Rating Rationale
May 19, 2021 | Mumbai
Prima Plastics Limited
Ratings upgraded to 'CRISIL BBB / Stable / CRISIL A3+ '
 
Rating Action
Total Bank Loan Facilities RatedRs.40 Crore
Long Term RatingCRISIL BBB/Stable (Upgraded from 'CRISIL BBB- / Stable')
Short Term RatingCRISIL A3+ (Upgraded from 'CRISIL A3 ')
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 Prima Plastics Ltd (Prima; part of the Prima group) to ‘CRISIL BBB/Stable/CRISIL A3+’ from 'CRISIL BBB-/Stable/CRISIL A3'

 

The rating upgrade reflect improved financial risk profile of the group supported by sustained business risk profile. The scale of operation has been sustained, with improved profitability despite the pandemic related disruptions in fiscal 2021. The capital structure and debt protection metrics have improved on back of accretion to reserves over the years and reduced debt levels. Further,  stabilised operations at its subsidiary in Guatemala and stable dividend receipts from joint venture at Cameroon also enhances business and financial risk profile of the company.

 

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 - Details of Consolidation, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths

  • Healthy financial risk profile: The financial risk profile is supported by comfortable total outside liabilities to adjusted networth ratio of 0.34 times as on March 31, 2020 (0.48 times as on March 31, 2019), and likely to be sustained over medium term. Interest coverage and net cash accrual to total debt ratios were 6.5 and 0.58 times respectively in fiscal 2020 (4.17 times and 0.34 time, respectively, in fiscal 2019), and are expected to further improve to above 8 times and 0.7 time, respectively, over the medium term. Overall financial flexibility is also supported by dividend receipt from its group entity based in Cameroon. Prima received Rs 3.24 crores in fiscal 2020 and likely to receive similar dividends over the medium term.

 

  • 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 promoters’ experience of over 3 decades and healthy relationships with a diversified clientele and supplier base should continue to support the business risk profile.

 

Weaknesses

  • Susceptibility to volatility in raw material prices and to intense competition in the domestic market: The key raw material for moulded furniture is polypropylene (PP). As it is a petroleum-derived product, the price of PP is highly volatile, constraining profitability. 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.

 

  • Large working capital requirement:

Working capital requirements are large as reflected in gross current assets (GCAs) of 191 days as on March 31, 2020 driven by debtors and inventory of 68 & 88 days respectively. 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. Receivables and inventory are likely to be around 75 and 90 days respectively with GCA maintained at around 190-200 days over the medium term

Liquidity: Adequate

Net cash accrual was Rs 12.4 crore in fiscal 2020 and is expected at Rs 12-15 crore per fiscal over the medium term against debt obligation of Rs 1.8-2 crore per fiscal. Expected capital expenditure (capex) of Rs 20 crore will be funded through term debt up to 60-70% and through internal accrual. Bank limit utilisation averaged 39.2% over the past 6 months through February 2021 and is expected at a similar level over the medium term. No additional funding support is expected to be provided to subsidiaries/JVs over the medium term.

Outlook: Stable

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 profitability strengthens net cash accruals to above Rs 18 crores
  • Sustained financial risk profile with low leverage levels and healthy debt protection metrics and liquidity.

 

Downward factors:

  • Decline in overall performance with operating margin falling below 7% and subdued revenue, resulting in much lower net cash accrual
  • Funding support to group companies/stretch in working capital cycle/ deferment of dividend by JVs or large debt funded capex 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)

As on / for the period ended March 31

 

2020

2019

Operating income

Rs crore

126.9

132.5

Reported profit after tax

Rs crore

10.3

9.1

PAT margins

%

8.1

6.9

Adjusted Debt/Adjusted Net worth

Times

0.2

0.4

Interest coverage

Times

9.5

6.9

 

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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)

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

12

NA

CRISIL BBB/Stable

NA

Letter of Credit

NA

NA

NA

3.5

NA

CRISIL A3+

NA

Proposed Long Term Bank Loan Facility

NA

NA

NA

1

NA

CRISIL BBB/Stable

NA

Term Loan

NA

NA

Sep-22

3.5

NA

CRISIL BBB/Stable

NA

Working Capital Facility

NA

NA

NA

20

NA

CRISIL BBB/Stable

 

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Prima Union Plasticos, S. A.

Full

Same line of business with management control and material financial & operational linkages

Prima Plastics Limited

Full

Same line of business with management control and material financial & operational linkages

 

Annexure - Rating History for last 3 Years
  Current 2021 (History) 2020  2019  2018  Start of 2018
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 36.5 CRISIL BBB/Stable   -- 12-03-20 CRISIL BBB-/Stable 11-02-19 CRISIL BBB-/Stable 11-10-18 CRISIL BBB/Stable CRISIL BBB/Positive
Non-Fund Based Facilities ST 3.5 CRISIL A3+   -- 12-03-20 CRISIL A3 11-02-19 CRISIL A3 11-10-18 CRISIL A3+ CRISIL A3+
      --   --   --   --   -- CRISIL A3+
All amounts are in Rs.Cr.
 
 
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit 12 CRISIL BBB/Stable Cash Credit 12 CRISIL BBB-/Stable
Letter of Credit 3.5 CRISIL A3+ Letter of Credit 3.5 CRISIL A3
Proposed Long Term Bank Loan Facility 1 CRISIL BBB/Stable Proposed Long Term Bank Loan Facility 1 CRISIL BBB-/Stable
Term Loan 3.5 CRISIL BBB/Stable Term Loan 3.5 CRISIL BBB-/Stable
Working Capital Facility 20 CRISIL BBB/Stable Working Capital Facility 20 CRISIL BBB-/Stable
Total 40 - Total 40 -
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
Rating Criteria for Fast Moving Consumer Goods Industry
CRISILs Criteria for rating short term debt
CRISILs Criteria for Consolidation
The Rating Process
Understanding CRISILs Ratings and Rating Scales
CRISILs Bank Loan Ratings

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