| Ruchira Papers Limited | ||||||
| Rating outlook revised to 'Positive'; Ratings reaffirmed | ||||||
| Rating Action | ||||||
| ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has revised its outlook on the long-term bank facilities of Ruchira Papers Limited (RPL) to ‘Positive’ from ‘Stable’ while reaffirming the rating at 'CRISIL BBB+’. The short-term rating has been reaffirmed at ‘CRISIL A2'.
The outlook revision reflects a belief that the business risk profile of RPL will continue to improve over the medium term. Revenue was around Rs 420 crore for the nine months of fiscal 2022 and should reach Rs 550 crore by end of the fiscal, against Rs 417 crore in fiscal 2021.
Earnings before interest, tax, depreciation and amortization margin improved to 9.5% for the nine months of fiscal 2022 from 5.5% in fiscal 2021 due to higher realization; the margin is projected at above 9% in fiscal 2022. High revenue and better profitability shall boost cash accrual. Operating efficiency should remain healthy, supported by captive power source of 8.7 megawatt (MW), chemical recovery plant, and agricultural residual-based raw material. Operating profitability margin is expected at more than 10% in the near term.
Financial risk profile may continue to be strong, with networth and gearing expected at more than Rs 290 crore and less than 0.3 time, respectively, in fiscal 2022.
The ratings consider established position of RPL in the paper industry and comfortable financial risk profile. These strengths are partially offset by average profitability and exposure to cyclicality in the industry. |
Key Rating Drivers & Detailed Description Strengths:
The promoters have four decades of experience in the industrial paper industry; their strong understanding of market dynamics and healthy relationships with suppliers and customers will continue to support the business. The company has total manufacturing capacity of 400 tonne per day. Revenue may increase to Rs 550 crore in fiscal 2022 from Rs 417 crore in fiscal 2021 and will continue to grow in fiscal 2023 as well, aided by strong market position and the countrywide marketing and distribution networks.
Capital structure has been healthy, aided by low reliance on external debt. Total outside liabilities to tangible networth (TOLTNW) ratio has been comfortable during the four fiscals ended March 31, 2021. Gearing and TOL/TNW ratio are projected at 0.3 time and 0.5 time, respectively, as on March 31, 2022.
Despite moderating in fiscal 2021 due to lower profitability, debt protection metrics are expected to remain comfortable in fiscal 2022 owing to better profitability; interest coverage and net cash accrual to total debt ratios are projected at 10.0 times and 0.6 time, respectively, in fiscal 2022.
Although the company does not have any major, debt-funded capital expenditure (capex) planned for medium term, any such capex -- that weakens the capital structure and has significant repayments -- will remain a key rating sensitivity factor.
Weaknesses:
The company has integrated operations with an 8.7-MW captive power plant and a caustic soda recovery plant. Operating margin was high at around 17% in fiscal 2019 but dropped to 5.5% in fiscal 2021 owing to low realisations. For the nine months of fiscal 2022, profitability improved to 9.5% and is expected at over 9% for fiscal 2022, driven by various cost-optimisation measures implemented and better cost absorption with increasing scale of operations and addition of more value-adding products in the portfolio. Sustainable improvement in profitability will remain a key rating monitorable over the medium term.
Price of paper, which is a commoditised product, tends to fluctuate sharply, thus affecting profitability of paper manufacturers. Demand for paper is also linked to the level of economic activity. Hence, cyclical downturns or adverse change in the demand-supply balance may result in lower realisations. |
Liquidity: Adequate Cash accrual is projected at Rs 40-55 crore per annum, sufficient to meet the yearly debt obligation of Rs 9-13 crore; the surplus cash will aid financial flexibility. Bank limit utilisation was around 80% for the 12 months through February 2022. Current ratio stood healthy at 1.58 times as on March 31, 2021. Timely, need-based funding support by the promoters should continue. |
Outlook: Positive RPL’s business risk profile will improve over the medium term owing to higher sales and better operating margin, while financial risk profile remains comfortable. |
Rating Sensitivity factors Upward factors:
Downward factors:
|
About the Company RPL, incorporated in 1980, manufactures kraft paper and WPP in its manufacturing facility at Sirmaur, Himachal Pradesh. The company is listed on Bombay Stock Exchange and National Stock Exchange. Mr Jatinder Singh, Mr Subhash Chander Garg and Mr Umesh Chander Garg are the promoters. |
Key Financial Indicators
|
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)
|
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||
|
This Annexure has been updated on 05-Apr-2022 in line with the lender-wise facility details as on 18-Aug-2021 received from the rated entity.
Criteria Details
|