October 06, 2023

Sripathi Paper and Boards Private Limited: Ratings reaffirmed

Summary of rating action
Previous Rated Amount Current Rated Amount
Instrument* Rating Action
(Rs. crore) (Rs. crore)
Long-term – Fund-based – Cash Credit 180.00 250.00 [ICRA]BBB- (Stable) reaffirmed
Long-term – Term loans 54.44 54.44 [ICRA]BBB- (Stable) reaffirmed
Long-term – Proposed fund-based limits 120.00 50.00 [ICRA]BBB- (Stable) reaffirmed
Short-term – Non-fund based – LC 66.50 98.00 [ICRA]A3 reaffirmed
Short-term – Non-fund based – BG 1.00 1.00 [ICRA]A3 reaffirmed
Short-term – Proposed Non-fund-based
78.06 46.56 [ICRA]A3 reaffirmed
limits
Total 500.00 500.00
*Instrument details are provided in Annexure-I

Rationale

The rating reaffirmation on the bank lines of Sripathi Paper and Boards Private Limited (SPBPL) considers ICRA’s expectation
that the company’s credit profile will improve, supported by a stable business profile given its long operational track record,
the vast experience of its promoters in the paper industry, and the financial support from Srinidhi Investment Advisors Private
Limited (SIAPL), fund managers of Srinidhi Alternative Investment Fund (SAIF), which holds 76% stake1 in the company. SIAPL
had infused funds into SPBPL to the extent of Rs. 277.0 crore in the form of equity as well as unsecured loans through its NBFC
arm and has given a commitment towards SPBPL’s funding requirements, if any. ICRA notes that the interest and principal on
such loans shall be serviced after repayments of bank loans. The ratings also favourably consider the company’s diversified
product mix with capability to produce kraft paper, duplex boards, writing and printing papers and newsprint, and stable
demand outlook for the duplex segment, which contributes ~70% to SPBPL’s sales.
The ratings are, however, constrained by the company’s moderate scale of operations, average capitalisation and coverage
metrics, vulnerability of profitability to adverse fluctuations in prices of wastepaper prices as well as pricing trends of the final
products, and forex movements. Moreover, intense competition in the duplex/ kraft paper segment owing to many
unorganised players in the field results in pricing pressures. Further, the company has high working capital intensity owing to
its predominantly high inventory requirements.

SPBPL’s performance was affected in recent years due to past events like delayed ramp-up of operations following a large
capex, a fire incident at its Sivakasi (Tamil Nadu) plant and Covid-led disruptions. Following SIAPL’s take-over of majority stake
and operations of SPBPL, there has been a turnaround in the business as evident from the ~45% revenue growth in FY2022. In
FY2023 the revenues grew by ~3% while the operating margins expanded to 12.4% in FY2023 on the back of improved Net
Sales Realisation (NSR) and cost efficiency measures. However, the operating margin contracted by 80 bps in Q1 FY2024 on
account of fall in NSR and lower scale, the margins are expected to be ~11-12% in FY2024.

The Stable outlook reflects ICRA’s expectation that the company will continue to benefit from the extensive experience of its
promoters and newly hired industry experts, its diversified end-user industries and stable demand outlook.

1
Stake held through Srinidhi Category II Alternative Investment Fund

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 Key rating drivers and their description

Credit strengths
Established track record of the company in the paper industry – Incorporated in 2002 by Mr. R. Krishnaswamy and Mr. K.
Ravichandran, SPBPL has been manufacturing paper products and has developed an established presence and distribution
network in the market over the past two decades. Its day-to-day operations are managed by Mr. Bharat Agarwal, COO, who
has an extensive experience of more than three decades in the paper industry.

Diversified product profile and stable demand prospects – SPBPL has four manufacturing units at Sivakasi and one in
Sathyamangalam (Tamil Nadu) with a total production capacity of 276,500 MT. Its product portfolio is well diversified with
capacities to manufacture duplex board, kraft paper, newsprint and writing and printing paper (WPP). It produces categories
of coated duplex board, which is extensively used in the printing, match box, fireworks, textiles and packaging industries. SPBPL
is also involved in manufacturing kraft paper and WPP, although ~70% of its total sales came from duplex board in FY2023, a
value-added product that generates relatively better margins than other products. Over 85% of its revenues are from the
domestic market with Tamil Nadu and Karnataka being the major end-markets. The company operates at a capacity utilisation
level of ~56% in Q1 FY2024, which is expected to improve further, thus supporting the overall scale with associated benefits.
Its customer base is moderately diversified with its top five customers generating ~35% of its total sales over the last two years.

Support from SIAPL – SIAPL has infused funds to the extent of Rs. 277.0 crore (till FY2023) in the form of equity and unsecured
loans through its NBFC arm and has given a notable commitment towards SPBPL’s funding requirements, if any. SIAPL is actively
involved in the day-to-day operations of the company and has placed industry experts in critical functions. ICRA notes that the
interest and principal on the loans extended shall be serviced following repayments of the bank loans.

Credit challenges

Vulnerability of profitability to adverse fluctuations in prices of raw material and forex movements – SPBPL’s profitability is
exposed to any sharp fluctuations in raw material prices—primarily wastepaper. A large portion of the wastepaper is imported,
and the prices remain exposed to global demand-supply dynamics. The company’s ability to fully pass on the price risk remains
limited by competition in the market, which can impact it profitability metrics. Further, the company imports 50-55% of its raw
material requirement, making it vulnerable to movement in forex rates, adopting currency hedging in a limited way.
Highly competitive nature of the industry – SBPL operates in a highly fragmented industry and faces intense competition,
which limits its pricing flexibility and bargaining power with customers, thereby putting pressure on its revenues and margins.
Nonetheless, presence in the multiple segments (kraft, duplex, newsprint and WPP) and its established relationships with
major players in the fireworks, matchsticks, printing and FMCG sectors are key mitigating factors for the company.

Modest capitalisation and coverage metrics – SPBPL had modest debt protection coverage metrics with TOL/TNW of 2.7 times
along with an interest coverage ratio of 1.7 times and DSCR of 1.0 time in FY2023. The coverage metrics are expected to
improve, going forward, and shall be supported by higher accruals, driven by improved profitability margins and reduction in
long-term loans. ICRA notes that the company has capex plans towards strengthening its business offerings and improve
efficiency metrics, and the same is expected to be funded from SIAPL.

Liquidity position: Adequate

SPBPL’s liquidity is adequate with cash balances of Rs. 0.66 crore as of March 31, 2023, and undrawn working capital lines of
Rs. 48.20 crore as on July 31, 2023, against annual repayment obligation of Rs. 24.2 crore for FY2024. ICRA also considers
SIAPL’s infusion of Rs. 277.0 crore till date into the and has given commitment towards SPBPL’s funding requirements, if any.

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 Rating sensitivities

Positive factors – The ratings could be upgraded with the company registering sustained growth in revenues and profitability
along with sharp improvement in debt metrics and liquidity position.

Negative factors – The rating could witness a downward revision in case of any adverse impact on the revenue/ profitability
of the company leading to deterioration in debt protection metrics and liquidity. Specific credit metric impacting the rating
include adjusted debt/ OPBITDA more than 3.0 times on a sustained basis.

Analytical approach

Analytical Approach Comments

Applicable rating methodologies Corporate Credit Rating Methodology
Parent/Group support Not Applicable
Consolidation/Standalone Standalone

About the company

Sripathi Paper and Boards Private Limited was set up in 2002 with a capacity of 30MT per day for kraft paper. Over the years,
SPBPL has expanded its production capacity to 790 TPD with machineries to manufacture products such as kraft paper, duplex
board, writing and printing paper, and newsprint. In FY2022, Srinidhi Investment Advisors Private Limited acquired 76% stake
in the company.

SPBPL uses recycled fibre, i.e., wastepaper as raw material for paper manufacturing. Headquartered in Coimbatore, SPBPL
operates out of its five plants across Sivakasi (four) and Sathyamangalam (one) in Tamil Nadu. The plants are spread over 77
acres of land at Sivakasi and 20 acres at Sathyamangalam. To ensure continuous power supply, SPBPL has a 6-MW co-
generation power plant and a windmill of 1.45-MW capacity.

Key financial indicators (audited)

Sripathi Paper and Boards Private Limited FY2022 FY2023

Operating income 745.3 768.2
PAT 10.2 10.3
OPBDIT/OI 11.0% 12.4%
PAT/OI 1.4% 1.3%
Total outside liabilities/Tangible net worth (times) 2.5 2.7
Total debt/OPBDIT (times) 5.0 4.0
Interest coverage (times) 1.4 1.7
PAT: Profit after tax; OPBDIT: Operating profit before depreciation, interest, taxes and amortisation; Amounts in Rs. crore

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

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 Rating history for past three years
Chronology of Rating History
Current Rating (FY2024)
for the past 3 years
Amount Date & Date &
Instrument Amount Outstanding as Date & Rating Date & Rating
Rating in Rating in
Type Rated of Mar 31, in FY2024 in FY2023
FY2022 FY2021
(Rs. crore) 2023
(Rs. crore) Oct 06, 2023 Feb 21, 2023 - -
Long Term - Fund Based [ICRA]BBB- [ICRA]BBB-
1 Long-term 250.00 179.30 - -
– Cash Credit (Stable) (Stable)
[ICRA]BBB- [ICRA]BBB-
2 Long-term – Term loans Long-term 54.44 47.80 - -
(Stable) (Stable)
Long-term – Proposed [ICRA]BBB- [ICRA]BBB-
3 Long-term 50.00 - - -
fund-based limits (Stable) (Stable)
Short Term – Non-Fund
4 Short-term 98.00 58.68 [ICRA]A3 [ICRA]A3 - -
Based – LC
Short-term – Non-fund
5 Short-term 1.00 - [ICRA]A3 [ICRA]A3 - -
based – BG
Short-term – Proposed
6 Short-term 46.56 - [ICRA]A3 [ICRA]A3 - -
Non-fund based limits

Complexity level of the rated instruments

Instrument Complexity Indicator

Long Term - fund based - cash credit Simple
Long Term - term loan Simple
Long Term - proposed fund based Simple
Short Term - non-fund based - LC Very Simple
Short Term - non-fund based - BG Very Simple
Short Term - proposed non-fund based Very Simple

The Complexity Indicator refers to the ease with which the returns associated with the rated instrument could be estimated.
It does not indicate the risk related to the timely payments on the instrument, which is rather indicated by the instrument's
credit rating. It also does not indicate the complexity associated with analysing an entity's financial, business, industry risks or
complexity related to the structural, transactional or legal aspects. Details on the complexity levels of the instruments are
available on ICRA’s website: Click Here

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 Annexure I: Instrument details

Coupon Amount Rated

ISIN Instrument Name Date of Issuance Maturity Current Rating and Outlook
Rate (Rs. crore)
NA Cash Credit - - - 250.00 [ICRA]BBB- (Stable)
NA Term Loan - 1 Nov 2017 11.00% Dec 2023 4.23 [ICRA]BBB- (Stable)
NA Term Loan - 2 Nov 2016 12.90% Aug 2023 2.18 [ICRA]BBB- (Stable)
NA Term Loan - 3 Mar 2017 11.50% May 2025 11.93 [ICRA]BBB- (Stable)
NA Term Loan - 4 Oct 2017 10.50% May 2025 18.73 [ICRA]BBB- (Stable)
NA Term Loan - 5 Jan 2018 11.15% Aug 2025 8.74 [ICRA]BBB- (Stable)
NA Term Loan - 6 Feb 2019 11.60% Nov 2025 8.63 [ICRA]BBB- (Stable)
NA Long term - Proposed NA NA NA 50.00 [ICRA]BBB- (Stable)
Letter of Credit /
NA - - - 98.00 [ICRA]A3
Buyer’s Credit
NA Bank Guarantee - - - 1.00 [ICRA]A3
Short term -
NA NA NA NA 46.56 [ICRA]A3
Proposed
Source: Company

Please click here to view details of lender-wise facilities rated by ICRA

Annexure II: List of entities considered for consolidated analysis – Not Applicable

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 ANALYST CONTACTS
Shamsher Dewan Srikumar Krishnamurthy
+91 12 4454 5300 +91 44 4596 4318
[email protected] [email protected]

Suprio Banerjee Nikhil Parakh

+91 22 6114 3443 +91 44 4596 4321
[email protected] [email protected]

RELATIONSHIP CONTACT
L Shivakumar
+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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