Maheshwari Logistics Limited

Brickwork Ratings reaffirms the ratings and revises the outlook to Stable from Negative for the Bank Loan Facilities of Rs. 133.33 Crs. of Maheshwari Logistics Limited

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (12 Jul 2021)	Present
Fund Based	72.13	72.13	Long Term	BWR A-/Negative Reaffirmation	BWR A - /Negative to Stable Reaffirmation and change in Outlook
Fund Based	(2.00)	(2.00)	Long Term	BWR A-/Negative Reaffirmation
Non Fund Based	61.20	61.20	Short Term	BWR A2+ Reaffirmation	BWR A2 + Reaffirmation
	(3.00)	(3.00)
	(3.00)	(3.00)
Grand Total	133.33	133.33	(Rupees One Hundred Thirty Three Crores and Thirty Three 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

Rating: BWR A-/Stable/BWR A2+ (Rating reaffirmed; outlook revised to Stable)

BWR has reaffirmed its ratings with revision in outlook to 'Stable' for the bank facilities of Maheshwari Logistics Limited. The revision in outlook to Stable considers the revival in scale of operations to pre-covid level of sales post gradual opening up of economy and pent-up demand, as reflected by improved quarterly financial performance in recent quarters. The improved financial performance was marked by revenue growth, comfortable profitability margins, improved debt coverage indicators, and improvement in the operating cycle.

The ratings continue to derive strength from the experienced management along with an established track record of MLL, reputed clientele, diversified revenue profile, adequate financial profile, and liquidity. The ratings, however, are constrained by thin profitability owing to trading activities, working capital intensive nature of business, its presence in a highly fragmented industry, and susceptibility of margins to volatility in prices of raw material.

KEY RATING DRIVERS

Credit Strengths:

Experienced and competent management :
MLL has an established presence since 2006 and has management with an experience of around 2 decades adding value to the organization through their expertise, thus supporting its operational profile. In addition, the company
has developed strong relationships with reputed players across the value chain.
Diversified Revenue profile :
MLL derives revenues through three key segments. i.e. trading activities, transportation services and kraft paper manufacturing. The company generates 42% of its total revenue from kraft paper manufacturing, 41% from trading business and remaining around 16% transportation business.
Overall improved financial risk profile :
Financial risk profile improved marginally in FY21 reflected by improvement in TNW, gearing, and liquidity position. Tangible net worth has increased to Rs. 138.43 Crs in FY21 from Rs 129.00Crs in FY20 on account of profit retention. Gearing has marginally improved, reflected by Total debt/TNW of 0.90 times in FY21 compared to 1.02 times in FY20 and TOL/TNW of 1.65times in FY21 compared to 1.81 times in FY20. The interest coverage ratio deteriorated yet remained comfortable at 2.32 times in FY21 against 2.50 times in FY20. Current Ratio is adequate at 1.80 times in FY21.

During H1FY22, MLL registered ~111% YoY revenue growth with a total operating income of Rs. 495.84 crore as against Rs. 235.26 crore during H1FY21. Overall financial performance considering profitability, overall gearing, debt coverage indicators and operating cycle were improved in H1FY22 compared to H1FY21. As per the published H1FY22 unaudited financial results, The company has recorded a Tangible Networth of Rs. 147.26 crs.

Credit Risks:

Susceptibility of margins to volatility in prices of raw material :
The company derives around 42% of its revenue from the kraft paper segment for which the main raw material is waste paper. Any fluctuations in the raw material prices would have an impact on the profitability of the company. During the past few years, the raw material prices of domestic waste paper have surged up owing to the gap in demand and supply of the materials, which have impacted the operating margins throughout the industry. Further, the rise in the price of coal, which is the main source of energy for paper mills has also led to increased cost of production thereby dampening the profit margins. Also, the prices of fuel have increased which may impact the performance of its logistic business where any rise in fuel cost cannot be passed on to the end customer by way of incremental freights.
Its presence in a highly fragmented industry :
The Kraft paper industry is highly fragmented in nature with stiff competition from large number of organized as well as unorganized players. Due to the low entry barriers to this industry, the players in this industry do not have pricing power and are exposed to competition-induced pressures on profitability.

However, on account of covid-19 related lockdowns, the consumers shifted to E-commerce platforms for the purchase of goods which has improved the demand for the kraft paper over the last one year. The paper & paper products industry is also likely to see further price increases during FY22 on account of returning demand and higher input prices.
Working capital intensive nature of business :
The company is highly dependent on bank borrowings to fund its working capital requirements. Consequently, Cash credit utilization is around 90% for past years.

ANALYTICAL APPROACH - Standalone

For arriving at its ratings, BWR has considered the standalone financials of the company. BWR has applied its rating methodology as detailed in the Rating Criteria (hyperlinks provided at the end of this rationale).

RATING SENSITIVITIES

Positive : -

Significant improvement in scale of operations and profitability leading to an improvement in debt coverage indicators and strengthening of the financial risk profile.

Increase in scale of operation resulting in higher cash accruals
Operating margins improving on a sustainable basis to ~8.0%

Negative : -

Negative pressure on the ratings could arise from weak performance and deterioration in liquidity or leverage metrics.

Lower sales or operating margin leading to lower cash accruals
Stretch in working capital requirements leading to constrained liquidity
Deterioration in the financial risk profile

LIQUIDITY INDICATORS - Adequate

The company recorded Net cash accruals of Rs. 22.94 Crs in FY21 and expected to record cash accruals of around Rs. 27.77 Crs for FY22. Cash accrual would be sufficient to cover the serving of debt which is maturing over next two years. However, the Company is highly dependent on bank borrowings to fund its working capital requirements. Consequently, Average Cash credit utilization is around 90% for the last 12 months. MLL has availed moratorium as per Reserve Bank of India's circular guidelines and has also availed Covid loans to mitigate cash flow mismatches and to maintain liquidity. Current Ratio is adequate at 1.80 times in FY21 and is expected to be comfortable for FY22.

ABOUT THE ENTITY

Maheshwari Logistics Limited (MLL) was incorporated in 2006 as Pvt Ltd.company and converted to a limited company in Dec 2016, The Company is engaged in coal and paper trading, manufacturing of kraft paper and transportation business. MLL is promoted by Mr. Vinay Maheshwari, Mr. Amit Maheshwari, Mr. Vipul Vashi and Mr. Varun Kabra having an experience of around 2 decades.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	672.68	760.89
EBITDA	Rs.Crs.	44.82	53.36
PAT	Rs.Crs.	9.28	14.70
Tangible Net Worth	Rs.Crs.	138.43	129.00
Total Debt/Tangible Net Worth	Times	0.90	1.02
Current Ratio	Times	1.80	1.49

KEY COVENANTS OF THE FACILITY RATED

STATUS OF NON-COOPERATION WITH PREVIOUS CRA

ANY OTHER INFORMATION

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

Facilities	Current Rating (2021)			2021 (History)		2020		2019		2018
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating	Date	Rating
Fund Based	LT	72.13	BWR A-/Negative to Stable (Reaffirmation and change in Outlook)	12Jul2021	BWR A-Negative (Reaffirmation)	19Mar2020	BWR A-Stable (Reaffirmation)	27Mar2019	BWR A-Stable (Reaffirmation)	09Mar2018	BWR A- Stable (Reaffirmation)
		NA	NA	NA	NA	22Jul2020	BWR A-Stable to Negative (Reaffirmation and change in Outlook)	NA	NA	NA	NA
FB SubLimit	LT	(2.00)	BWR A-/Negative to Stable (Reaffirmation and change in Outlook)	NA	NA	NA	NA	NA	NA	NA	NA
Non Fund Based	ST	61.20	BWR A2+ (Reaffirmation)	12Jul2021	BWR A2+ (Reaffirmation)	19Mar2020	BWR A2+ (Reaffirmation)	27Mar2019	BWR A2+ (Reaffirmation)	09Mar2018	BWR A2+ (Reaffirmation)
		NA	NA	NA	NA	22Jul2020	BWR A2+ (Reaffirmation)	NA	NA	NA	NA
NFB SubLimit	ST	(3.00)	BWR A2+ (Reaffirmation)	NA	NA	NA	NA	NA	NA	NA	NA
		(3.00)	BWR A2+ (Reaffirmation)	NA	NA	NA	NA	NA	NA	NA	NA
Grand Total		133.33	(Rupees One Hundred Thirty Three Crores and Thirty Three 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
Priya Depala Senior Rating Analyst priya.d@brickworkratings.com	Vidya Shankar Principal Director - Ratings Board : +91 80 4040 9940 vidyashankar@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

Maheshwari Logistics Limited

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	Axis Bank Ltd.	Cash Credit - Sanctioned	5.00	_	5.00
	Sub-Limit (WCDL) - Sanctioned	(2.00)
2	Axis Bank Ltd.	Letter of Credit - Sanctioned	_	20.00	20.00
3	Axis Bank Ltd.	Credit Exposure Limit (CEL) - Sanctioned	_	2.50	2.50
4	Axis Bank Ltd.	Emergency Credit Line Guarantee Scheme (ECLGS) - Sanctioned	4.00	_	4.00
5	State Bank Of India (SBI)	CECL - Sanctioned	3.13	_	3.13
6	State Bank Of India (SBI)	GECL - Sanctioned	10.00	_	10.00
7	State Bank Of India (SBI)	Credit Exposure Limit (CEL) - Sanctioned	_	0.70	0.70
8	State Bank Of India (SBI)	Stand by Line of Credit - Sanctioned	3.00	_	3.00
	Sub-Limit (SLC-NFB Within SOL) - Sanctioned		(3.00)
9	State Bank Of India (SBI)	Letter of Credit - Sanctioned	_	38.00	38.00
	Sub-Limit (Bank Guarantee) - Sanctioned		(3.00)
10	State Bank Of India (SBI)	Cash Credit - Sanctioned	47.00	_	47.00
Total			72.13	61.20	133.33
TOTAL (Rupees One Hundred Thirty Three Crores and Thirty Three lakhs Only)

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