By Ramnarayan Sivaramakrishnan

India Ratings and Research (Ind-Ra) has upgraded Sripathi Paper & Boards Private Limited’s (SPBPL) Long-Term Issuer Rating to ‘IND B+’ from ‘IND D’. 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 limit

-

INR1,800

IND B+ /Stable/IND A4

Upgraded

Term loan

-

-

March 2025

INR775

IND B+/Stable

Upgraded

Non-fund-based working capital limit

-

-

-

INR685

IND A4

Upgraded


The upgrade reflects SPBPL’s timely repayment of debt obligations over June-December 2021.

KEY RATING DRIVERS

SPBPL was able to service its debt on time over June-December 2021 as it received a  significant investment of INR2,100 million during 1HFY22 from an expected equity partner, a non-banking finance company (NBFC).  The entire amount was utilised for the repayment of the term loans and working capital requirement. The investment will be serviced only after SPBPL services its other debt obligations. The management has informed Ind-Ra that around INR1,000 million from the investment will be classified as equity by FYE22. Any shortfall will be addressed by the NBFC. 

The ratings factor in  SPBPL’s medium scale of operations even as its revenue declined to INR4,953 million in FY21 (FY20: INR5,659 million) due to COVID-19-led disruptions The company’s EBITDA margins were modest at 6% in FY21 (FY20: 6.38%) with a return on capital employed of 2.8% (3%)). During 1HFY22, the company booked a revenue of INR3,540 million and EBITDA margins of 5%. FY21 financials are provisional.

The credit metrics remain weak as the gross interest coverage (operating EBITDA/gross interest expense) deteriorated to 0.50x in FY21 (FY20: 0.67x) and the net leverage (adjusted net debt/operating EBITDA) to 16.69x (10.73x) due to a fall in the absolute EBITDA to INR296.98 million (INR361 million).

Liquidity Indicator - Poor: The company’s average maximum utilisation of the fund-based limits was 98% for the 12 months ended September 2021. The cash flow from operations deteriorated to negative INR1,026 million in FY21 (FY20: INR61 million), mainly due to an increase in the working capital. The debt repayment for FY22 is INR273 million. The cash and cash equivalents at FYE21 were INR36.4 million (FYE20: INR43.4 million).

The ratings remain supported by the promoters’ experience of over 20 years in the paper industry.


RATING SENSITIVITIES

Positive: An improvement in the liquidity and credit metrics will be positive for the ratings

Negative: Substantial deterioration in the liquidity and any weakening of the support from the NBFC will be negative for the ratings.


COMPANY PROFILE

SPBPL manufactures kraft paper, duplex board, writing and printing paper, and newsprint at its manufacturing units in Sivakasi and Sathyamangalam, Tamil Nadu. The company is wholly-owned by the founders and their families.

FINANCIAL SUMMARY

Particulars

FY21 (Provisional)

FY20

Revenue (INR million)

4953

5,658.80

EBITDA (INR million)

297

361.10

EBITDA margin (%)

6

6.38

Cash and cash equivalents

36.4

43.40

Gross interest coverage (x)

0.50

0.67

Net leverage (x)

16.69

10.73

Source: SPBPL, Ind-Ra

 

 

 


RATING HISTORY

Instrument Type

Current Rating/Outlook

Historical Rating/Outlook

Rating Type

Rated Limits (million)

Rating

20  May 2021

18 August 2020

21 June 2019

7 June 2018

Issuer rating

Long-term

-

IND B+/Stable

IND D

IND D  (ISSUER NOT COOPERATING))

 

IND BB/Negative

IND BBB+/Negative

Fund-based working capital limit

Long-term/Short-term

INR1,800

IND B+ /Stable/IND A4

IND D

IND D  (ISSUER NOT COOPERATING)

IND BB/ Negative/IND A4+

IND BBB+/Negative/IND A2

Term loan

Long-term

INR775

IND B+/Stable

IND D

IND D  (ISSUER NOT COOPERATING)

IND BB/Negative

IND BBB+/Negative

Non-fund-based working capital limit

Short-term

INR685

IND A4

IND D

IND D  (ISSUER NOT COOPERATING)

IND A4+

IND A2



COMPLEXITY LEVEL OF INSTRUMENTS

Instrument Type

Complexity Indicator

Fund-based working capital limit

Low

Term loan

Low

Non-fund-based working capital limit

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

    Ramnarayan Sivaramakrishnan

    Senior Research Associate
    India Ratings and Research Pvt Ltd Harmony Square 3rd Floor, Door No. 48 & 50 Prakasam Street T Nagar Chennai - 600017
    044 43401725

    Media Relation

    Ankur Dahiya

    Manager – Corporate Communication
    +91 22 40356121