Rating Rationale
November 30, 2021 | Mumbai
Ruchira Papers Limited
Ratings reaffirmed at 'CRISIL BBB+ / Stable / CRISIL A2 '
 
Rating Action
Total Bank Loan Facilities RatedRs.110 Crore
Long Term RatingCRISIL BBB+/Stable (Reaffirmed)
Short Term RatingCRISIL A2 (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL BBB+/Stable/CRISIL A2’. ratings on the bank facilities of Ruchira Papers Limited (RPL).

 

The reaffirmation takes cognizance of subdued performance in the fiscal 2021 followed by expected improvement in fiscal 2022. For fiscal 2021, operating performance was impacted due to covid-19 and de-grew by around 14% driven by moderation in both volumes and realizations. RPL has registered rapid growth in revenue in First half of Fiscal 2022 (to Rs. 274 crore already during 6 months as against 417 crore in 12 months of Fiscal 2021) on back of better volumes as well as price rally in paper products amid revival in demand post gradual opening up of economies as the restrictions imposed to curtail spread of covid-19 virus have been receding.  

 

The profitability however, is yet to seen recovery to pre-covid levels. The operating profitability margins have declined to 5.5% in Fiscal 2021 from 9.2% in Fiscal 2020 and 17% in Fiscal 2019. The same was 9% during first half of Fiscal 2022 (Apr-Sep 2021). CRISIL rating believes that ability to company to sustainably grow its scale of operations while ensuring revival to historical operating margins will be key rating sensitivity factor over medium term.

 

The ratings continue to reflect the company's established position in the paper industry, and its comfortable financial risk profile. These strengths are partially offset by moderate profitability and exposure to cyclicality in the paper industry.

Analytical Approach

Unsecured loans of Rs. 3.55 crore as on March 31, 2021 from promoters are treated as debt. This is because the same may be repaid over medium term out of cash generated in the business.

Key Rating Drivers & Detailed Description

Strengths:

  • Established market presence and diversified product profile: The four-decade-long experience of the promoters, in the industrial paper industry, their strong understanding of market dynamics, and established relationships with suppliers and customers, will continue to support the business risk profile.

The company has manufacturing capacity of 250 tonnes per day (tpd) of kraft paper and 150 tpd of WPP. Strong market position and the countrywide marketing and distribution network, is reflected in scale of operations with operating revenue of 417 crore in Fiscal 2021 (as against Rs 482 crore in fiscal 2020) and Rs. 274 crore in H1 Fiscal 2022.

 

  • Comfortable financial risk profile: Capital structure has been healthy, aided by low reliance on external debt, also reflected in low total outside liabilities to tangible networth (TOLTNW) ratio during the four fiscals ended March 31, 2021. Gearing and TOLTNW ratio were at 0.28 time and 0.53 time, respectively, as on March 31, 2021. Debt protection metrics, though moderated in Fiscal 2021 due to lower profitability, remained above average as reflected in interest coverage and net cash accrual to total debt ratio of 3.98 times and 0.25 time, respectively, in fiscal 2021, aided by low debt and moderate operating profitability.

The company does not have plans to undertake any major, debt-funded capital expenditure (capex) over medium term. Any large, debt-funded capex that weakens the capital structure and has significant repayments, will remain a key rating sensitivity factor.

 

Weaknesses:

  • Exposure to cyclicality in the paper industry: Price of paper, which is a commoditized 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.

 

  • Moderate profitability: The company has integrated operations with an 8.1-megawatt captive power plant and a caustic soda recovery plant. Operating margin was high around 17% in fiscal 2019, but dropped to 9.2% in fiscal 2020 and further to 5.5% in Fiscal 2021, owing to low realisations. For H1 Fiscal 2022, the profitability improved to 9% and is expected to improve in medium term on back of various cost optimisation measures implemented coupled with better cost absorption with increasing scale of operations.

Liquidity: Adequate

Liquidity remains adequate, indicated by moderate bank limit utilisation and sufficient cash accrual. Bank limit of Rs 57 crore was utilised at an average 80% over the 12 months through Sept 2021. Expected net cash accrual of Rs 34 crore in Fiscal 2022 and Rs. 45 crore in Fiscal 2023 crore, should comfortably cover the maturing debt of Rs 9-13 crore, over the medium term. Current ratio stood moderate at 1.58 times as on March 31, 2021. Support from promoters in form of unsecured loans of around Rs 3.55 crore, were outstanding as on March 31, 2021.

Outlook: Stable

CRISIL Ratings believes Ruchira will continue to benefit from its established market position and healthy relationships with clients in the industrial paper industry.

Rating Sensitivity factors

Upward factors:

  • Increase in scale of operations to more than Rs. 540 crore for Fiscal 2022 and sustained improvement in margins, leading to better cash accrual
  • Improvement in the working capital cycle

 

Downward factors:

  • Further decline in operating margin by over 200 bps
  • Stretch in working capital cycle

About the Company

Ruchira was set up in 1980, by the promoters, Mr. Jatinder Singh, Mr. Subhash Chander Garg and Mr. Umesh Chander Garg. The company manufactures kraft paper and WPP, in its manufacturing facility at Sirmaur, Himachal Pradesh and listed on both Bombay Stock Exchange and National Stock Exchange.

Key Financial Indicators

As on / for the period ended March 31

 

2021

2020

Revenue

Rs crore

417.31

482.67

Profit after tax

Rs crore

4.99

27.37

PAT margin

%

5.5

9.2

Adjusted debt/adjusted networth

Times

0.28

0.26

Interest coverage

Times

3.98

6.46

 

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)

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 57 NA CRISIL BBB+/Stable
NA Letter of credit & Bank Guarantee NA NA NA 9.75 NA CRISIL A2
NA Term Loan NA NA Dec-2023 25.56 NA CRISIL BBB+/Stable
NA Auto Loan NA NA Sep-2025 1.23 NA CRISIL BBB+/Stable
NA Proposed Long Term Bank Loan Facility NA NA NA 16.46 NA CRISIL BBB+/Stable

 

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 100.25 CRISIL BBB+/Stable   -- 10-08-20 CRISIL BBB+/Stable 31-05-19 CRISIL BBB+/Stable   -- --
      --   --   -- 21-05-19 CRISIL BBB+/Stable   -- --
Non-Fund Based Facilities ST 9.75 CRISIL A2   -- 10-08-20 CRISIL A2 31-05-19 CRISIL A2   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Auto Loans 0.28 YES Bank Limited CRISIL BBB+/Stable
Auto Loans 0.55 HDFC Bank Limited CRISIL BBB+/Stable
Auto Loans 0.4 Axis Bank Limited CRISIL BBB+/Stable
Cash Credit 57 Punjab National Bank CRISIL BBB+/Stable
Letter of credit & Bank Guarantee 9.75 Punjab National Bank CRISIL A2
Proposed Long Term Bank Loan Facility 16.46 NA CRISIL BBB+/Stable
Term Loan 24.36 Punjab National Bank CRISIL BBB+/Stable
Term Loan 1.2 Tata Capital Housing Finance Limited CRISIL BBB+/Stable

This Annexure has been updated on 30-Nov-2021 in line with the lender-wise facility details as on 18-Aug-2021 received from the rated entity.

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 Paper Industry
Mapping global scale ratings onto CRISIL scale
CRISILs Approach to Recognising Default
CRISILs Criteria for rating short term debt

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