RATING RATIONALE
04Apr2022
Maheshwari Logistics Limited
Brickwork Ratings reaffirms the ratings for the Enhanced Bank Loan Facilities of Rs. 171.85 Crs. of Maheshwari Logistics Limited
Particulars| Facilities** | Amount (Rs.Crs.) | Tenure | Rating# | ||
|---|---|---|---|---|---|
| Previous | Present | Previous (26 Nov 2021) |
Present | ||
| Fund Based | 72.13 | 99.85 | Long Term |
BWR A- /Negative to Stable
Reaffirmation and change in Outlook |
BWR A -
/Stable Reaffirmation |
| (2.00) | (10.00) | ||||
| Non Fund Based | 61.20 | 72.00 | Short Term |
BWR A2+
Reaffirmation |
BWR A2 +
Reaffirmation |
| (3.00) | (3.00) | ||||
| (3.00) | (0.00) | ||||
| Grand Total | 133.33 | 171.85 | (Rupees One Hundred Seventy One Crores and Eighty Five lakhs Only) | ||
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure
RATING ACTION / OUTLOOK
Rating: Reaffirmed
BWR has reaffirmed its ratings of BWR A-/Stable/BWR A2+ for the enhanced bank facilities of Maheshwari Logistics Limited (MLL) aggregating to Rs. 171.85 Crs. The rating reaffirmation continues to derive strength from the established track record of MLL as well as vast experience of its promoters, their long-standing relationship with its clients, its adequate liquidity and financial profile. The ratings also derive comfort from MLL's diverse revenue mix which extends competitive advantage and reduces dependence on the performance of a specific business segment. The ratings, however, are constrained by thin profitability owing to trading activities, the working capital-intensive nature of business, its presence in a highly fragmented industry, and susceptibility of margins to volatility in prices of raw materials.
The Stable outlook on the long-term rating reflects BWR's opinion that the business risk profile will be maintained over the medium term, aided by an increase in its scale with successful revenue diversification.
KEY RATING DRIVERSCredit 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 of FY21 from kraft paper manufacturing, 41% from the trading business, and the remaining around 16% transportation business. The diversified revenue stream reduces dependence on the performance of a specific business segment
-
Overall improved financial risk profile :
Overall financial risk profile has improved in the current year, albeit slight impact witnessed in FY21 because of the impact of Covid-19 induced pandemic on the performance of its first two quarters. 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 9MFY22, MLL registered ~74% YoY revenue growth with a total operating income of Rs. 752.01 crore as against Rs. 432.14 crore during 9MFY21. Net profit has also improved by 5 folds to Rs. 15.87 Crs in 9MFY22 as against Rs. 3.32 Crs in 9MFY21. Nonetheless, maintaining revenue growth and profitability will remain a credit monitorable. Also, Overall financial performance considering gearing, debt coverage indicators and operating cycle were improved in the current fiscal. As per the published H1FY22 unaudited financial results, The company has recorded a Tangible Networth of Rs. 147.26 crs.
-
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. However, cash credit utilization has reduced to around 75% for the last 12 months.
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
The company recorded Net cash accruals of Rs. 22.94 Crs in FY21 and expected to record cash accruals of around Rs. 41.89 Crs for FY22 and Rs. 52.49 Crs for FY23. The company has debt repayment obligation of Rs. 15.92 crs in FY23. Cash accrual would be sufficient to cover the serving of debt which is maturing over next two years. However, the Company is dependent on bank borrowings to fund its working capital requirements. Consequently, Average Cash credit utilization is averagely around 75% 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 at around 1.9 times for FY22.
ABOUT THE ENTITYMaheshwari 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 |
NA
STATUS OF NON-COOPERATION WITH PREVIOUS CRA
NA
ANY OTHER INFORMATIONNA
RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)| Facilities | Current Rating (2022) | 2021 | 2020 | 2019 | |||||
|---|---|---|---|---|---|---|---|---|---|
| Type | Tenure | Amount (Rs.Crs.) |
Rating | Date | Rating | Date | Rating | Date | Rating |
| Fund Based | LT | 99.85 |
BWR A-/Stable
(Reaffirmation) |
12Jul2021 |
BWR A-Negative
(Reaffirmation) |
19Mar2020 |
BWR A- Stable
(Reaffirmation) |
27Mar2019 |
BWR A- Stable
(Reaffirmation) |
| 0.00 |
NA
|
26Nov2021 |
BWR A- Negative to Stable
(Reaffirmation and change in Outlook) |
22Jul2020 |
BWR A- Stable to Negative
(Reaffirmation and change in Outlook) |
NA |
NA
|
||
| FB SubLimit | LT | (10.00) |
BWR A-/Stable
(Reaffirmation) |
NA |
NA
|
NA |
NA
|
NA |
NA
|
| Non Fund Based | ST | 72.00 |
BWR A2+
(Reaffirmation) |
12Jul2021 |
BWR A2+
(Reaffirmation) |
19Mar2020 |
BWR A2+
(Reaffirmation) |
27Mar2019 |
BWR A2+
() |
| 0.00 |
NA
|
26Nov2021 |
BWR A2+
(Reaffirmation) |
22Jul2020 |
BWR A2+
(Reaffirmation) |
NA |
NA
|
||
| NFB SubLimit | ST | (3.00) |
BWR A2+
(Reaffirmation) |
NA |
NA
|
NA |
NA
|
NA |
NA
|
| Grand Total | 171.85 | (Rupees One Hundred Seventy One Crores and Eighty Five lakhs Only) | |||||||
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 | |
| 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 CreditSanctioned | 10.00 | _ | 10.00 | |
| Sub-Limit (WCDL) Sanctioned | (10.00) | |||||
| 2 | Axis Bank Ltd. | Credit Exposure Limit (CEL)Sanctioned | _ | 3.00 | 3.00 | |
| 3 | Axis Bank Ltd. | Emergency Credit Line Guarantee Scheme (ECLGS)Sanctioned | 8.20 | _ | 8.20 | |
| 4 | Axis Bank Ltd. | Letter of CreditSanctioned | _ | 25.00 | 25.00 | |
| 5 | State Bank Of India (SBI) | Credit Exposure Limit (CEL)Sanctioned | _ | 1.00 | 1.00 | |
| 6 | State Bank Of India (SBI) | CECLSanctioned | 0.52 | _ | 0.52 | |
| 7 | State Bank Of India (SBI) | GECLSanctioned | 16.13 | _ | 16.13 | |
| 8 | State Bank Of India (SBI) | Cash CreditSanctioned | 62.00 | _ | 62.00 | |
| 9 | State Bank Of India (SBI) | Stand by Line of CreditSanctioned | 3.00 | _ | 3.00 | |
| Sub-Limit (SLC-NFB Within SOL) Sanctioned | (3.00) | |||||
| 10 | State Bank Of India (SBI) | Letter of CreditSanctioned | _ | 43.00 | 43.00 | |
| Sub-Limit (Bank Guarantee) Sanctioned | (0.00) | |||||
| Total | 99.85 | 72.00 | 171.85 | |||
| TOTAL (Rupees One Hundred Seventy One Crores and Eighty Five lakhs Only) | ||||||
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