Globe Capacitors Pvt. Ltd. (erstwhile Globe Capacitors Ltd)

Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 58.58 Crs. of Globe Capacitors Pvt. Ltd. (erstwhile Globe Capacitors Ltd)

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
	Previous	Present		Previous (15 Mar 2022)	Present
Fund Based	44.13	50.08	Long Term	BWR BBB /Stable Reaffirmation	BWR BBB /Stable Reaffirmation
Non Fund Based	14.50	8.50	Short Term	BWR A3+ Reaffirmation	BWR A3 + Reaffirmation
Grand Total	58.63	58.58	(Rupees Fifty Eight Crores and Fifty Eight 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 ACTION / OUTLOOK

While reaffirming the ratings for the bank loan facilities of Globe Capacitors Pvt. Ltd.(erstwhile Globe Capacitors Ltd), BWR has factored in its sustained financial risk profile, reflected in its moderate profitability margins, comfortable gearing and debt coverage ratios, while also registering improvements in its revenues owing to the enhanced production capacities and addition of new clients in FY21. However, the ratings are constrained by an elongated cash conversion cycle requiring higher a working capital.

OUTLOOK: STABLE

BWR believes that the business risk profile of Globe Capacitors Pvt. Ltd.(erstwhile Globe Capacitors Ltd). will be maintained over the medium term. The ‘Stable’ outlook indicates a low likelihood of rating change over the medium term. The rating outlook may be revised to 'Positive' in case the revenues and profit show sustained improvement. The rating outlook may be revised to 'Negative' if the revenues go down and profit margins show lower than expected figures.

KEY RATING DRIVERS

Credit Strengths:

• Increased scale of operations aided by enhanced capacity :

  The company registered a revenue increase of ~14.50% in FY21 as a result of enhanced capacities and addition of new export customers. The company increased its manufacturing capacities by 13% (from 48 mio capacitors in FY21 to 54 mio in FY22) by installing fresh production line in a new unit in proximity to its existing facilities, under the government approved "Production Linked Incentive" (PLI) scheme for expansion in production capacity. Due to additional capacities and rising exports and demand for its products, the turnover has been increased by ~16.48% in FY22(prov.). It has achieved revenues of ~ Rs 55.67Crs in 3MFY23. The company has also applied for government approved scheme viz. Production of Manufacturing of Electronic Components and Semiconductors (SPECS) from FY2022-23 onward.

• Moderate Profitability :

  Operating margins (OPM) and net profit margins (NPM) stood at 9.39% and 3.74 % respectively in FY21, as compared to 9.93 % and 3.36% respectively in FY20. As a result of increased labor cost and employee costs and higher administration expenses, OPM marginally declined. NPM improved in FY21 on account of decline in interest costs. The operating and net profitability margins stood at 8.36% and 3.76% respectively in FY22(prov.).

• Comfortable financial risk profile :

  Debt/Equity and TOL/TNW ratios stood comfortable at 0.85x and 1.26x in FY21 and stood at 0.60x and 0.29x in FY22(prov.). Due to low interest expenses , the company’s ISCR stood comfortable at 3.92x in FY21 and 4.65x in FY22(prov.) Net cash accruals (PAT+Dep.) for FY22 (prov.) at Rs. 10.87 Crs and Rs. 13.41 Cr in FY23 (Proj) are adequate to meet the maturing debt obligation for FY22 and FY23. Net cash accruals/Total debt ratio stood at 0.21x in FY21 and 0.30x in FY22(prov.)

   

• Reputed clientele :

  GCPL gets repeat orders from multi-national clients such as LG, Samsung, HAIER etc. It has recently added a new US based client which has helped it to increase its sales. The company’s revenues from exports constituted 39% of its revenues in FY21 and 45% in FY22(prov.) and is expected to grow further in FY23. At the domestic level, the company has forged ties with industry majors such as Usha, Orient, Crompton Greaves, Whirlpool and Panasonic amongst others. GCPL’s order book is well diversified and no client has a revenue concentration of more than 15%. Although the debtor days are high at 130 days, the counterparty risk is very low.

• Experienced & resourceful promoters and financial linkages between the associate companies :

  The promoters of the company have a rich experience of manufacturing capacitors for electronics and consumer durable companies for over three decades. They also hold directorships in other associate companies operating in diverse business lines. GCPL is integrated backwards with its associate company, Super Electro Films Ltd. which is a key supplier for di-electric films, a key raw material in the manufacturing of capacitors. Another company, Greendot Health foods Ltd. is a successful venture operating in the processed food market and offers diversification benefits to the promoters.

Credit Risks:

• Elongated cash conversion cycle: :

  As the company has in-house end-to-end manufacturing capability, it has to maintain a high inventory of raw material, finished goods and stock in progress resulting in an elongated cash conversion cycle of 103 days in FY21 . The company’s inventory days stood at 81 days while the receivable days also stood high at 130 days in FY20. The company has to keep higher inventory to satisfy the demands of OEMs at short notice.

• Exposure to intense competition from imports and fluctuations in forex rates :

  The Indian capacitor industry is fragmented and imports around 70% of its requirement, hence is exposed to intense competition from China. In addition to this, GCPL’s profitability margins also remain exposed to fluctuations in forex rates as imports constitute a considerable amount (~30%) of total purchases in FY21, although there is a certain amount of natural hedge available with the company.

ANALYTICAL APPROACH - Standalone

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

RATING SENSITIVITIES

Going forward, the ability of the Company to improve its scale of operations, profitability margins, overall credit risk profile and efficiently manage its working capital obligations would be the key rating sensitivities.

Positive : The rating may be upgraded if the company is able to significantly improve its capital base, revenue besides financial risk profile including conversion cycle and liquidity position.

Negative : The rating may be downgraded if there is a deterioration in financial risk profile including profit margins, conversion cycle and debt coverage indicators.

LIQUIDITY INDICATORS - Adequate

The company had unencumbered cash and cash equivalents of Rs. 0.52 Cr in FY21 and Rs 0.56 Cr in FY22 (prov.). The Current Ratio of the company stood comfortable at 1.60x in FY21 and 1.43x in FY22 (prov.). Debt protection metrics stood moderate, with ISCR at 3.92 x and DSCR stood at 2.55 x in FY21. In FY22(prov.) ISCR stood at 4.65x and DSCR at 1.91x. Net Cash accruals (PAT+Dep.) for FY22 (Prov.) and FY23 (Proj) are Rs. 10.87 Crs and 13.41 crs respectively, are adequate to meet the maturing debt obligations. The average credit utilization of its bank limits for the last 6 months, as per the banker’s feedback, was ~60%. Gearing ratio stood at 0.85x for FY21 and 0.60x in FY22( Prov.).The overall liquidity position is considered adequate.

ABOUT THE ENTITY

GCL was setup in 1983 for manufacturing of AC capacitors. GCL manufactures metallized polypropylene capacitors which are customized for individual customer needs. GCL currently caters to all the major OEMs in the home appliance, fans and FHP motor industry. The company is currently managed by Mr. Sanjay Agarwal and his son Mr. Ankit Agarwal. The company's constitution has been changed from Ltd Company to Pvt Ltd company as on March 22,2022 ( as per COI).

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	158.38	138.27
EBITDA	Rs.Crs.	14.88	13.73
PAT	Rs.Crs.	5.92	4.65
Tangible Net Worth	Rs.Crs.	53.73	47.80
Total Debt/TNW	Times	0.85	1.09
Current Ratio	Times	1.60	1.57

KEY COVENANTS OF THE FACILITY RATED

NA

STATUS OF NON-COOPERATION WITH PREVIOUS CRA

NA

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

Facilities	Current Rating (2022)			2022 (History)		2021		2020		2019
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating	Date	Rating
Fund Based	LT	50.08	BWR BBB/Stable (Reaffirmation)	15Mar2022	BWR BBB Stable (Reaffirmation)	NA	NA	15Dec2020	BWR BBB Stable (Reaffirmation)	14Nov2019	BWR BBB Stable (Reaffirmation)
Non Fund Based	ST	8.50	BWR A3+ (Reaffirmation)	15Mar2022	BWR A3+ (Reaffirmation)	NA	NA	15Dec2020	BWR A3+ (Reaffirmation)	14Nov2019	BWR A3+ (Reaffirmation)
Grand Total		58.58	(Rupees Fifty Eight Crores and Fifty Eight 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

• Approach to Financial Ratios
• General Criteria
• Manufacturing Companies
• Short Term Debt

Analytical Contacts
Mehtaab Chahal Ratings Analyst mehtaab.c@brickworkratings.com	Ashwini Mital Director - Ratings Board : +91 172 5032 295 / 6 ashwinimital@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	ICICI Bank	Term Loan - Sanctioned	6.50	_	6.50
2	ICICI Bank	Cash Credit - Sanctioned	16.50	_	16.50
3	ICICI Bank	Letter of Credit - Sanctioned	_	3.50	3.50
4	State Bank Of India (SBI)	Covid -19 Emergency Line Credit - Out-standing	_	_	0.00
5	State Bank Of India (SBI)	GECL - Out-standing	3.58	_	3.58
6	State Bank Of India (SBI)	Letter of Credit - Sanctioned	_	5.00	5.00
7	State Bank Of India (SBI)	Cash Credit - Sanctioned	23.50	_	23.50
Total			50.08	8.50	58.58
TOTAL (Rupees Fifty Eight Crores and Fifty Eight lakhs Only)