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CRISIL’s ratings on the bank facilities of Sree Rayalaseema Hi-Strength Hypo Ltd (Sree Rayalaseema) continue to reflect Sree Rayalaseema’s established track record in the inorganic chemical industry, its diversified revenue profile, and improving financial risk profile supported by stable accruals. These rating strengths are partially offset by Sree Rayalaseema’s exposure to intense competition in the inorganic chemicals industry and susceptibility of its profitability to volatility in raw material prices and foreign exchange rates.
Outlook: Stable
CRISIL believes that Sree Rayalaseema will continue to benefit over the medium term from its established market position in the calcium hypochlorite business and its healthy operating margin. The outlook may be revised to ‘Positive’ if the company substantially expands its scale of operations and there is a sustainable improvement in its financial risk profile, most likely due to more-than-expected cash accruals and improvement in its capital structure. Conversely, the outlook may be revised to ‘Negative’ in case Sree Rayalaseema’s financial risk profile deteriorates, most likely due to a fall in its profitability or major debt-funded capital expenditure (capex).
Update
Sree Rayalaseema’s revenues for 2009-10 (refers to financial year, April 1 to March 31) were around 16 per cent lower than the 2008-09 levels and were also lower than CRISIL’s expectations. The drop in revenues was mainly on account of the floods in the Kurnool (Andhra Pradesh) region that affected the company’s third-quarter sales; this resulted in a loss of around 35 days of operations. However, on the back of stable production, the company is estimated to post revenues of Rs.2.1 billion in 2010-11, around 28 per cent higher than the revenues for 2009-10 and in line with CRISIL’s expectation. Sree Rayalaseema’s operating margin, which was around 19 per cent for 2009-10, is estimated to be marginally higher, at around 19.5 per cent, for 2010-11.
Sree Rayalaseema had a moderate gearing of 1.68 times as on March 31, 2010, which is estimated to be around 1.08 times as on March 31, 2011. The improvement in gearing is driven primarily by infusion of promoters’ equity of around Rs.20 million in 2010-11. The company’s interest coverage and net cash accruals to total debt ratios were around 3.32 times and 0.14 times, respectively, as on March 31, 2010. The same are estimated to be around 3.65 times and 0.36 times, respectively, as on March 31, 2011. In 2010-11, Sree Rayalaseema set up its HDPE drum production facility for packing requirements of its exports. The project was funded through internal accruals of Rs.20 million. Trial runs of the facility are currently on and once commissioned, the HDPE drum facility will help reduce the costs of packing materials over the medium term. Currently, the company purchases all its packing material from outside vendors. In 2011-12, Sree Rayalaseema also plans to double the capacity of its calcium hypochlorite plant. For this, the company plans to undertake a capex programme of Rs.360 million, which is expected to be funded through term loan of Rs.240 million and the remaining through internal accruals and equity contribution. However, the debt-funded capex is not likely to constrain the company’s financial risk profile, considering its stable cash accruals and adequate net worth, which was around Rs.555 million as on March 31, 2010.
Sree Rayalaseema has adequate liquidity, supported by improving cash accruals and moderate bank limit utilisation. In 2010-11, the company’s cash accruals are estimated at around Rs.285 million as against debt repayment obligation of around Rs.128 million during the same year. The company’s bank limits were utilised at an average of 76 per cent during 2010-11.
For 2009-10, Sree Rayalaseema reported a profit after tax (PAT) of Rs.34 million on net sales of Rs.1.65 billion, as against a PAT of Rs.152 million on net sales of Rs.1.97 billion for the preceding year.
About the Company
Incorporated in 1986, Sree Rayalaseema manufactures inorganic chemicals, such as calcium hypochlorite, stable bleaching powder, and sulphuric acid. The company, based in Kurnool, Andhra Pradesh, is part of the TGV group, founded by Mr. T G Venkatesh.
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About CRISIL Limited
CRISIL is a global analytical company providing ratings, research, and risk and policy advisory services. We are India's leading ratings agency. We are also the foremost provider of high-end research to the world's largest banks and leading corporations.
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Last updated: March 31, 2011
Disclaimer: A CRISIL rating reflects CRISIL's current opinion on the likelihood of timely payment of the obligations under the rated instrument and does not constitute an audit of the rated entity by CRISIL. CRISIL ratings are based on information provided by the issuer or obtained by CRISIL from sources it considers reliable. CRISIL does not guarantee the completeness or accuracy of the information on which the rating is based. A CRISIL rating is not a recommendation to buy, sell, or hold the rated instrument; it does not comment on the market price or suitability for a particular investor. All CRISIL ratings are under surveillance. Ratings are revised as and when circumstances so warrant. CRISIL is not responsible for any errors and especially states that it has no financial liability whatsoever to the subscribers / users / transmitters / distributors of this product. CRISIL Ratings’ rating criteria are generally available without charge to the public on the CRISIL public web site, www.crisil.com. For the latest rating information on any instrument of any company rated by CRISIL, please contact CRISIL RATING DESK at CRISILratingdesk@crisil.com, or at (+91 22) 3342 3000.
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