August 06, 2020
Kumar Arch Tech Private Limited: Ratings assigned
Summary of rating action
Current Rated Amount
Instrument* Rating Action
(Rs. crore)
Long-term Fund-based – CC limits 15.00 [ICRA]BBB-(Stable); assigned
Long-term Fund-based – Term Loan 5.60 [ICRA]BBB-(Stable); assigned
Short-term Non-fund based limits 20.40 [ICRA]A3; assigned
Long-term/Short-term – Unallocated 4.00 [ICRA]BBB-(Stable)/A3; assigned
Total 45.00
*Instrument details are provided in Annexure-1
Rationale
The assigned ratings favourably factor in Kumar Arch Tech Pvt. Ltd’s (KATPL) experienced promoters and
established track record in poly vinyl chloride (PVC) and wood plastic composite (WPC) sheet manufacturing. The
ratings also derive strength from KATPL’s strong financial profile as reflected by healthy gearing and coverage
indicators. Moreover, the ratings take into account the wide range of applications of the company’s products in
various industries including education, construction, signage, advertising, etc. The ratings also derive comfort from
the sustained top-line growth over the years on account of a rapid growth in exports and KATPL’s association with
reputed brands in the overseas market.
The ratings are, however, constrained by the vulnerability of profitability margins to movements in the prices of its
key raw materials—PVC resin. The company is also exposed to foreign exchange fluctuations, though the risk is
partially mitigated by a natural hedge through significant imports. The ratings also factor in the exposure to
competitive pressures from unorganised as well as large, organised players in the domestic market and other low-
cost international players. The ratings also take in account the working capital-intensive nature of business driven
by high receivables and inventory, which has led to moderately high utilisation of fund-based limits.
The Stable outlook on the [ICRA]BBB- rating reflects ICRA’s opinion that KATPL will continue to benefit from the
extensive experience of its promoters and established brand position.
Key rating drivers and their description
Credit strengths
Experienced promoters with established track record of operations in industry – The promoter family has an
experience of more than two decades in PVC manufacturing business. Mr. Shubham Taylia, Director, is assisted by
other family members and a team of qualified top managerial personnel in managing day-to-day operations of the
company. KATPL has an established market position with a strong dealership network and three manufacturing
facilities with a cumulative production capacity of around 14,000 MTPA.
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Diversified product portfolio – KATPL manufactures of PVC boards and WPC boards. PVC, being an eco-friendly
product with physical properties suitable for a wide range of interior and exterior applications, is used to
complement several other building materials such as fibre, cement and wood. KATPL offers a variety of product
portfolio with their applications in educational posters based on signage, advertising industry, PVC doors and
floorings, interior decorations, prefabricated construction, etc. The wide range product applications result in low
dependence of company on any one industry for sales of its products.
Comfortable capital structure – KATPL’s capital structure is comfortable with gearing and TOL/TNW at 0.60 times
and 1.19 times, respectively as on March 31, 2020 owing to low debt levels. KATPL’s total debt stood at Rs. 18.75
crore in FY2020, which comprised working capital borrowings of Rs. 11.56 crore, external long-term debt of Rs.
6.02 crore and unsecured loans from promoters and related parties of Rs. 1.18 crore. The coverage indicators
remained healthy with interest coverage of 4.50 times and debt service coverage of 3.30 times as per the
provisional statements of FY2020.
Credit challenges
Highly fragmented and competitive industry limits pricing flexibility – A large part of the PVC industry comprises
small unorganised players, primarily catering to local demand. While low entry barriers have resulted in high
fragmentation in the domestic PVC industry, the competition from low-cost international players in the global
markets limits the company’s pricing flexibility in the overseas market. KATPL also faces risk of product duplication
from the unorganised domestic segment.
Margins exposed to forex fluctuation risk; though partially mitigated by natural hedge – With the increasing
contribution of export sales in the top line, KATPL’s margins remain exposed to the vagaries of the currency
markets. This risk is, however, partially mitigated by a natural hedge through imports. KATPL meets 65–75% of its
total raw material requirements through imports.
Exposed to raw material price fluctuations – Raw material cost is the largest component of the cost structure of
PVC manufacturing process. The key raw material used for manufacturing is PVC resin, which is a crude oil
derivative. Hence, PVC resin prices of most plastics follow the international crude oil prices, albeit with a lag. This
exposes the company’s profitability to such fluctuation in prices.
Highly working capital-intensive nature of operations – KATPL’s working capital-intensive nature of operations is
reflected in high inventory holding and high receivables. The company usually holds high inventory of raw material
in order to take advantage of the favourable price fluctuations. The company’s working capital requirement is
largely funded by stretching payments to creditors as evident from the high creditor days.
Liquidity position: Adequate
KATPL has adequate liquidity position on account of the healthy cash accruals it has generated on a sustained
basis. The moderate utilisation of working capital limits (averaging 86% for the last 12 months ending in June 2020)
provides additional avenues of liquidity to the company. Additionally, the steady growth in its accruals are
adequate to meet the scheduled debt repayment obligations. Unsecured loans from promoters and related parties
to support capital intensive nature of operations provide additional comfort.
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Rating sensitivities
Positive trigger: A rating upgrade could be triggered by a significant growth in operating income (OI), supported by
an increase and sustainability in operating margins, which leads to an improvement in the return indicators and
better cash flow generation.
Negative trigger: Negative pressure on the rating could arise if KATPL reports higher-than-anticipated decline in
revenues or a reduction in profitability, or a weakening of the overall financial profile due to sizeable debt-funded
capex and lack of commensurate returns from the same. Deterioration in the liquidity profile leading to high
utilisation of working capital limits on a sustained basis could also exert downward pressure. Specific indicators
include, but not limited to, interest coverage below 3 times.
Analytical approach
Analytical Approach Comments
Applicable Rating Methodologies Corporate Credit Rating Methodology
Parent/Group Support Not applicable
Consolidation/Standalone The ratings are based on the standalone financials of KATPL
About the company
Kumar Arch Tech Pvt. Ltd. (KATPL), incorporated in 1998, is involved in PVC/WPC-extrusion board manufacturing. It
supplies premier quality PVC board and WPC board along with other products in both domestic and export
markets under the brand name ECHON. The company offers a wide range of products, which include building
materials, doors and frames, PVC floorings, signage materials and PVC-based decorative articles.
The company has three ISO 9001-2008 and 14001-2004 certified operational units located at Gudli Industrial Area,
Udaipur with an aggregate installed capacity of 14,000 MTPA.
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Key financial indicators (Audited/Provisional)
FY2019 (A) FY2020 (P)
Operating Income (Rs. crore) 135.38 122.68
PAT (Rs. crore) 3.88 5.91
OPBDIT/ OI (%) 7.11% 10.91%
RoCE (%) 18.4% 22.2%
Total Outside Liabilities/Tangible Net Worth (times) 2.13 1.19
Total Debt/ OPBDITA (times) 1.77 1.40
Interest Coverage (times) 3.73 4.50
DSCR 2.69 3.30
Source: Company data
Status of non-cooperation with previous CRA: Not applicable
Any other information: None
Rating history for last three years
Chronology of Rating History for the
Current Rating (FY2020)
past 3 years
Date & Date & Date & Date &
Instrument Amount Amount Rating in Rating in Rating in Rating in
Type Rated Outstanding FY2021 FY2020 FY2019 FY2018
(Rs. crore) (Rs. crore)
6-Aug-2020 - - -
Fund-based – [ICRA]BBB-
Long Term 15.00 - - - -
CC limits (Stable)
Fund-based – [ICRA]BBB-
Long Term 5.60 5.60 - - -
Term Loan (Stable)
Non-fund
Short-term 20.40 - [ICRA]A3 - - -
based limits
Long-term/ [ICRA]BBB-
Unallocated 4.00 - - - -
Short-term (Stable) / A3
Complexity level of the rated instrument
ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly Complex". The
classification of instruments according to their complexity levels is available on the website click here
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Annexure-1: Instrument details
Date of Amount
Maturity Current Rating
ISIN No Instrument Name Issuance / Coupon Rate Rated
Date and Outlook
Sanction (Rs. crore)
Long-term Fund-based – CC [ICRA]BBB-
NA - - - 15.00
limits (Stable)
NA Long-term Fund-based – Term [ICRA]BBB-
Aug 2019 - Jul 2024 5.60
Loan (Stable)
NA Short-term Non-fund based
- - - 20.40 [ICRA]A3
limits
NA Long-term/Short-term – [ICRA]BBB-
- - - 4.00
Unallocated (Stable) / A3
Source: KATPL
Annexure-2: List of entities considered for consolidation: Not applicable
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ANALYST CONTACTS
K. Ravichandran Manish Ballabh
+91 44 45964301 +91 124 4545 812
[email protected] [email protected]
Gaurav Singla Anshul Shah
+91 124 4545 366 +91 124 4545 372
[email protected] [email protected]RELATIONSHIP CONTACT
Jayanta Chatterjee
+91 80 4332 6401
[email protected]
MEDIA AND PUBLIC RELATIONS CONTACT
Ms. Naznin Prodhani
Tel: +91 124 4545 860
[email protected]Helpline for business queries:
+91-9354738909 (open Monday to Friday, from 9:30 am to 6 pm)
[email protected]
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