Rationale

 For arriving at the ratings, ICRA has consolidated the operational and financial profile of Amman Granites (AG) and AG Granites Private Limited (AGGPL) (together referred as the Group), based on the common shareholders, management, the presence of cross default clauses and the entities being operated as extended arms of each other. The reaffirmation of the ratings factors in the sustained comfortable financial risk profile and established operational track record of the Group in the granite industry. The Group’s leverage and debt coverage indicators are likely to be adequate in the medium term, supported by moderate debt levels and absence of debt-funded capex plans. The working capital debt has increased in FY2024 to support elongation in debtor and inventory cycle due to global headwinds. However, the leverage and debt coverage metrics remained adequate with total outside liabilities (TOL)/tangible net worth (TNW) at 1.4 times, interest coverage of 3.4 times and debt service coverage ratio (DSCR) of 2.9 times in FY2024. The ratings derive comfort from the Group’s established relationship with key customers, which has resulted in repeat orders and lend stability to its revenue. It has a strong supplier network, along with own quarries, which ensures timely availability of raw materials of desired quality. The ratings, however, remain constrained by the Group’s high working capital-intensive nature of operations, with net working capital/operating income (NWC/OI) increasing to 49% in FY2024 from 32% in FY2023 on account of delayed payments and shipments due to geopolitical issues like the Red Sea crisis and the Russia-Ukraine war. The NWC/OI is expected to be in the range of 43-46%, owing to high inventory levels, driven by large number of stock keeping units (SKUs), own quarrying and elongated debtors’ position. Further, the operating income declined by 18% in FY2024 to ~Rs. 185 crore on account of significant decrease in realisation and the operating margins reduced to 9.3% in FY2024 (PY: 10%) due to increase in logistics costs. While the revenues are projected to rise by 5-10% YoY in FY2025 and FY2026, the operating margins are expected to remain in the range of 8.5-9.5% in the medium term. The ratings are constrained by the high geographical concentration of the Group’s revenues in the European region, which exposes it to the risk of adverse macro-economic developments in those markets. Further, the ratings consider the susceptibility of the Group’s margins to raw material prices and foreign exchange fluctuations. The Stable outlook on the long-term rating reflects ICRA’s expectation that the Group will benefit from the strong supplier network and healthy relationship with key customer, which results in repeat orders and adequate debt protection metrics.