| Seshasayee Paper and Boards Limited | ||||||
| Ratings reaffirmed at 'CRISIL AA-/Stable/CRISIL A1+' | ||||||
| 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 reaffirmed its 'CRISIL AA-/Stable/CRISIL A1+' ratings on the bank facilities of Seshasayee Paper and Boards Limited (SPBL).
The ratings continue to reflect the established position of SPBL in the writing and printing paper (WPP) segment, supported by extensive experience of its promoters, along with integrated operations, healthy operating efficiency and robust financial risk profile. These strengths are partially offset by susceptibility to volatility in raw material prices.
Revenue is expected to grow marginally in fiscal 2025, after a 13% degrowth in fiscal 2024. The company reported 15% higher volumes in the first quarter of fiscal 2025, compared to similar period last year. This led to sustenance of revenue at Rs 422.16 crore in the first quarter of fiscal 2025 (Rs 426 crore in the first quarter of fiscal 2024) despite steep decline in realisation. Volume sales in the WPP segment will be supported by fresh demand from the roll out of the new education policy and increased work from office. However, volume of sales moderated in fiscal 2024 due to significant increase in imports into India from China and ASEAN countries at cheaper prices. However, with the increase in freight rates and reduction in availability of cheaper imported paper due to global supply chain challenges, the pricing pressure from imported paper should reduce.
The operating margin is likely to moderate marginally in fiscal 2025. The earnings before tax depreciation and amortisation (Ebitda) margin declined to an estimated 11% in the first quarter of fiscal 2025, from 22% in the corresponding period of the previous fiscal, due to higher input prices and increased variable cost due to shutdown of SPBL’s 21-megawatt (MW) power plant in Erode (Tamil Nadu) for two months (April and May 2024). However, with stabilisation of input prices and realisation the operating margin is expected to improve from the second quarter. Volatility in raw material prices and any further impact of imported paper from China and ASEAN countries will remain monitorable |
Key Rating Drivers & Detailed Description Strengths:
The company, both units combined, meets about 80% of its power requirement in-house through its captive power plant (21 MW) in Erode equipped to use both coal and biofuels, black liquor dry solids-fueled captive power plant (16 MW) in Erode and captive power plant (6 MW) in Tirunelveli, wherein both coal and biofuels can be used.
To enhance pulp and paper production capacities in phases in Erode, the management has announced project MDP-IV. The first phase of the project MDP-IV, which would result in Pulp and Paper Capacities in Erode by 20%, is likely to be funded entirely through cash accrual. The company is awaiting environmental clearance for project MDP-IV phase 1.
The company acquired assets of M/s Servalakshmi Paper Ltd (corporate debtor under liquidation) via the electronic-auction held under IBC Rules in September 2022 on a going-concern basis. This acquisition (funded through cash accrual) should add another 75,000 TPA of paper manufacturing capacity under SPBL. The Hon'ble National Company Law Tribunal (NCLT), Chennai bench vide its order dated May 12, 2023, approved the above electronic-auction in favour of SPBL, which then received the sales certificate and took possession of the unit. A few appeals challenging the Hon'ble NCLT's order have been filed in Hon'ble National Company Law Appellate Tribunal, which are being contested by the company. Meanwhile, the company has taken steps to restore electricity, water supply and for plant refurbishment.
Weakness:
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Liquidity: Strong Liquidity will remain supported by strong cash accrual, nil bank limit utilisation and prudent working capital management. The cash credit limit of Rs 61 crore was utilised at an average of 17% during the 12 months through January 2024. In the absence of any yearly maturing debt over the medium term, the entire cash accrual -- expected at more than Rs 260 crore per annum – will aid financial flexibility. Current ratio stood healthy at 3.33 times and unencumbered cash and bank balance and investments at over Rs 700 crore as on March 2024. |
Outlook: Stable SPBL will continue to benefit from the extensive experience of the promoters and their established relationship with clients. |
Rating Sensitivity Factors Upward factors
Downward factors
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About the Company Incorporated in 1960, SPBL manufactures pulp, WPP, packing and wrapping grade papers and specialty grade papers. Products are sold under the brands -- Sprint, Sprint Plus, Swift and Success. The company has an integrated pulp, paper and paper board mill at Pallipalayam (Erode, Tamil Nadu) and a paper manufacturing mill in Tirunelveli with aggregate capacity of 255,000 TPA. |
Key Financial Indicators
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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 - 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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Criteria Details
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