Rating Rationale
October 31, 2023 | Mumbai
DS Spiceco Private Limited
Rating reaffirmed at ‘CRISIL A+/Stable’; rated amount enhanced for Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.185 Crore (Enhanced from Rs.100 Crore)
Long Term RatingCRISIL A+/Stable (Reaffirmed)
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 has reaffirmed its ‘CRISIL A+/Stable’ rating on the bank loan facility of DS Spiceco Pvt Ltd (Spiceco; part of the Dharampal Satyapal [DS] group).

 

The rating factors in the strategic importance to, and operational and financial support Spiceco receives from, the DS group. Other entities in the group are Dharampal Satyapal Ltd (DSL) (rated CRISIL AA/Stable), Dharampal Satyapal Foods Limited (rated ‘CRISIL A+/Stable’), among others. The rating also reflects the strong business risk profile of Spiceco, backed by its established Catch brand, and comfortable financial risk profile because of low dependence on external debt. These strengths are partially offset by modest scale of operations and exposure to volatility in raw material prices in the spices industry.

 

Business is estimated to have registered ~30% growth in fiscal 2023 owing to realization growth and moderate volume growth. Sales under the Catch brand (has a 2-3% market share in the organised spices segment) is estimated at Rs 800-820 crore in fiscal 2023. Operating margin is estimated at 7.2% for fiscal 2023 as raw material prices impact the margins. Financial risk profile should remain comfortable (gearing is estimated at 2.66 times as on March 31, 2023, and interest coverage ratio at 2.70 times in fiscal 2023). Spiceco will continue to enjoy strong financial flexibility as part of the DS group and will receive need-based support from the DS group in case of exigency (as seen in the past).

 

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 a 65-70% market share) with annual sales of over Rs 5,500 crore. However, revenue concentration in a single product constrains business risk profile. Financial risk profile of DSL is backed by healthy cash accrual of over Rs 700-800 crore, small capex needs, and comfortable gearing estimated below 0.36 time as on March 31, 2023.

Analytical Approach

For arriving at its rating, 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. It is estimated to have annual revenue of over Rs 5,500 crore and cash accrual of over Rs 700-800 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 over 65-70% market share along with strong financial risk profile with comfortable gearing of 0.34 time as on March 31, 2023 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 expects need based support from the group will continue to benefit credit profile of Spiceco.

 

  • Established brand presence in northern India: Spiceco sells spices under the Catch brand. Catch 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.

 

  • Improving scale of operations: Spiceco started operations in 2014 when it was demerged from DSL. Since the industry typically has a low, albeit stable, growth rate, the company’s growth has been at 9% in the past four fiscals till 2022. However, the risk of subdued scale and growth is mitigated by established brand and widespread reach. In fiscal 2022 and 2023, company saw ~20% and 30% growth signaling improving scale.

 

Weaknesses:

  • Moderating financial risk profile: Gearing and networth are estimated to be moderate at 2.66 times and Rs 143 crore, respectively, as on March 31, 2023 compared to 1.6 times and Rs 168 crore respectively. Interest coverage was adequate at 2.7 times in fiscal 2023, however moderated from 5.1 times in fiscal 2022. Net cash accrual declined significantly as one-time high dividend was paid. However, going forward, NCA is estimated to be ~Rs 50-70 crore with normalized expected dividend payment and moderate capex. This is expected to lead to an improvement in financial metrics. NCA of Rs 50-70 crore which compares with expected Rs 17-18 crore term debt repayment requirements. Capex requirement will be moderate at Rs 25-30 crore in the next fiscal as the company just completed majority of the capex in last fiscal. Financial metrics are expected to improve and will be a key 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 price rise in raw materials. Spiceco’s operating margin is estimated at 7.2% in fiscal 2023 compared to 10.3% in fiscal 2022. This decline is largely owing to higher raw material prices and is however expected at ~8-9% over the medium term.

Liquidity: Adequate

Expected cash accrual of Rs 50-70 crore against term debt repayment of ~Rs 17 crore in the near term will support liquidity. Utilisation levels increased last year owing to raw material prices and accordingly the company has enhanced limits to Rs 185 crore. This cash accrual and unutilised limit will be sufficient to fund working capital and operating costs. Need-based funding from the promoters will continue. Net cash accrual declined in fiscal 2023 as there was one-time high dividend payout. Going forward, the dividend payout is expected to normalise. This would be a key monitorable.

Outlook: Stable

Spiceco will maintain its comfortable business and financial risk profiles over the medium term, given its established position in the spices industry. Also, the company will continue to receive operational and financial support from the DS group.

Rating Sensitivity factors

Upward factors:

  • Significant increase in revenue while maintaining stable operating margin of 8-10% on a sustained basis
  • Sustained improvement in cash generation

 

Downside factors:

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

About the Company

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. For fiscal 2022, profit after tax (PAT) is estimated at Rs 19 crore on revenue of Rs 960 crore.

Key Financial Indicators

As on / for the period ended March 31

Unit

2023*

2022

2021

Operating income

Rs crore

960

738

610

Reported profit after tax

Rs crore

19

36

32

PAT margins

%

2.0

4.8

5.2

Adjusted debt/adjusted networth

Times

2.66

1.60

1.24

Interest coverage

Times

2.7

5.06

3.97

* Based on provisional financials

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 the
instrument		 Date of
Allotment		 Coupon
Rate (%)		 Maturity
Date		 Issue size
(Rs. Crore)		 Complexity
Level		 Rating assigned
with outlook
NA Cash Credit NA NA NA 185 NA CRISIL A+/Stable
Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 185.0 CRISIL A+/Stable 22-09-23 CRISIL A+/Stable 30-06-22 CRISIL A+/Stable 28-04-21 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+/Stable
Cash Credit 85 HDFC Bank Limited CRISIL A+/Stable
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
Understanding CRISILs Ratings and Rating Scales

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