| Uflex Limited | ||||||
| Long-term rating upgraded to 'CRISIL A+/Stable'; short-term rating reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has upgraded its long-term rating on the bank facilities of Uflex Limited (Uflex; part of Uflex group) to ‘CRISIL A+/Stable’ from 'CRISIL A/Stable' while reaffirming the short-term rating at ‘CRISIL A1’.
The upgrade is on account of higher than anticipated improvement in both the business risk profile and the financial risk profile. The improvement in business risk profile is reflected by increase in revenue by 20% in fiscal 2021 and operating margin improving to 20.3% from 14.7% in fiscal 2020. The increase in revenue was on account of increase in volumes as well as realization per unit sold. The volumes increased because group added new capacities across 5 different geographies namely Russia, Hungary, Poland, Egypt and Nigeria out of which the first 4 commenced operations in fiscal 2021 while Nigeria commenced operations in second quarter of fiscal 2022. The increase in realization and also the profitability of the group was supported largely by decline in raw material prices and increase in demand, providing a strong bargaining power to the packaging players including Uflex group.
The business risk profile is expected to continue to improve over the medium term with capacities in all the recently commenced operations reaching over 70% utilization within 6 months of operations thus providing significant operating leverage of the group. This will help group in achieving strong volume growth in FY22 compared to previous fiscal. However, because of the increase in raw material prices in last 3-4 months, the operating margin could be lower compared to previous fiscal, which would be a key monitorable over the medium term.
The financial risk profile is strong as is reflected in TOL/TNW of 1.13 times as on March 31, 2021 compared to 1.14 times as on March 31, 2020. This is despite significant increase in absolute level of debt availed for funding the capital expenditure undertaken by group in fiscal 2020 and 2021. Debt-to-EBIDTA also improved from 3.3 times as on March 31, 2020 to 2.2 times as on March 31, 2021. Despite expected debt funded capital expenditure over the medium term, the value of the metric is expected to remain around 2 times as the generation of EBIDTA from Nigerian capacity commencement and the ramp up in other capacities will offset the debt to be availed for funding recently announced Rs 1100 crore of capex in Feb, 2020. Debt protection metrics were also comfortable with interest coverage and NCAAD of 7.9 and 0.38 times respectively for fiscal 2021.
The ratings continue to reflect an established presence in the flexible packaging industry, diversified customer and product profiles, and a comfortable financial risk profile. These strengths are partially offset by working capital-intensive operations, subdued RoCE, and susceptibility to the cyclical and commoditized nature of the packaging films industry. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of Uflex and all its Indian and foreign subsidiaries, and step down subsidiaries and joint ventures, together referred to as the Uflex group, on account of operational, management and financial linkages among them.
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: Established market position in the global flexible packaging industry: The Uflex group is one of the largest players in the flexible packaging industry with a strong market presence in both the domestic and overseas markets through subsidiaries in Egypt, Dubai, Mexico, USA, Russia, Poland, Hungary and Nigeria. Revenue of the group was Rs 8849 crore in fiscal 2021 as against Rs 7393 crore in the fiscal 2020.
Diversified product and customer profiles: The group has a presence throughout the value chain in flexible packaging. It provides complete end-to-end packaging solutions ranging from , flexible packaging intermediate products (packaging machines, holograms, inks & adhesives, cylinders) to end or final products (packaging films, multilayer laminates and liquid packs). Over the years, it has developed a reputed and diversified customer base, catering to leading players in the packaging films, flexible packaging and FMCG (fast-moving consumer goods) industries. Also, customer concentration risk is low.
Comfortable financial risk profile: The capital structure was comfortable with the gearing at 0.73 times and 0.78 times and as on March 31, 2021, and March 31, 2020, respectively. The increase in gearing ratio was on account of debt availed to fund its large capital expenditure of around Rs 3000 crore undertaken for expanding capacities in Russia, Nigeria, Poland and Hungary during fiscal 2019 and 2020. Debt protection metrics were strong, with interest coverage ratio and net cash accrual to adjusted debt at 7.9 times and 0.3 times respectively for fiscal 2021.
Weaknesses: Working capital-intensive operations: Gross current assets were 192 days, driven by debtors of 101 days and inventory of 60 days, as on March 31, 2021. Working capital requirement is partially supported by credit of 70-100 days from suppliers. Cyclical and commoditized nature of the packaging films industry: The BOPP (biaxially-oriented polypropylene) and BOPET industry is cyclical. Product realizations have fluctuated in the past, depending on the demand-supply gap. Moreover, the industry has a tendency to add large capacities when there is an improvement in prices, resulting in overcapacity and hence, pressure on realizations. Also, because of the commoditized nature of the packaging business, players have little scope for passing on increase in raw material costs (accounting for 65-75% of net sales), making them highly susceptible to volatility in raw material prices. Thus, the operating margin is susceptible to fluctuations in both product realizations and input costs. |
Liquidity: Strong Liquidity is strong as reflected by healthy cash accrual generation expected to be generated over Rs 1400 crore on an annual basis going ahead against term debt repayments in the range of Rs 400-500 crore for the next 2 fiscals. In fiscal 2021, group generated cash accrual of Rs 1285 crore against repayments of Rs 219 crore.
Group also had healthy unencumbered cash balance of Rs 576 crore as on March 31, 2021 which increased from Rs 340 crore as on March 31, 2020. Bank limits in India were utilized at around 67% for last 9 months ending May, 2021. Current ratio was at 1.56 times as on March 31, 2021. |
Outlook: Stable CRISIL believes the Uflex group will continue to benefit from its established market position in the packaging industry and a comfortable financial risk profile over the medium term. |
Rating Sensitivity Factors Upward factors
Downward Factors
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About the Group Promoted and founded in 1985 by Mr Ashok Chaturvedi, the Uflex group offers end-to-end flexible packaging solutions including films (BOPET, BOPP, CPP [cast polypropylene] and metallised), flexible laminates, holographic films, aseptic liquid packaging, packaging and printing machines, and inks and adhesives, catering mainly to the FMCG industry. The company is headquartered at Noida, Uttar Pradesh, and has manufacturing facilities in India, Dubai, Mexico, Russia, Egypt, Poland, Hungary, Nigeria and the US. |
Key Financial Indicators – (Consolidated)
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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)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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