Riyan Paper Mill

December 29, 2017

Summary of rated instruments

Current Rated Amount
Instrument* Rating Action
(Rs. crore)
Fund-based - Working Capital Facility 3.50 [ICRA]B+(Stable); Assigned
Fund-based - Term Loan 5.90 [ICRA]B+(Stable); Assigned
Total 9.40

Rating action
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ICRA has assigned its long-rating of [ICRA]B+ (pronounced ICRA B plus) on the Rs. 9.40-crore fund-based bank facilities of
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Riyan Paper Mill (RPM) . The outlook on the long-term rating is Stable.

Rationale
ICRA’s ratings take into consideration the extensive experience of RPM’s partners in the paper industry as a trader of
waste paper and corrugated box manufacturing through a Group company. This, coupled with its established customer
base comprising traders and agents of kraft paper and corrugated box manufacturers ensures repeated orders.
Moreover, the proximity to the port area also ensures an easy availability of raw material i.e. waste paper.

The ratings, however, are constrained by the firm’s modest scale of operations and limited track record of kraft-paper
manufacturing with operations having started in March, 2017 and its single product concentration as entire revenue is
being generated from kraft paper only. ICRA also takes into account the exposure of the firm’s profitability to volatility in
the prices of the key raw material, waste paper, and the intense competition in the low burst factor (BF) kraft paper
category due to the highly fragmented nature of the industry. Furthermore, the financial profile of the company is weak,
as evident from its low absolute profits, leveraged capital structure and moderate coverage indicators.

Going forward, the company’s ability to profitably increase its scale of operations while improving its capital-structure
and maintaining optimal working-capital intensity would remain the key rating sensitivities.

Outlook: Stable
ICRA believes that RPM would continue to get benefits from the partners’ extensive experience in the paper industry,
location-specific advantage in both sourcing raw material and selling kraft paper, coupled with a healthy demand of
brown craft paper for corrugated-box manufacturing. The outlook may be revised to 'Positive' if substantial growth in
revenue and profitability, and better working-capital management, strengthens the financial-risk profile. The outlook
may be revised to 'Negative' if cash accrual is lower than expected, or any major decline in revenues, or stretch in the
working-capital cycle, weakens liquidity.

1
100 lakh = 1 crore = 10 million
2
For complete rating scale and definitions, please refer to ICRA's website www.icra.in or other ICRA Rating Publications

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Key rating drivers

Credit strengths
Extensive experience of the partners in paper industry - The partners have more than a decade of experience in the
paper industry. The partners are also involved in corrugated box-manufacturing business through a Group company and
in the trading of waste paper for a long time.

Locational advantage with proximity to raw material sources and customers - The firm enjoys the location-specific
advantage from its proximity to Kandla and Mundra ports, as RPM procures most of the waste paper from the
surrounding districts of these ports. The firm also sells its kraft paper primarily to the customers located in Gujarat and
Maharashtra.

Credit challenges
Limited track record of kraft-paper manufacturing - The firm has a limited track record of manufacturing operations as it
was involved in trading business only before starting the kraft-paper manufacturing in February-March, 2017.

Single product concentration risk with entire revenue generated from kraft paper - The entire sale of the firm is
generated through a single product of different burst factors, which exposes it to product concentration risk.

Profitability exposed to volatility in the raw material prices - The firm’s margins are primarily affected by the raw
material price fluctuation, which in turn affects the sales realisations. Any adverse movement in the price of raw
materials could have an adverse impact on the company’s margins, considering the limited ability to pass on the price
hike owing to the intense competition. The operating margin declined in FY2017 on account of the increase in raw
material prices.

Intensely competitive and highly fragmented industry - The kraft-paper industry is highly competitive and fragmented in
nature with a number of large players and numerous small players. There are many paper mills in the country serving
various centres of corrugated box manufacturers. However, due to low margins, the business of kraft paper remains
primarily regionalised as high transportation costs make it economically unviable to sell the paper at far-away locations.

Weak financial profile characterised by leveraged capital structure and low coverage indicators - RPM’s financial profile
remains weak with leveraged gearing and low coverage indicators. The company’s gearing is high at 2.44 times as on
March 31, 2017 owing to its low net worth, while the interest coverage and DCSR declined to 2.67 times in FY2017.

Analytical approach: For arriving at the ratings, ICRA has applied its rating methodologies as indicated below.

Links to applicable criteria:

Corporate Credit Rating Methodology

Rating Methodology for Paper Industry

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About the company
RPM was incorporated as a partnership firm in April, 2015, by Mr. Nasinbanu Suhil Lakhani and Mr. Sohil Barkatali
Lakhani with equal profit sharing ratio. The firm manufactures kraft paper with an installed capacity of 29700 metric
tonne per annum (MTPA). The manufacturing facility of the firm is located in the Surat district of Gujarat. The
manufacturing operation of the plant started in February-March, 2017. Before this, it was involved in the trading of
various varieties of papers. The partners are also involved in corrugated box-manufacturing business through a Group
company and in the trading of waste paper.

Key financial indicators (Audited)

FY2016 FY2017
Operating Income (Rs. crore) 2.43 7.34
PAT (Rs. crore) 0.07 0.05
OPBDIT/ OI (%) 4.12% 14.29%
RoCE (%) - 2.84%

Total Debt/ TNW (times) 4.24 2.44

Total Debt/ OPBDIT (times) 16.63 9.67
Interest Coverage (times) - 5.83
NWC/ OI (%) 80% 49%

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 (FY2018) past 3 years
Date & Date & Date &
Date & Rating in Rating in Rating in
Amount Amount Rating FY2017 FY2016 FY2015
Rated Outstanding December
Instrument Type (Rs. crore) (Rs. crore) 2017
1 Cash Credit Long 3.50 - [ICRA]B+ - - -
Term (Stable)
2 Term Loan Long 5.90 5.60 [ICRA]B+
Term (Stable)

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 www.icra.in

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Annexure-1: Instrument Details
Date of Amount
Issuance / Maturity Rated Current Rating
ISIN No Instrument Name Sanction Coupon Rate Date (Rs. crore) and Outlook
NA Cash Credit - - - 3.50 [ICRA]B+ (Stable)
NA Term Loan August 2016 - June 2024 5.90 [ICRA]B+ (Stable)
Source: Riyan Paper Mill

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ANALYST CONTACTS
Sabyasachi Majumdar Manish Ballabh
+91 124 4545 304 +91 124 4545 812
[email protected] [email protected]

Gaurav Singla Uday Kumar

+91 124 4545 366 +91 124 4545 867
[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:

+91-124-2866928 (open Monday to Friday, from 9:30 am to 6 pm)

[email protected]

About ICRA Limited:

ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and financial services
companies as an independent and professional investment Information and Credit Rating Agency.

Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited
Company, with its shares listed on the Bombay Stock Exchange and the National Stock Exchange. The international Credit
Rating Agency Moody’s Investors Service is ICRA’s largest shareholder.

For more information, visit www.icra.in

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