Rating Rationale
January 17, 2025 | Mumbai
DS Spiceco Private Limited
Rating continues on 'Watch Developing'
 
Rating Action
Total Bank Loan Facilities RatedRs.185 Crore
Long Term RatingCrisil A+/Watch Developing (Continues on 'Rating Watch with Developing Implications')
Note: None of the Directors on Crisil Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

Crisil Ratings continues its ratings on the bank facilities of DS Spiceco Pvt Ltd (Spiceco; part of the Dharampal Satyapal [DS] group) on 'Rating Watch with Developing Implications’.

 

Crisil Ratings placed the rating on watch on October 30, 2024, following the update by the management on the proposed transfer of the business of Spiceco to Dharampal Satyapal Foods Ltd (DSFL; ‘Crisil A+/Watch Developing’), both part of the Dharampal Satyapal (DS) group. The proposed merger is subject to the approval of the National Company Law Tribunal and to other necessary statutory and regulatory approvals, which are expected to take 4-5 months. Crisil Ratings will monitor the development and continue to engage with the management to understand further details of the transaction; this includes assessing expected synergies, and long-term business and financial plan, among other aspects. The watch will be resolved after all requisite regulatory approvals are in place, resulting in the conclusion of the proposed transaction; and when there is more clarity on these aspects.

 

The rating continues to factor in the strategic importance of Spiceco to, and operational and financial support the company receives from, the DS group. Other entities in the group include Dharampal Satyapal Ltd (DSL; ‘Crisil AA/Stable’) and DSFL. The rating also reflects the strong business risk profile of Spiceco, backed by its established Catch brand, and increasing scale of operations. These strengths are partially offset by exposure to volatility in raw material prices in the spices industry and average financial risk profile.

 

Business registered strong growth in fiscal 2024 to reach sales of Rs 1,252 crore. Operating margin increased to 9.8% for fiscal 2024 owing to moderate raw material prices and lower overhead costs. The financial risk profile, though moderate, remains comfortable (gearing at 1.91 times as on March 31, 2024, and interest coverage ratio of 3.53 times in fiscal 2024). Spiceco will continue to enjoy strong financial flexibility as part of the DS group and will receive need-based support from the group in case of exigency (as seen in the past).

 

The credit risk profile of the DS group is driven by DSL, which accounts for over 65% of the total revenue. DSL leads the premium pan masala segment (Rajnigandha brand has 65-70% market share) with annual sales of over Rs 5,300 crore. However, revenue concentration in a single product constrains the business risk profile. The financial risk profile of DSL is backed by healthy cash accrual of Rs 700-800 crore, small capital expenditure (capex) needs, and comfortable gearing at 0.43 time as on March 31, 2024.

Analytical Approach

Crisil Ratings has evaluated the standalone business and financial risk profiles of Spiceco. Crisil Ratings has factored in the support to Spiceco from the DS group and applied the group notch-up framework.

Key Rating Drivers & Detailed Description

Strengths:

  • Strong operational, financial and managerial support from the DS group: The group has a history of extending support to its entities. Its annual revenue is estimated over Rs 5,300 crore and cash accrual at Rs 700-800 crore. The group’s 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. DSL also has a strong financial risk profile with comfortable gearing of 0.43 time as on March 31, 2024, and healthy liquidity. The company shares suppliers and distribution channels with the group and there is scope to leverage the latter’s network to improve product reach. Crisil Ratings believes need-based support from the DS group will continue to benefit the credit profile of Spiceco.

 

  • Established brand presence in northern India: Spiceco sells spices under the Catch brand. The brand will likely increase its share with the launch of new flavours and variations. Spiceco enjoys a dominant market position in most northern states, including Uttarakhand, Punjab and Himachal Pradesh. It also has access to the full distribution reach of more than 10 lakh retailers of the DS group.

 

  • Increasing scale of operations: Spiceco started operations in 2014 when it was demerged from DSL. The industry typically has a low, albeit stable, growth rate, and the risk of subdued scale and growth is mitigated by its established brand and widespread reach. After reporting a ~33% growth in operating income in fiscal 2023, the company saw operating income grow over 42% in fiscal 2024, signaling improving scale.

 

Weaknesses:

  • Average financial risk profile: Gearing and networth were average as on March 31, 2024, at 1.91 times (2.74 times a year earlier) and Rs 191 crore (Rs 142 crore), respectively. Interest coverage was 3.53 times in fiscal 2024 versus 2.7 times in fiscal 2023. Net cash accrual of Rs 80-90 crore should comfortably cover debt obligation of Rs 36 crore over the medium term. Capex requirement will be moderate in the next fiscal as the company completed majority of the capex last fiscal. The financial metrics are expected to improve and will be monitorable.

 

  • Exposure to intense competition and volatility in raw material prices: The prices of raw spices such as coriander, chilli and fennel fluctuate depending on crop season and monsoon. Intense competition and varying taste preferences limit the extent of passing on any increase in raw material prices.

Liquidity: Adequate

The company will maintain adequate liquidity, driven by expected healthy cash accrual of Rs 80-90 crore per annum against term yearly debt obligation of ~Rs 36 crore over the medium term. Bank limit utilisation had increased last fiscal owing to higher raw material prices and has moderated gradually. Thus cash accrual and unutilised limit will be sufficient to fund working capital and operating costs. Need-based funding from the promoters will continue.

Rating sensitivity factors

Upward factors:

  • Significant increase in revenue and operating margin of 8-10% on a sustained basis
  • Sustained increase in cash generation
     

Downward factors:

  • Decline in operating margin below 6% on a sustained basis
  • Fall in net cash accrual on a sustained basis
  • Any change in the credit risk profile of the group

About the Company

Carved out of DSL and incorporated in October 2014, Spiceco is a part of the larger DS group. It sells straight spices, blended spices and table sprinklers under the Catch, Kewal and Maharaj Choice brands.

Key Financial Indicators

As on / for the period ended March 31

Unit

2024

2023

Operating income

Rs crore

1252

878

Reported profit after tax (PAT)

Rs crore

53

20

PAT margin

%

4.3

2.3

Adjusted debt/adjusted networth

Times

1.91

2.74

Interest coverage

Times

3.53

2.68

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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

Crisil Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the Crisil Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name Of Instrument Date Of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs. Crore) Complexity Levels Rating Outstanding with Outlook
NA Cash Credit NA NA NA 185.00 NA Crisil A+/Watch Developing
Annexure - Rating History for last 3 Years
  Current 2025 (History) 2024  2023  2022  Start of 2022
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 185.0 Crisil A+/Watch Developing   -- 30-10-24 Crisil A+/Watch Developing 31-10-23 Crisil A+/Stable 30-06-22 Crisil A+/Stable Crisil A+/Stable
      --   --   -- 22-09-23 Crisil A+/Stable   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 100 HDFC Bank Limited Crisil A+/Watch Developing
Cash Credit 85 HDFC Bank Limited Crisil A+/Watch Developing
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Fast Moving Consumer Goods Industry
Criteria for Notching up Stand Alone Ratings of Companies based on Group Support

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