Kabra Extrusiontechnik Ltd - Long-term rating upgraded to 'CRISIL A+/Stable'; Short-term rating reaffirmed

CRISIL Ratings has upgraded its rating on the long-term bank facilities of Kabra Extrusiontechnik Limited (KEL) to 'CRISIL A+/Stable' from 'CRISIL A/Positive', while reaffirming its 'CRISIL A1' rating on the short-term bank facilities of the entity.

The upgrade in ratings reflects improvement in business risk profile on account of ramping up of volumes witnessed in the battery business vertical resulting in increase in overall scale of operations. The strong growth momentum in the said business division is expected to sustain over the medium term on account of high order inflows backed by healthy demand for 2-wheeler electric vehicles. Furthermore, extrusion machinery business vertical is also expected to remain resilient and witness moderate growth over the medium term, driven by improvement in private capex cycle. As a result, of increase in overall scale of operations, operating profitability is also expected show healthy growth.

Revenues during fiscal 2022 increased by nearly 47% year-on-year (y-o-y), on the back of first full year of operation of the battery division vertical, while the extrusion machinery business division witnessed moderate growth of approximately 9% yo-y.

Operating margins contracted by 130 basis points (bps) to 13.5% during fiscal 2022, on account of change in business mix with increasing proportion of business from battery division which carries lower gross margins vis-à-vis extrusion business, however, operating profit levels increased by 35% y-o-y to Rs. 55 crores.

Revenue stood at Rs 492 crore and operating profit at Rs 51 crore for the nine months through December 2022. During this period, the battery division continued its strong growth momentum, registering y-o-y growth of 475%, while extrusion machinery grew by 10%. KEL's battery division witnessed robust growth on account of new product launches, OEM partnerships, and strong market share gains. Operating margins contracted to 10.3% for the said period from 13.5% during fiscal 2022, owing to skewness towards the battery division.

KEL expect strong order inflows for EV battery packs and plan to expand into 3-wheeler and 4-wheeler in the second half of fiscal 2024. To leverage on the market opportunity, the company had announced Rs. 100 crores capital expenditure (capex) investments announced on December 25, 2021, to enhance production capacity to approx. 2 Gwh p.a. from previous levels of 0.25 Gwh; the capacity stands at 0.50 Gwh p.a. as on December 31, 2022, with utilization levels of 70-80%. This capex is funded entirely through issuance of equity warrants of preferential basis and should get completed by the end of fiscal 2024. While the battery division is expected to witness healthy growth, any change in technology and ability of KEL to adapt towards the same (given the evolving nature of the industry) would remain monitorable. This apart, any major liability arising on account of warranty claims would also be a rating monitorable.

The financial risk profile continues to remain strong, backed by strong capital structure and healthy debt protection metrics. Capital structure marked by adjusted gearing (Gross Debt / Adjusted Networth) stands at 0.18 times as on March 31, 2022, and the said metric shall remain between 0.20-0.30 times over the medium term owing to rise in short-term working capital debt. Key debt protection metrics remain robust as indicated by interest coverage which stands at 21.45 times as on March 31, 2022, and over the medium term the same is expected to remain above ~10.0 times, thereby providing sufficient buffer to cash flows.

The ratings continue to reflect KEL's healthy business risk profile as indicated by successful implementation and offtake in battery business division, along with resilient performance from extrusion business vertical. The ratings also factor in the strong financial risk profile and commitment of promoters. These strengths are partially offset by industry cyclicality for capital goods, customer concentration risk under battery business division, and working capital intensive operations.

Shares of Kabra Extrusion Technik Limited was last trading in BSE at Rs. 478.15 as compared to the previous close of Rs. 454.60. The total number of shares traded during the day was 20492 in over 1001 trades.

The stock hit an intraday high of Rs. 480.95 and intraday low of 452.55. The net turnover during the day was Rs. 9548039.00.

Source : Equity Bulls

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