Archidply Industries Ltd.

Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 81.90 Crs. of Archidply Industries Ltd.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (08 Jul 2020)	Present
Fund Based	62.07	77.40	Long Term	BWR BBB /Stable Removed from Credit Watch and Reaffirmed	BWR BBB /Stable Reaffirmation
Non Fund Based	19.50	4.50	Short Term	BWR A3+ Removed from Credit Watch and Reaffirmed	BWR A3 + Reaffirmation
Grand Total	81.57	81.90	(Rupees Eighty One Crores and Ninety lakhs Only)

#Please refer to BWR website www.brickworkratings.com for definition of the ratings
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure

RATING ACTION / OUTLOOK

The reaffirmation of ratings of bank loan facilities of Archidply Industries Limited ('AIL' or 'the company') continues to reflect the company’s operational track record, demonstrated operating capabilities and established distribution network, industry experience of the promoters, diversified customer and supplier base, pan-India presence and moderate credit risk profile marked by low gearing, moderate debt coverage metrics and liquidity. However, the ratings remain constrained by thin profitability margins, moderately stretched cash conversion cycle, working capital intensive nature of operations, risks of substitutes, intensely competitive and fragmented laminates market and uncertainties underlying control of Covid-19 pandemic. The disruptions due to second wave of the pandemic may have some adverse impact on the revenue streams of the company during Q1FY22.

BWR notes that the company availed Covid-19 related RBI Moratorium Package during Mar'20 - Aug'20. As part of the Moratorium Package, the company got relief from SBI. The company has been regular in honouring the debt obligations post moratorium, as confirmed by lenders. The company did not apply for one time restructuring (OTR) of any loan under RBI Resolution Framework for Covid-19 related Stress.

The ‘Stable’ outlook indicates a low likelihood of rating change over the medium term. BWR believes AIL’s business risk profile will be maintained over the medium term. The outlook may be revised to Positive if a sustained increase in scale of operations and higher than envisaged profitability result in an improved financial risk profile and cash conversion cycle. The outlook may be revised to Negative if lower than expected revenue or profitability, a stretch in the working capital cycle, significant and unanticipated capex or deterioration in gearing which may impact the financial risk profile. Any sharp reversal in industry conditions due to ongoing second wave of Covid-19 may exert a downward pressure on the ratings.

KEY RATING DRIVERS

Credit Strengths:

Established operational track record and experienced promoters :
The promoters have over four decades of experience in manufacturing of laminates and decoratives. The company is engaged in manufacturing of Plywoods (Marine Plywood, Fire Retardant Plywood, Shuttering Plywood, Densified Film Faced Plywood, BWR & MR Plywood, Lamyply and Lamyboard), and Block Boards and Decorative Laminates of different thicknesses. The company has an installed capacity of 68,50,000 square metres of plywood and blackboards and 48,00,000 sheets of decorative laminates (sunmica) per annum as on 31Mar2021. It has a state of the art manufacturing unit in Rudrapur, Uttarakhand. The established presence in the market over a long period and promoters’ understanding of the industry dynamics are beneficial for the company’s business.
Diversified customer and supplier base :
The company has a well diversified customer and supplier base. The company imports chemicals from Singapore and China, papers from China and a few European nations and veneers from Singapore besides sourcing those and other raw materials like timbers, papers, chemicals, particle boards etc. from Karnataka, Tamil Nadu, Uttar Pradesh, Maharashtra, Delhi, etc. Around 6% of the raw material was imported in FY21. The products are mostly sold in Indian market with around 10% exported to countries like Israel, UAE, Belgium, Vietnam, Oman, Vietnam, Spain. The company’s products are sold under the brands Archid, Archid Gold, Archid Classic, Silvi, Ojas, Archidlam, Monarchply and Monarchlam. The clientele list includes reputed entities from Banks & Insurance, Educational Institutes, Government Projects, Hospitals, Hotels, Multiplexes, Corporates, Apartment Complexes, Retails, Universities and Builders.
Moderate Credit risk profile :
The company’s operating income declined in FY21 due to the adverse impact of Covid-19 pandemic on the company's sales and business operations in H1FY21. The operating income declined from Rs. 267.31 Crs. in FY20 to Rs. 230.85 Crs. in FY21. EBITDA and PAT in FY21 were at Rs. 13.11 Crs. and Rs. 2.26 Crs., respectively. Tangible net worth (TNW) declined from Rs. 86.48 Crs. as on 31Mar2020 to Rs. 81.98 Crs. as on 31Mar2021 primarily due to equity share buyback of Rs. 8.14 Crs. in Q4FY21. Gearing remained adequate at 0.75 time as on 31Mar2021. Debt coverage metrics given by ISCR and DSCR were moderate at 2.75 times and 1.98 times, respectively, as on 31Mar2021.
Pan-India presence :
AIL has 15 Branch Offices, ~800 active clients and 9 warehouses ensuring pan-India presence of its business. The manufacturing unit at Rudrapur, Uttarakhand is situated closer to the sources of indigenously available raw materials ensuring availability at competitive cost in states of UP, Delhi and Uttarakhand itself. The company sold its products to almost every Indian state in FY21 establishing its wide distribution network.

Credit Risks:

Thin profitability and working capital intensive operations :
Operating profit and net profit margins for FY21 are 5.68% and 0.98% respectively. Operations are working capital intensive leading to reliance on working capital borrowing from banks with associated interest and finance costs. However, as the company is currently not planning any debt-financed capital expenditure, low term loan repayments and relatively adequate net cash accruals could help the company partly finance its working capital needs with internal accruals, helping consolidate gearing and debt service metrics in medium term. Cash Conversion Cycle stretched from 135 days as on 31Mar2020 to 146 days as on 31Mar2021 primarily due to elongation of Days Receivables during the period.
Intense competition in industry :
The Indian plywood industry is highly fragmented with ~75% of the market share controlled by the unorganised sector, while the remaining 25% is with the organised segment. The organised players face tough competition from unorganised players on account of the margin-based competition offered by the latter. Due to the high competition, any variation in input cost hits the margins due to limited flexibility to pass on that cost to the customers. In this scenario, the company needs to rely on an increase in scale of operations, augmentation of sales volume, diversification, integration across the value chain, long term contracts with buyers and suppliers and establishment of its strong brand in the market to win over its competition. Besides these, the company’s products also have to compete with various plastic-based substitutes and cheap imports available in the market.
Impact of Covid-19 :
The company's business was impacted by the Covid-19 induced nation-wide lockdown in FY21 which led to subdued sales in H1FY21. The recovery was steady during H2FY21. Due to the restrictions imposed by the various state governments to prevent the spread of second wave of the pandemic, the company's sales in most of the states have been hit during Q1FY22. Due to the restrictions imposed by the local administration, the Rudrapur Unit is operating at 50% strength. BWR notes the certain delays in realization of receivables.. However, the company has not yet faced any supply side constraint and expects faster recovery in sales given the gradual easing off the restrictions across the country. However, uncertainty remains due to probability of onset of third wave of the pandemic, continuous mutation of coronavirus and coverage and impact of vaccination drive. The disruptions due to second wave of the pandemic may have some adverse impact on the revenue streams of the company during Q1FY22.
Foreign exchange fluctuation risk :
The company's exports and imports were each less than 10% of the total sales and purchases, respectively, in FY21. Nonetheless, the topline and profitability remains vulnerable to foreign exchange fluctuation risk in absence of hedging mechanisms.

ANALYTICAL APPROACH - Standalone

For arriving at its ratings, Brickwork Ratings has applied its rating methodology as detailed at the end of the document. The company does not have any subsidiary.

RATING SENSITIVITIES

Ability of the company to achieve sustained improvement in the scale of operations and cash accruals, effective management of its business profile amid Covid-19 related disruptions efficient management of the working capital cycle and capital structure are key rating sensitivities.

Positive:

Sustained improvement in the scale of operations, profitability and cash accruals
Prudent management of cash conversion cycle and working capital requirements

Negative:

Repeated disruptions due to Covid-19 pandemic with more than expected delay in normalization of business operations leading to substantial loss of revenue
Larger-than-expected debt-funded capex, leading to deterioration in the financial profile, especially liquidity, gearing and debt coverage metrics
Stretch in the working capital cycle

LIQUIDITY INDICATORS - Adequate

Liquidity is adequate as reflected in adequate operating profit and net cash accruals to cover debt service obligations. The liquidity profile is further supported by moderate debt coverage metrics, cash & cash accruals and current ratio. Net cash accruals sufficiently covered debt repayments in FY21 and the trend is expected to continue in FY22. BWR notes that the company has prepaid certain portion of the loan obligations due in FY22. Cash credit limit utilization was ~75-80% in past six months. Cash conversion cycle got stretched to 146 days as on 31Mar2021 due to elongation of Days Receivables. Cash & cash equivalents stood at ~Rs. 8.67 Crs. as on 31Mar2021.

ABOUT THE ENTITY

Archidply Industries Ltd was incorporated in 1995 in Bengaluru, Karnataka. Its registered office changed to Rudrapur, Udham Singh Nagar, Uttarakhand w.e.f. 28Feb2018. The company is engaged in manufacturing of Plywoods (Marine Plywood, Fire Retardant Plywood, Shuttering Plywood, Densified Film Faced Plywood, BWR & MR Plywood, Lamyply and Lamyboard), Block Boards and Decorative Laminates (range from 0.8mm to 15mm and post form laminates). The manufacturing unit of AIL is located in Rudrapur, Uttarakhand.

Mr. Deen Dayal Daga is the Chairman. Mr. Rajiv Daga is the CEO and Managing Director and Mr. Shyam Daga the Executive Director.

The company’s shares are listed on Bombay Stock Exchange Ltd. (BSE) and National Stock Exchange of India (NSE).

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	230.84	267.31
EBITDA	Rs.Crs.	13.11	16.92
PAT	Rs.Crs.	2.26	3.78
Tangible Net Worth	Rs.Crs.	81.98	86.48
Total Debt/Tangible Net Worth	Times	0.75	0.65
Current Ratio	Times	1.38	1.47

KEY COVENANTS OF THE FACILITY RATED

The terms of sanction include standard covenants normally stipulated for such facilities.

NON-COOPERATION WITH PREVIOUS CREDIT RATING AGENCY

Not Applicable

RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)

Facilities	Current Rating (2021)			2020		2019		2018
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating
Fund Based	LT	77.40	BWR BBB/Stable (Reaffirmation)	28Apr2020	BWR BBB Credit Watch with Developing Implications (Reaffirmed)	05Nov2019	BWR BBB Credit Watch with Developing Implications (Reaffirmed and migrated to Credit Watch)	26Jul2018	BWR BBB/Stable (Reaffirmed)
		NA	NA	08Jul2020	BWR BBB/Stable (Removed from Credit Watch and Reaffirmed)	NA	NA	NA	NA
Fund Based	ST	NA	NA	28Apr2020	BWR A3+ Credit Watch with Developing Implications (Reaffirmed)	05Nov2019	BWR A3+ Credit Watch with Developing Implications (Reaffirmed and migrated to Credit Watch)	26Jul2018	BWR A3+ (Reaffirmed)
Non Fund Based	ST	4.50	BWR A3+ (Reaffirmation)	28Apr2020	BWR A3+ Credit Watch with Developing Implications (Reaffirmed)	05Nov2019	BWR A3+ Credit Watch with Developing Implications (Reaffirmed and migrated to Credit Watch)	26Jul2018	BWR A3+ (Reaffirmed)
		NA	NA	08Jul2020	BWR A3+ (Removed from Credit Watch and Reaffirmed)	NA	NA	NA	NA
Grand Total		81.90	(Rupees Eighty One Crores and Ninety lakhs Only)

COMPLEXITY LEVELS OF THE INSTRUMENTS - Simple

BWR complexity levels are meant for educating investors. The BWR complexity levels are available at www.brickworkratings.com / download / ComplexityLevels.pdf. Investors queries can be sent to info@brickworkratings.com.

Hyperlink/Reference to applicable Criteria

Analytical Contacts
Swarn Saurabh Senior Rating Analyst swarn.s@brickworkratings.com	Saakshi Kanwar Senior Manager Ratings saakshi.k@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

Archidply Industries Ltd.

ANNEXURE-I

Details of Bank Facilities rated by BWR

SL.No.	Name of the Bank/Lender	Type Of Facilities	Long Term(Rs.Crs.)	Short Term(Rs.Crs.)	Total(Rs.Crs.)
1	HDFC Bank	Cash Credit - Sanctioned	30.00	_	30.00
2	HDFC Bank	Bank Guarantee - Sanctioned	_	4.50	4.50
3	State Bank Of India (SBI)	Cash Credit - Sanctioned	40.00	_	40.00
4	State Bank Of India (SBI)	Term Loan - Out-standing	4.05	_	4.05
5	State Bank Of India (SBI)	Common Covid Emergency Line of Credit (CCECL) - Out-standing	3.35	_	3.35
Total			77.40	4.50	81.90
TOTAL (Rupees Eighty One Crores and Ninety lakhs Only)

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