Rating Rationale

March 12, 2024 | Mumbai

LSKB Aluminium Foils Private Limited

Rating upgraded to 'CRISIL BBB/Stable'

Rating Action
Total Bank Loan Facilities Rated Rs.166.16 Crore
Long Term Rating CRISIL BBB/Stable (Upgraded from 'CRISIL BBB-/Positive')
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings.
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1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale
CRISIL Ratings has upgraded its rating on the long-term bank facilities of LSKB Aluminium Foils Pvt Ltd (LSKB)
to 'CRISIL BBB/Stable‘ from ‘CRISIL BBB-/Positive’.

The upgrade in rating considers a belief that the business risk profile of LSKB will continue to improve over the medium
term. In the first nine months of fiscal 2024, volumes have exceeded fiscal 2023 levels. Thus, despite a decline in
realisations, operating income is estimated at a healthy Rs 289.9 crore till December 31, 2023, and expected at Rs 380-390
crore in fiscal 2024 (against Rs 348.2 crore in fiscal 2023). The operating margin is projected at 14-15%, leading to cash
accrual more than Rs 41 crore in fiscal 2024.

The rating reflects the extensive experience of the promoters in the packaging industry, improving scale of operations and
diversified end-user industry base of LSKB. These strengths are partially offset by large working capital requirement,
leveraged capital structure and exposure to volatility in raw material prices.
Analytical Approach
Unsecured loans (Rs 136.5 crore as on March 31, 2023) extended by the promoters have been treated as neither debt nor
equity as these funds are on an increasing trend and likely to remain in the business over the medium term.
Key Rating Drivers & Detailed Description
Strengths:
Extensive experience of the promoters: The promoters have more than three decades of experience in the packaging
industry; their strong understanding of market dynamics and healthy relationships with suppliers and customers should
continue to support the business. Operating income is estimated at a healthy Rs 289.9 crore till December 31, 2023, and
expected at Rs 380-390 crore in fiscal 2024 (against Rs 348.2 crore in fiscal 2023), led by increasing volumes. The
company has already exceeded volumes of fiscal 2023 in the first nine months of fiscal 2024. Sustenance of the
turnover will be a key monitorable.

Diversified end-user industry base: The company caters to fast moving consumer goods, pharmaceutical and food
industries. Such diversity in clientele insulates the business from slowdown in any particular industry and achieve
higher growth.

Weaknesses:
Large working capital requirement: The working capital cycle is likely to remain stretched and will be closely monitored.
Gross current assets were sizeable at 197 days as on March 31, 2023, led by moderate receivables of 44 days and huge
inventory of 128 days; the values are expected at similar levels as on March 31, 2024. As the company imports majority
of its raw material from China, inventory remains huge due to higher transit period.

Leveraged capital structure: Though networth is expected to be healthy at more than Rs 132 crore as on March 31,
2024 (against over Rs 130 crore a year ago), the capital structure remains leveraged, reflected in gearing of 1.6-1.7
times. This is owing to the recent debt-funded capital expenditure (capex) and large working capital requirement. The
capital structure may improve over the medium term, in the absence of any major, debt-funded capex during the coming
fiscals.
 Exposure to volatility in raw material prices: Since cost of procuring the key raw material accounts for 75-80% of sales,
even a slight variation in price can drastically impact the operating margin. Though the company can pass on any price
hike to customers, the ability to sustain healthy profitability remains a key monitorable.
Liquidity: Adequate
Cash accrual is projected more than Rs 41 crore per annum, against yearly debt obligation of about Rs 23 crore in fiscal
2024. Bank limit of Rs 100 crore was utilised at around 88% during the 12 months through December 2023. Current ratio
was moderate at 1.25 times as on March 31, 2023, and is expected at a similar level on March 31, 2024.
Outlook: Stable
LSKB will continue to benefit from the extensive experience of its promoters and their healthy relations with customers and
suppliers.
Rating Sensitivity factors
Upward factors:
Operating income increasing to Rs 550-600 crore and operating margin over 14-15%, leading to higher-than-expected
cash accrual
Improvement in the working capital cycle, thereby reducing debt and boosting return on capital employed

Downward factors:
Decline in operating income or profitability dropping below 10%, resulting in lower-than-expected cash accrual
Any large, debt-funded capex impacting capital structure and/or liquidity profile
About the Company
LSKB was incorporated in 2018 and commenced commercial operations from September 2021. It manufactures aluminum
foils up to six micron such as aluminum foil, aluminum container and insulation foil. It is one among the three
manufacturers of less than one micron aluminum products in India. Its facility at Sonipat in Haryana has capacity of 19,183
tonne per annum. Mr Lakshya Singhal, Mr Kunal Bajaj and Mr Sandeep Bajaj are the promoters.
Key Financial Indicators
As on/for the period ended March 31 Unit 2023 2022
Operating income Rs crore 348.15 100.76
Reported profit after tax (PAT) Rs crore 51.48 25.13
PAT margin % 0.11 0.10
Adjusted debt/adjusted networth Times 1.92 1.62
Interest coverage Times 3.71 3.57

Any other information: Not Applicable

Note on complexity levels of the rated instrument:

CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where
applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available
information. The complexity level for instruments may be updated, where required, in the rating rationale published
subsequent to the issuance of the instrument when details on such features are available.

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Annexure - Details of Instrument(s)

Name of the Date of Coupon Maturity Issue size Complexity Rating assigned
ISIN
instrument Allotment Rate (%) Date (Rs. Crore) Level with outlook
NA Cash credit NA NA NA 30 NA CRISIL BBB/Stable
NA Cash credit NA NA NA 30 NA CRISIL BBB/Stable
NA Cash credit NA NA NA 40 NA CRISIL BBB/Stable
NA Term loan NA NA Mar-2029 51.16 NA CRISIL BBB/Stable
NA Term loan NA NA Nov-2028 15 NA CRISIL BBB/Stable

Annexure - Rating History for last 3 Years

Start of
Current 2024 (History) 2023 2022 2021
2021

Outstanding
Instrument Type Rating Date Rating Date Rating Date Rating Date Rating Rating
Amount

Fund Based CRISIL CRISIL CRISIL

Facilities
LT 166.16 BBB/Stable -- 20-11-23 BBB-/Positive 05-09-22 BBB-/Stable -- --
 CRISIL
-- -- -- 30-08-22 BBB-/Stable -- --

All amounts are in Rs.Cr.

Annexure - Details of Bank Lenders & Facilities

Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 30 Axis Bank Limited CRISIL BBB/Stable
Cash Credit 30 State Bank of India CRISIL BBB/Stable
Cash Credit 40 YES Bank Limited CRISIL BBB/Stable
Term Loan 51.16 State Bank of India CRISIL BBB/Stable
Term Loan 15 Axis Bank Limited CRISIL BBB/Stable

Criteria Details

Links to related criteria

CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
CRISILs Approach to Financial Ratios

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