By Gokulakrishnan Madhusuthanan

India Rating and Research (Ind-Ra) has affirmed Ramani Timber Corporation’s (RTC) Long-Term Issuer Rating at ‘IND B-’. The Outlook is Stable. The instrument-wise rating actions are as follows: 

Instrument Type

Date of Issuance

Coupon Rate

Maturity Date

Size of Issue (million)

Rating/Outlook

Rating Action

Fund-based working capital limits

-

-

-

INR55 (reduced from INR75)

IND B-/Stable /IND A4

Affirmed

Term loan

-

-

March 2023

INR18.7 (reduced from INR37.6)

IND B-/Stable

Affirmed

Non-fund-based working capital limits

-

-

-

INR140

IND A4

Affirmed

KEY RATING DRIVERS

The affirmation reflects RTC’s continued small scale of operations, as indicated by revenue of INR241 million in FY20 (FY19: INR260.87 million). The revenue declined because of a fall in the number of orders received by the company, owing to lower demand in the domestic market, and also because RTC’s peak season income was hit by the COVID-19-led lockdown towards the end of the year. Furthermore, the company’s imports had been affected by supply chain issues resulting from the pandemic-led issues.  As per the management, the firm’s revenue  is likely to have declined to INR207 million in FY21 because of  COVID-led disruptions.

 

The ratings are constrained by RTC’s modest EBITDA margins owing to the trading nature of business. The firm's EBITDA margin improved to 5.5% in FY20 (FY19: 5.3%) due to a fall in raw material prices. The company’s return on capital employed was 10% in FY20 (FY19: 11%). The margin is likely to have decreased in FY21, as the fall in revenue would have led  to poor absorption of fixed costs

 

The ratings reflect RTC’s weak credit metrics due to the modest EBITDA margins.  The metrics deteriorated in FY20 as the total debt rose to INR89 million (FY19: INR82 million) and the absolute EBITDA fell slightly to INR13.3 million (INR13.9 million). The gross interest coverage (operating EBITDAR/gross interest expense) was 1.03x in FY20 (FY19: 1.08x) and the net leverage (total adjusted net debt/operating EBITDAR) was 6.7x (5.50x).  The metrics are likely to have deteriorated further in FY21 due to the likely fall in the EBITDA margins.

 

Liquidity Indicator-Poor: RTC’s average utilisation of the fund-based and non-fund-based facilities was 55% and 47%, respectively, for the 12 months ended March 2021.  The cash flow from operations remained negative and deteriorated to INR16 million in FY20 (FY19: negative NR8.40 million), as the working capital cycle elongated to 112 days (75 days) owing to an increase in the debtors days to 145 days (130 days). The cash and cash equivalents amounted to INR0.37 million in FY20 (FY19: INR5.31 million). The firm had availed the Reserve Bank of India-prescribed debt moratorium for March-August 2020.  

The ratings are supported by the promoters’ experience of three decades in the timber trading business.


RATING SENSITIVITIES

Negative: A substantial decline in the revenue and the EBITDA margin, leading to deterioration in the overall credit metrics and weakening of the liquidity position, will lead to a negative rating action.  

Positive: An improvement in the liquidity position along with a significant rise in the revenue and EBITDA margins, leading to the gross interest coverage exceeding  1.3x, on a   sustained basis will lead to a positive rating action.


COMPANY PROFILE

RTC was incorporated in 1985 as a partnership firm. The firm is engaged in the trading of timber in Trichy, Tamil Nadu. It is headed by Ramesh N Patel.

 

FINANCIAL SUMMARY

Particulars

FY20

FY19

Revenue (INR million)

241

261

EBITDA (INR million)

13.3

13.9

EBITDA margin (%)

5.5

5.3

Interest coverage (x)

1.0

1.1

Net leverage (x)

6.6

5.5

Source: RTC, Ind-Ra


RATING HISTORY

Instrument Type

Current Rating/Outlook

Historical Rating/Outlook

Rating Type

Rated Limits (million)

Rating

19 March 2020

Issuer rating

Long term

-

IND B-/Stable

IND B-/Stable

Term loan

Long-term

INR18.7

IND B-/Stable

IND B-/Stable

Fund-based working capital limits

Long-term/Short-term

INR55

IND B-/Stable/ IND A4

IND B-/Stable/ IND A4

Non-fund-based working capital limits

Short-term

INR140

IND A4

IND A4


COMPLEXITY LEVEL OF INSTRUMENTS

Instrument Type

Complexity Indicator

Term loan

Low

Fund-based working capital limits

Low

Non-fund-based limits

Low

 

For details on the complexity level of the instruments, please visit https://www.indiaratings.co.in/complexity-indicators.

 

SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings. 

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

ABOUT INDIA RATINGS AND RESEARCH

About India Ratings and Research: India Ratings and Research (Ind-Ra) is India's most respected credit rating agency committed to providing India's credit markets accurate, timely and prospective credit opinions. Built on a foundation of independent thinking, rigorous analytics, and an open and balanced approach towards credit research, Ind-Ra has grown rapidly during the past decade, gaining significant market presence in India's fixed income market. 

Ind-Ra currently maintains coverage of corporate issuers, financial institutions (including banks and insurance companies), finance and leasing companies, managed funds, urban local bodies and project finance companies. 

Headquartered in Mumbai, Ind-Ra has seven branch offices located in Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad, Kolkata and Pune. Ind-Ra is recognised by the Securities and Exchange Board of India, the Reserve Bank of India and National Housing Bank. 

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For more information, visit www.indiaratings.co.in.

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Applicable Criteria

Analyst Names

  • Primary Analyst

    Gokulakrishnan Madhusuthanan

    Analyst
    India Ratings and Research Pvt Ltd Harmony Square 3rd Floor, Door No. 48 & 50 Prakasam Street T Nagar Chennai 600 017
    044 43401700

    Media Relation

    Ankur Dahiya

    Manager – Corporate Communication
    +91 22 40356121