ICRA downgrades ratings of Commercial Syn Bags; maintains 'stable' outlook

Commercial Syn Bags said that the credit rating agency ICRA has downgraded its ratings on the credit facilities of the company.

The agency has downgraded the rating on the company's long-term credit facilities to "[ICRA] BBB+ (Stable) from "[ICRA] BBB (Stable). The agency has also downgraded its rating on the short-term facilities to "ICRA A3+ from "ICRA A2.

Offering the rationale, the credit rating agency said that the change in the ratings represents ICRA's expectation of moderation in Commercial Syn Bags' (CSBL) credit metrics led by pressure on its operating margins amid a weak demand scenario in the export market.

CSBL was able to pass on input cost inflation only partly, which affected its operating margins. ICRA expects the operating margins to remain in a similar range owing to subdued demand in the European market resulting from the ongoing Russia-Ukraine conflict.

CSBL's debt levels have risen owing to ongoing capex in the geotech segment, whose benefits will accrue gradually. However, with the pressure on operating profits, CSBL's leverage and coverage metrics are expected to be moderate in the near to medium term over earlier expectations.

The ratings also factor in the stiff competition in the fragmented packaging industry as well as CSBL's working capital-intensive operations. CSBL's scale is moderate, though the capacity expansion will support growth prospects in the long-term.

ICRA expects CSBL to maintain its established market position in the flexible intermediate bulk container (FIBC) segment. The diverse end-user industries for CSBL's products provide cushion from industry-specific downturns to some extent. Moreover, the geotech products are expected to provide additional growth avenues once full-fledged commercial operations start from Q1 FY2024.

The 'stable' outlook on the [ICRA] BBB rating reflects ICRA's opinion that the company will benefit from the planned capacity expansion and a track record as an established player in the FIBC space.

Commercial Syn Bags manufactures bulk packaging materials including FIBC/jumbo bags, bulk bags, poly tarpaulin, woven sacks, box bags, PP/high density polyethylene (HDPE) fabrics and flexible packaging. The company has four manufacturing facilities at Pithampur, Indore (Madhya Pradesh) with a combined manufacturing capacity of 20,500 MTPA.

The company reported 55.69% drop in consolidated net profit to Rs 1.52 crore on a 12.07% fall in sales to Rs 64.86 crore in Q3 FY23 over Q3 FY22.

The scrip jumped 5.34% to currently trade at Rs 103.65 on the BSE.

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