Press Release Ice Make Refrigeration Limited
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Press Release Ice Make Refrigeration Limited February 18, 2019 Ratings Amount Facilities Ratings1 Rating Action (Rs. crore) Long-term Bank Facilities^ - - Withdrawn 19.00 CARE BBB+; Stable / CARE A2 Long-term/Short-term (enhanced from (Triple B Plus; Outlook: Reaffirmed Bank Facilities Rs.12.50 crore) Stable / A Two) 19.00 Total Facilities (Rupees Nineteen Crore only) Details of instruments/facilities in Annexure-1 ^rating assigned to term loan of Rs.1.53 crore has been withdrawn since the entire amount has been repaid in full. Detailed Rationale & Key Rating Drivers The ratings for the bank facilities of Ice Make Refrigeration Limited (IMRL) continue to derive strength from the long standing experience of its promoters in refrigeration equipment manufacturing coupled with presence of established customer base. Further, the ratings take into account healthy growth in its total operating Income during FY18 (FY refers to period from April 01 to March 31) and H1FY19 along with its comfortable capital structure, debt coverage indicators and liquidity. The ratings, however, continue to remain constrained on account of IMRL’s moderate scale of operations, susceptibility of operating profitability to volatility in input costs and stiff competition from organized players in the industry. IMRL’s ability to increase its scale of operations and improve its profitability while maintaining its comfortable capital structure along with efficient management of its working capital cycle efficiently are the key rating sensitivities. Detailed description of the key rating drivers Key Rating Strengths Promoters’ experience in the refrigeration business: IMRL’s key promoter, Mr. Chandrakant Patel, has over two decades of experience in the refrigeration equipment industry. He looks after sales and marketing, research & development, human resource and administration along with strategic planning decisions. The co-promoters, Mr. Rajendra Patel & Mr. Vipul Patel, also have experience of over two decades in the refrigeration equipment industry. Established and reputed clientele: Over the years, IMRL has established a strong customer base across industries. Some of the industries to which it has provided refrigeration solutions include pharmaceuticals, dairy (including ice-cream), healthcare and food products. Further, the diversification in IMRL’s client profile also remained healthy with top 10 clients contributing only around 25-30% of its total revenue over the last 2-3 years. Around 60-65% of IMRL’s revenue is generated from direct sales whereas the balance (35-40%) is through its dealers spread across the country. Cold room and related storage products contribute the highest (60% of TOI in FY18 & H1FY19) to IMRL’s overall revenue, as they are generally of larger ticket size with on-site installation and commissioning of products. Capacity augmentation in the form of modernization capex funded entirely through IPO proceeds: In November 2017, IMRL raised Rs.23.71 crore through its Initial Public Offer (IPO) and was listed on the NSE Emerge platform. A majority of these equity proceeds were utilized towards modernization and upgradation of existing facilities. The modernization of existing facilities in Gujarat as well as that of Bharat Refrigerations Pvt. Ltd. (BRPL) was largely aimed at improving efficiency, design and quality of its products along with automation in processes. Further, IMRL also set up a coil manufacturing facility funded entirely from the proceeds of the IPO, which would allow it to reduce its dependence on vendors for this critical component along with reduction in its inventory for these products. Also, a part of the proceeds of the IPO was utilized for meeting IMRL’s incremental working capital requirements, primarily on account of growth in its business operations. A majority of IMRL’s modernization capex plans have been completed. Growth in scale of operations with improvement in operating profitability and debt coverage indicators: During FY18, IMRL reported 17% y-o-y growth in its scale of operations on account of increase in volumes supported by repeat orders from its existing customers. Despite the growth in scale of operations, it continued to remain moderate with at TOI of Rs.103.23 crore in FY18. Increase in scale of operations and some control over its raw material costs also translated into better operating profitability with an expansion of 109 bps in PBILDT margin to 12.77% during FY18 (P.Y.: 11.68%). However, despite increase in its TOI by 42% y-o-y in H1FY19, IMRL’s PBILDT margin declined to 9.02% as it was not able to pass on the increase in raw material costs to its customers immediately. IMRL’s overall gearing improved to 0.23x as on 1Complete definitions of the ratings assigned are available at www.careratings.com and in other CARE publications. 1 CARE Ratings Limited Press Release March 31, 2018 (1.08x as on end FY17) backed by increase in networth base of the company due to infusion of funds in the form of IPO proceeds along with accretion of profits to reserves and a stable debt profile. This remained stable as on September 30, 2018. Moreover, IMRL did not have any outstanding term loans as on September 30, 2018 (except vehicle loans), thereby enhancing the comfort from the credit perspective. Debt coverage indicators also improved with better profitability and stable debt profile. Comfortable liquidity: Despite the working capital intensity of its operations, IMRLs’ liquidity was comfortable marked low utilization of its working capital limits at around 15-20% for the 12 months ended December 2018 and a stable operating cycle at around 80 days. A majority of IMRL’s working capital requirements are funded through its internal accruals and equity raised through its IPO. Further, as IMRL did not have any external term loans as on September 30, 2018, it provides some financial flexibility to the company. Key Rating Weaknesses Susceptibility of operating profitability to volatility in input costs: IMRL’s key raw materials comprise of polyurethane (PU) chemical and galvanized steel sheets along with components made from copper and aluminum. As the prices of these products are volatile in nature (as PU is a crude oil derivative, while metals are inherently volatile), it exposes IMRL’s profitability to any adverse movement in the prices, since its orders are fixed price in nature. While IMRL has sound procurement practices to insulate itself from any expected volatility in raw material prices, it also needs to hold ready inventory of some of these products to cater to the time bound requirement of its clients, exposing it to volatility to some extent. However, due to the relatively short delivery schedule (2-3 months) for its products (some of which are also standardized), it is able to pass on any abnormal adverse movement in prices to its customers with some time lag. Competition from established players: Refrigeration equipment industry is majorly characterized by presence of reputed organized players including Voltas Ltd. and Blue Star Ltd. These entities are considerably larger and their scale of operations provides them with better operational and financial flexibility. This also limits the bargaining power of IMRL vis-à-vis its customers, limiting its profitability. However, IMRL positions itself as a complete solutions provider in the refrigeration equipment business and has been able to grow its scale of operations over the last few years, which also reflects the increased demand for its products as well as the quality of IMRL’s products. Analytical approach: Consolidated financials Entities considered in consolidation: . Ice-Make Refrigeration Ltd. Bharat Refrigerations Pvt. Ltd, wholly owned subsidiary of IMRL, engaged in same line of business as IMRL Applicable Criteria Criteria on assigning Outlook to Credit Ratings CARE's Policy on Default Recognition Criteria for Short Term Instruments Rating Methodology-Manufacturing Companies Financial ratios - Non- Financial Sector Factoring linkages in Ratings About the Company Gandhinagar, Gujarat based Ice Make Refrigeration Limited (IMRL), erstwhile known as IC Ice Make Refrigeration Pvt. Ltd., was originally established as a partnership firm and was subsequently reconstituted in 2009 as a private limited company. IMRL, promoted by Mr. Chandrakant Patel, Mr. Rajendra Patel and Mr. Vipul Patel, is engaged in the manufacturing of a wide range of refrigeration products under the brand name ‘Ice Make’. IMRL’s manufacturing facilities are located at Gandhinagar, Gujarat. IMRL provides refrigeration solutions including cooling, pre-cooling, mobile pre-cooling, blast chilling, blast freezing, storage and display. IMRL’s products are broadly classified into five categories viz., cold room & storage products (60% of its revenue in FY18), commercial refrigeration products (16%), industrial refrigeration products (8%), transport refrigeration products (10%) and ammonia based refrigeration products. In December 2016, IMRL acquired Bharat Refrigerations Pvt. Ltd. (BRPL), a Chennai based entity with operations of over two decades in the refrigeration industry for a total consideration of Rs.2.26 crore to expand its footprint in the South Indian market. 2 CARE Ratings Limited Press Release Brief Financials of IMRL (consolidated) are tabulated below: Brief Financials (Rs. Crore) FY17 (A) FY18 (A) Total operating income 88.23 103.23 PBILDT 10.30 13.18 PAT 5.00 6.43 Overall gearing (times) 1.08 0.23 Interest coverage (times) 8.09 7.38 A – Audited; Further, as per the provisional results for H1FY19, on a consolidated basis, IMRL reported a total operating income of Rs.57.47 crore and PAT of Rs.2.63 crore, compared with a total operating income of Rs.40.48 crore and PAT of Rs.2.06 crore in H1FY18. Status of non-cooperation with previous CRA: Not Applicable Any other information: Not Applicable Rating History for last three years: Please refer Annexure-2 Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity. This classification is available at www.careratings.com. Investors/market intermediaries/regulators or others are welcome to write to [email protected] for any clarifications.