Press Release

Magicrete Building Solutions Private Limited

November 12, 2018
Ratings
1
Facilities Amount (Rs. crore) Ratings Rating Action
29.64 CARE BBB-; Stable
Long-term Bank Facilities Reaffirmed
(reduced from Rs.34.34 crore) (Triple B Minus; Outlook: Stable)
Short-term Bank Facilities 0.92 CARE A3 (A Three) Reaffirmed
30.56
Total Facilities
(Thirty crore and Fifty Six lakhs only)
Details of facilities in Anneuxre-1

Detailed Rationale & Key Rating Drivers

The ratings assigned to the bank facilities of Magicrete Building Solutions Private Limited (MBSPL) continues to take into
account its competent management, MBSPL’s established track record of manufacturing Autoclaved Aerated Concrete
(AAC) blocks with strategically located manufacturing facilities, its established brand name and favorable demand outlook
for AAC blocks due to increasing acceptance of the product in the market. Further, ratings also favorably take into
account recovery in demand leading to healthy growth in sales volume of AAC blocks during FY18 (refers to the period
April 01 to March 31) and H1FY19 and improvement in debt coverage indicators albeit continue to remain moderate.
The ratings, however continue to be constrained on account of its modest scale of operations with low profitability
margins and weak return indicators i.e. ROCE & RONW, high working capital intensity, cyclicality associated with the real
estate industry which is its key end-use industry and its presence in highly competitive and fragmented industry.
MBSPL’s ability to increase its scale of operations along with efficient utilisation of capacities and improvement in
profitability in the back-drop of competitive industry scenario is the key rating sensitivities. Further, efficient working
capital management and any future expansion projects and its funding profile would also remain crucial.

Detailed description of the key rating drivers

Key Rating Strengths
Competent management: MBSPL is promoted by first-generation entrepreneurs who have decade long experience in the
technical field. Mr. Sourabh Bansal and Mr. Siddharth Bansal hold engineering degree from IIT, while Mr Punit Mittal is a
qualified CA, CS and CWA. Further, MBSPL also has Nominee Director from Motilal Oswal PE fund who has vast
experience of in setting up systems and processes for supply chain and cost controls.

Established track record of manufacturing AAC blocks: MBSPL has nearly a decade long established manufacturing track
record in AAC blocks since its incorporation in 2008. AAC block, which finds application in the real estate activities, is an
environment friendly green building product and is being manufactured using waste of thermal power plants, fly ash.
MBSPL also continues to be amongst the top three AAC block manufacturer of India. MBSPL markets its products under
the brand name ‘Magicrete’ which has earned trustworthiness among real estate and construction players for its quality.
Moreover, MBSPL also offers gypsum plaster and dry mortar under the brand ‘Magicplast’ and ‘Magicbond’ respectively
as add-on products.

Strategically located manufacturing facilities: MBSPL has production facilities located in Surat, Gujarat as well as in
Jhajjar, Haryana; which provided operational flexibility and keeps the company at advantageous position considering the
logistic intensive nature of the product, nearness to key raw material and proximity to major consumption centres of
India viz. Surat, Ahmedabad, Mumbai and Delhi NCR. Further, MBSPL commenced operations with initial installed
capacity of 100,000 cubic meters per annum (CMPA). Over the years, with rising demand of AAC blocks, the company has
expanded its installed capacity to 720,000 CMPA as September 30, 2018.

Revival in demand leading to healthy sales volume growth during FY18 and H1FY19: Demand of AAC blocks remained
subdued during FY17 due to adverse impact of demonetization on real estate industry. However, demand improved
during FY18 leading to growth of 37% in sales volume of AAC blocks over FY17. Capacity utilization remained healthy at
around 75% during FY18 (54% during FY17 and 72% during FY16). Demand further improved during H1FY18, where sales
volume of AAC blocks grew by 42% over H1FY18 and capacity utilization also remained healthy around 83%. Capacity
utilization is expected to remain healthy on account of positive demand outlook of AAC Blocks.

1
Complete definitions of the ratings assigned are available at www.careratings.com and in other CARE publications.
1 CARE Ratings Limited
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 Press Release

Healthy capital base: Conversion of compulsory convertible preference share and compulsory convertible debentures in
to equity during FY17 led to increase in capital base to Rs.73.52 crore as on March 31, 2018. The promoters have also
infused additional equity of Rs.2.50 crore in FY17 and Rs.2.50 crore in FY18 aggregating to Rs.5.00 crore. Total debt also
declined due to scheduled repayment of term debt. Due to combination of these factors, the capital structure of MBSPL
has consistently improved during last two years ended FY18.

Positive demand outlook for AAC block: Various properties like lighter weight, high strength along with being eco-
friendly and cost-effective the AAC blocks have become one of the preferred walling product among real estate
developers. Further, with the increasing awareness and acceptance for usage of green building products, non-availability
of clay bricks in certain markets and anticipated growth in the real estate sector enhanced by Government of India’s
‘Housing for All by 2022’ and ‘Smart City’ mission, the market for AAC block is expected to exhibit steady growth going
forward. Moreover, after implementation of GST, the selling price of AAC block would become more competitive as the
non-excisable products like clay brick are likely to be costlier.

Key Rating Weaknesses

Modest scale of operation with continued low profitability margins: After witnessing decline of 26% in total operating
income (TOI) during FY17 over FY16, TOI of MBSPL grew by 33% during FY18 over FY17. Despite growth in TOI, it
continues to remain modest at Rs.115.84 crore during FY18 marginally lower than FY16. The growth in TOI during FY18 is
majorly driven by low base effect as the business of MBSPL was adversely impacted during FY17 due to demonetisation.
Moreover, despite growth in TOI, the PBILDT margin declined during FY18 on account of decline in average sales
realisation of AAC blocks. Moreover, due to weak profitability and low cash accruals, the debt coverage indicators too
have remained moderate over the years ended FY18. However, the debt servicing was supported by equity infusion of
Rs.2.50 crore each during FY17 and FY18. Moreover, with low fixed assets turnover ratio and weak profitability margins,
the return indicators i.e. ROCE and RONW remains low in the range of 5-7% and 3-5% respectively over past three years
ended FY18. Due to recovery in demand during H1FY19, the PBILDT margin improved by over 300 bps over FY18,
although, company’s ability to sustain this profitability remains to be seen.

Working capital intensive nature of operations: The operation of MBSPL remains working capital intensive since they
need to extent the higher credit to their customers to push the demand of its products in competitive market
environment. The liquidity position of the company remained tight marked by marked by below unity current ratio as on
March 31, 2018 and elongated debtor collection which led to high utilization of average fund-based working capital limits.
Further the company had Rs.7.65 crore of debtors outstanding for more than 6 months as on March 31, 2018. Hence,
timely realization of debtor and efficient management of working capital remains crucial from credit perspective.

High competitive intensity and cyclicality associated with the real estate industry: The AAC block industry is at nascent
phase, further it has direct competition with conventional red clay bricks in terms of price and acceptance. The low entry
barriers like simple manufacturing technique and low capital investment requirement has led to substantial addition in
manufacturing capacities over past 3-4 years in the form of small and regional players. Moreover, AAC blocks are sold to
the real estate sector, thereby exposing the company to the risks and cyclicality associated with it.

Analytical approach: Standalone

Applicable Criteria
Criteria on assigning Outlook to Credit Ratings
CARE’s Policy on Default Recognition
Criteria for Short Term Instruments
Rating Methodology-Manufacturing Companies
Financial ratios – Non-Financial Sector

About the Company

Incorporated in 2008 Surat-based MBSPL is engaged in the manufacturing of ‘Magicrete’ brand AAC blocks, a green
building product, which due to its physical properties like thermal insulation, lighter weight and high strength mainly finds
application in wall construction especially load bearing walls and Beams. The company had an installed capacity of
720,000 cubic meters per annum (CMPA) as on September 30, 2019 spread over two manufacturing units located at
Navsari (Gujarat) and Jhajjar (Haryana). Moreover, MBSPL also offers gypsum plaster and dry mortar under the brand
‘Magicplast’ and ‘Magicbond’ respectively as add-on products. MBSPL runs an online portal “buildmyghar.com” which
provides design and floor plan solutions to individual home builders; it also provides prefab building parts along with
service of onsite fabrication.

2 CARE Ratings Limited

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 Press Release

Brief Financials (Rs. crore) FY17 (A) FY18 (A)

Total operating income (TOI) # 87.08 115.84
PBILDT 9.56 9.97
PAT 0.14 2.17
Overall gearing (times) 0.49 0.39
PBILDT Interest coverage (times) 1.80 2.45
A – Audited; # Net-off transportation expenses recovery.

MBSPL reported TOI of Rs.61.06 crore during H1FY19 as compared to TOI of Rs.50.20 crore during H1FY18. Further, the
PBILDT margin also remained at 12.21% during H1FY19.

Status of non-cooperation with previous CRA: Not Applicable

Any other information: Not Applicable
Rating History (Last three years): Please refer Annexure-2
Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity.
This classification is available at www.careratings.com. Investors/market intermediaries/regulators or others are welcome
to write to care@careratings.com for any clarifications.

Analyst Contact
Name: Mr. Krunal Modi
Tel: 079-40265614
Mobile: +91-8511190084
Email: krunal.modi@careratings.com

**For detailed Rationale Report and subscription information, please contact us at www.careratings.com

About CARE Ratings:

CARE Ratings commenced operations in April 1993 and over nearly two decades; it has established itself as one of the
leading credit rating agencies in India. CARE is registered with the Securities and Exchange Board of India (SEBI) and also
recognized as an External Credit Assessment Institution (ECAI) by the Reserve Bank of India (RBI). CARE Ratings is proud of
its rightful place in the Indian capital market built around investor confidence. CARE Ratings provides the entire spectrum
of credit rating that helps the corporates to raise capital for their various requirements and assists the investors to form
an informed investment decision based on the credit risk and their own risk-return expectations. Our rating and grading
service offerings leverage our domain and analytical expertise backed by the methodologies congruent with the
international best practices.

Disclaimer
CARE’s ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall the
concerned bank facilities or to buy, sell or hold any security. CARE has based its ratings/outlooks on information obtained
from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or
completeness of any information and is not responsible for any errors or omissions or for the results obtained from the
use of such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee,
based on the amount and type of bank facilities/instruments.
In case of partnership/proprietary concerns, the rating /outlook assigned by CARE is based on the capital deployed by the
partners/proprietor and the financial strength of the firm at present. The rating/outlook may undergo change in case of
withdrawal of capital or the unsecured loans brought in by the partners/proprietor in addition to the financial
performance and other relevant factors.

3 CARE Ratings Limited

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 Press Release

Annexure-1: Details of Instruments/Facilities

Size of the Rating assigned

Date of Coupon Maturity
Name of the Instrument Issue along with Rating
Issuance Rate Date
(Rs. crore) Outlook
Fund-based - LT-Term Loan - - December 2020 7.64 CARE BBB-; Stable
Fund-based - LT-Cash Credit - - - 22.00 CARE BBB-; Stable
Non-fund-based - ST-Credit Exposure
- - - 0.92 CARE A3
Limit

Annexure-2: Rating History of last three years

Current Ratings Rating history

Name of the Date(s) & Date(s) & Date(s) & Date(s) &
Sr. Amount
Instrument/Bank Rating(s) Rating(s) Rating(s) Rating(s)
No. Type Outstanding Rating
Facilities assigned in assigned in assigned in assigned in
(Rs. crore)
2017-2018 2016-2017 2015-2016 2014-2015
1)CARE BBB-; 1)CARE BBB-;
Fund-based - LT- CARE BBB-; 1)CARE BBB- 1)CARE BBB-
1. LT 7.64 Stable Stable
Term Loan Stable (12-Jan-16) (27-Nov-14)
(26-Dec-17) (09-Jan-17)
1)CARE BBB-; 1)CARE BBB-;
Fund-based - LT-Cash CARE BBB-; 1)CARE BBB- 1)CARE BBB-
2. LT 22.00 Stable Stable
Credit Stable (12-Jan-16) (27-Nov-14)
(26-Dec-17) (09-Jan-17)
Non-fund-based - ST- 1)CARE A3 1)CARE A3 1)CARE A3 1)CARE A3
3. ST 0.92 CARE A3
Credit Exposure Limit (26-Dec-17) (09-Jan-17) (12-Jan-16) (27-Nov-14)
1)CARE BBB-;
Fund-based - LT- 1)CARE BBB- 1)CARE BBB-
4. LT - - Withdrawn Stable
Stand by Limits (12-Jan-16) (27-Nov-14)
(09-Jan-17)

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 Press Release

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