohar Parekh and his sons in 1993 (listed in 1995). Mr Parekh was also the co-founder of National Plastics Industries Ltd (NPIL) in the 1950s. The company has established a strong market position in the plastic-moulded industry over the past three decades, backed by extensive experience of the promoters.The promoters’ experience of over 3 decades and healthy relationships with a diversified clientele and supplier base should continue to support the business risk profile.
Healthy financial risk profile: Networth was satisfactory at Rs 120 crore as on March 31, 2022, aided by healthy cash accrual of over Rs 12 crore. Debt should also sustain at current levels with adequate cash accrual to cover the capex and debt obligation. Interest coverage and gearing ratios were healthy at 4.39 times and 0.57 time, respectively, in fiscal 2022, Key credit metrics are further likely to improve in fiscal 2023 and keep the financial risk profile comfortable over the medium term.
Diversified revenue: Prima Groups plastic-based products for furniture (accounted for 70% of revenue in fiscal 2022), pellet (30%), Catering to a diverse end-user profile mitigates the risk of slowdown in any segment or industry. Furthermore, company is more focusing on pallet business which is higher profitable segment.
Weaknesses: Susceptibility to volatility in raw material prices and to intense competition in the domestic market: Prices of key raw materials, polyvinyl chloride, high-density polyethylene and polypropylene remain susceptible to movement in crude oil prices and foreign exchange rates. With a large raw materials component in revenues (forming about 65-70%), the company also remains exposed to volatility in input prices. Further, Further, the plastic-moulded furniture industry is largely unorganised and intensely competitive and high transportation cost makes it difficult for Prima to expand its geographic presence. However, company having limited power to pass it on higher prices to end user segment
Large working capital requirement: Working capital requirements are large as reflected in gross current assets (GCAs) of 221 days as on March 31, 2022 driven by debtors and inventory of 104 & 80 days respectively. Receivable days were elongated due to delay in realisation from some of the government sector clients. Group maintains higher inventories to cater institutional orders and at its depots to ensure adequate SKU’s (Stock keeping units) to cater to its furniture business. Overall working capital cycle is expected to moderate with debtor days expected ~60-65 days and inventory days expected at 80-85 days for FY23. Working capital cycle is expected to remain around similar levels over medium term. |
Liquidity: Adequate Net cash accrual is expected over Rs 18 crore per fiscal over the medium term against debt obligation of Rs 4-4.5 crore per fiscal. Bank limit utilisation averaged 74% over the past 12 months through March 2023. Prima is also expecting dividends from its JV in the coming quarters and no additional funding support is expected to be provided to subsidiaries/JVs over the medium term. Capex of around 6-7 crores is expected in FY24, expected to be funded through 50-60% of debt and balance through internal accruals. |
Outlook: Positive CRISIL Ratings believes the Prima group will continue to benefit from its established position in the plastic moulded furniture segment and scaling up of operations at its subsidiary. |
Rating Sensitivity Factors Upward factors: * Sustained revenue growth and improved operating margins above 13% resulting in higher net cash accruals * Sustained financial risk profile with low leverage levels and healthy debt protection metrics and improvement in working capital cycle
Downward factors: * Decline in overall performance with operating margins sustained below 7% and subdued revenue growth further weakens net cash accrual * Funding support to group companies/stretch in working capital cycle/ deferment of dividend by JVs or large debt funded capex/higher than expected bank limit utilisation constrain the financial risk profile, especially liquidity |
About the Group Set up in 1993 by Mr Manohar Parekh and his sons, Mr Bhaskar Parekh and Mr Dilip Parekh, Prima manufactures moulded furniture. Its manufacturing facilities are in Daman, Andhra Pradesh, and Kerala. With a public issue in 1995, Prima is listed on the Bombay Stock Exchange.
It set up PUPS in Guatemala (Central America) in fiscal 2017. Prima also has an equal JV in Cameroon, Africa, with a local entity as its partner. PUPS and the JV manufacture plastic-moulded furniture and woven sacks, primarily catering to the local market. |
Key Financial Indicators (Consolidated)
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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Annexure – List of entities consolidated
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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 | ||||||||||||||||||||||||||||
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This Annexure has been updated on 16-May-2023 in line with the lender-wise facility details as on 07-Jul-2022 received from the rated entity.
Criteria Details
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