| DS Confectionery Products Limited | ||||
| Rating reaffirmed at 'CRISIL A+ / Stable'; rated amount enhanced for Bank Debt | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL A+/Stable’ rating on the long-term bank facilities of DS Confectionery Products Ltd (DSCPL; part of the Dharampal Satyapal (DS) group).
The rating continues to factor in the strategic importance of DSCPL to, and the financial flexibility of, the DS group, which includes Dharampal Satyapal Ltd (DSL; rated ‘CRISIL AA/Stable’), DS Spiceco Pvt Ltd and several smaller entities. The rating also reflects the company’s strong business risk profile with established brands such as Pulse and Pass Pass, and comfortable financial risk profile. These strengths are partially offset by modest scale of operations and exposure to intense competition in the confectionery industry.
Revenue is expected to grow 25-30% year-on-year in fiscal 2022, and operating margin should sustain at 13-14% given the sustenance of healthy demand and decline in raw material prices. Thereafter, revenue is likely to normalise while operating profitability is expected to improve to around 15%.
Cash accrual, expected at Rs 50-60 crore in the near term, will adequately cover annual capital expenditure (capex) of ~Rs 8 crore. The financial risk profile should remain comfortable with gearing and interest coverage expected at 0.09-0.27 time and 56.04-65.00 times, respectively, in fiscal 2022 and 2023. The gearing was 0.19 time as on March 31, 2021, and interest coverage was 12.87 times in fiscal 2021. Net cash accrual to adjusted debt ratio is expected ~3 times over the medium term. |
Analytical Approach CRISIL Ratings has factored in the need-based support to DSCPL from the DS group and applied the group notch–up framework. |
Key Rating Drivers & Detailed Description Strengths Strategic importance to and healthy financial flexibility of the DS group DSCPL benefits from need-based operational, financial, and managerial support from the DS group, which has a history of extending support to group entities as seen in the hospitality and packaging businesses. The group has annual revenue of over Rs 5,000 crore and cash accrual of Rs 650-670 crore. The group rating is driven by the business risk profile of DSL, given its strong brands and market leadership in the premium pan masala segment' its Rajnigandha brand has 65-70% market share along with strong financial risk profile with comfortable gearing of 0.15 time as on March 31, 2021 and healthy cash surplus.
DSCPL has been extended flexibility in payments for brands purchased post formation of new company. The company has common suppliers and distribution channels with the group, and there is scope to leverage the latter’s distribution network to improve the reach of its confectionery products. CRISIL expects strong need-based support from the group to continue in the medium erm.
Strong market position in the HBC segment DSCPL has a strong business profile with Industry leader position in HBC segment and strong presence in mouth freshener products with brand strength of Pass-Pass. The Company sells candy under the Pulse brand (revenue of Rs 360-370 crore in fiscal 2021 and dominant 10-12% market share in the organised HBC segment), which saw strong growth over the past four fiscals. The HBC segment is expected to see growth of 20-22% till fiscal 2023 and Pulse will likely increase its share with regular launches of new flavours and variations to attract consumers. DSCPL has also ventured into snacks and namkeen business segment with launch of Pulse brand-peanut masala and chana chur. DSCPL has its own distribution channel and plans to increase its reach in the medium term. Although operating revenue scale has declined in fiscal 2021 on like to like basis, the impact was however offset by higher margins during the fiscal.
Comfortable financial risk profile Gearing and net worth are expected to be healthy at 0.15 - 0.27 time and Rs 131- 150 crore, respectively, as on March 31, 2022 due to improved profitability and minimum utilization of external debt. Debt protection metrics should be comfortable with net cash accrual to adjusted debt ratio and interest coverage expected at 2.15 and 56.04 times, respectively, in fiscal 2022, compared with 3.84 and 12.84 times, respectively, in fiscal 2021. Capex requirement will be low at ~Rs 8 crore in the near term. DSCPL had limited debt as on March 31, 2021, and any capex is expected to be financed by internal accrual. Expected cash generation of Rs 75-90 crore each in fiscals 2022 and 2023 with low capex intensity should strengthen the debt protection metrics and improve gearing to below 0.1 time.
Weaknesses Modest, though improving, scale of operations in a highly fragmented market DSCPL started operations in October 2019. Most peers in the confectionery business have longstanding and established presence with large scale, and players such as ITC, Perfetti and Parle have a bigger distribution reach and scale. The industry typically has a low, albeit stable, rate of growth, and DSCPL’s growth has been low post the initial launch and ramp-up. However, the risks of modest scale and low growth are mitigated by the company’s established brands and increasing reach.
Exposure to intense competition The confectionery industry is highly unorganised with only 50-55% of the domestic market being organised. The business will remain competitive with constant product innovations and new product launches by all companies. This is also reflected in moderation in growth in weak years (for instance, decline of 4-5% in fiscal 2018). Presence of multiple regional players and different regional taste preferences limit ability to penetrate new markets. |
Liquidity: Strong Expected cash accrual of Rs 75-90 crore against nil long term debt obligation in the near term will support liquidity. Moreover, the company utilises less than 5% of its bank limits of Rs 36 crore and has Rs 19 crore of sanctioned undisbursed term loans. Cash and unutilised limit will be sufficient to fund working capital and operating costs. Need-based funding support from the promoters will continue. |
Outlook Stable CRISIL Ratings believes DSCPL will maintain comfortable business and financial risk profiles given its dominant position in the HBC segment, and will continue to benefit from its strategic importance to and healthy financial flexibility of the group. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company DSCPL started operations in October 2019.DSCPL is a part of the larger DS group focusing on confectionary products. It sells mouth fresheners and HBC under the Pass Pass, Pulse, Chingles, and Rajnigandha Silver Pearls brands.
DSCPL has achieved revenue of Rs 103.15 crore and operating profit of Rs 0.83 crore for the 3-month period Q1FY2022. |
Key Financial Indicators
^financials for 6-month period beginning October 2019 |
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
*Fully interchangeable with working capital demand loan |
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||
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Criteria Details
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