Detailed Rationale

Crisil Ratings has upgraded its ratings on the bank facilities of Ddev Plastiks Industries Limited (DPIL) to ‘Crisil A+/Stable/Crisil A1+’ from ‘Crisil A/Positive/Crisil A1’.

 

The rating action factors in the sustained improvement in the business risk profile of the company, supported by growth in volumes and better product mix leading to higher-than-expected profit which is expected to sustain over the medium term. The ratings also factor in sustenance of healthy financial risk profile and strengthening of liquidity, which will improve over the medium term in the absence of debt obligation.

 

While revenue was Rs 1,878 crore for the first nine months of fiscal 2025, similar to the corresponding period of the previous fiscal, volumes saw growth of 13% on-year. Despite the increase in volumes, revenue remained flat owing to decline in realisation and lower trading sales. Revenue is estimated to have grown 4-6% in fiscal 2025 and is expected to grow 8-10% over the medium term supported by increasing focus on the high-voltage cable segment and ramp-up of halogen free flame retardant (HFFR) cable compounds.

 

Earnings before interest, tax, depreciation and amortisation (Ebitda) margin during the first nine months of fiscal 2025 improved to 10.8% from 9.5% in the corresponding period of the previous fiscal backed by improved product mix and operating leverage gains. Gross margin, which used to be lower ~13%, improved to ~18% in the last two fiscals owing to change in product mix and lower raw material prices. Revenue share of the high-margin polyethylene (PE) compounds has been steadily increasing and forms ~85% of the total income, against 76% four years ago. Furthermore, the company’s products are priced on a cost-plus markup model, which insulates the profitability from sharp volatility in raw material prices. Operating margin is expected to sustain at a healthy 11.0-11.5%, with gross profit per kg expected to improve over the medium term with commencement of sales in higher voltage segment. Also, increasing share of HFFR will benefit gross profit. Return on capital employed is expected to remain healthy at more than 25% over the medium term.

 

Debt protection metrics remained comfortable, with debt to Ebitda ratio below 0.6 time as on December 31, 2024. The ratio is expected to remain comfortable in the absence of any major debt raise over the medium term. The entire debt is in the form of working capital. Gearing is expected below 0.2 time over the medium term in the absence of any major debt-funded capital expenditure (capex). DPIL had healthy interest coverage ratio of 12 times and net cash accrual to adjusted debt (NCAAD) ratio above ~110% as on December 31, 2024. Over the medium term, the interest coverage and NCAAD ratios are expected at above 13 times and at 125%, respectively.

 

Liquidity will remain strong, with cash accrual expected at Rs 180-260 crore per fiscal over the medium term against nil debt obligation. Capex of Rs 200-250 crore over the next 2-3 fiscals is expected to be funded through internal accrual. Liquidity is augmented by unencumbered liquid surplus of ~Rs 72 crore as on September 30, 2024.

 

The ratings reflect the company’s healthy market position, wide product range, strong clientele and experienced management. The ratings also factor in the healthy and improving financial risk profile backed by strong cash accrual aiding consistent accretion to the networth and debt-free balance sheet.

 

These strengths are partially offset by exposure to intense competition in the compounds market, dependence on large players in the oil and gas industry for raw material and susceptibility to volatility in raw material prices and foreign currency rates. While the company does not have sizeable exports to the US, any indirect impact of the US tariffs will remain monitorable.

Analytical Approach

Crisil Ratings has considered the standalone business and financial risk profiles of DPIL.

Key Rating Drivers & Detailed Description

Strengths:

Healthy business risk profile, extensive experience of the promoters, wide product range and strong clientele: DPIL is promoted by the Kolkata-based Surana family, which has been associated with the polymer compounds industry for over five decades. Over the years, they have diversified the product profile, developed strong understanding of market dynamics and established healthy relationships with suppliers and customers. Clientele includes large wire and cable companies such as KEI Industries Ltd, Havells India Ltd, Apar Industries Ltd and KEC International Ltd, as well as some key international manufacturers.

 

The company is the largest polymer compounder in India with capacity of 233,400 TPA, with market leadership in PE compounds catering to low, medium and high voltage power cable industry. This is supported by diversified products used for manufacturing building wires, control and instrumentation cables, and insulation and jacketing of wires in the wire and cable industry, as well as in the packaging segment. The company’s strong market position is underpinned by large scale of operations (turnover of Rs 1,878 crore in the nine months ended December 31, 2024) and a diverse customer base.

 

Prudent inventory management and strategic location of facilities: The company has manufacturing facilities on the east and west coasts of India (West Bengal, Daman and Silvassa). The strategic location of the units provides logistical advantage for the import of raw materials as well as export of products. Proximity to suppliers and ports helps keep tight control over inventory (20-40 days in the past eight fiscals). DPIL has increased its share of imports from the Middle East, where it gets interest-free credit period. Volatility in prices of raw materials (crude oil derivatives) impacts operating profitability. However, prudent inventory management has helped protect the business from sharp fluctuation in raw material prices and sustain operating profitability. 

 

Comfortable capital structure and healthy debt protection metrics: Networth was healthy at Rs 794 crore as on December 31, 2024, resulting in comfortable gearing of 0.18 time. Furthermore, the company does not have any term loan and the entire debt is working capital. With no major capex and effective working capital management backed by timely realisation of receivables, the capital structure will likely remain healthy over the medium term. Debt protection metrics will remain robust over the medium term.

 

Weaknesses:

Exposure to intense competition in the compounds market and dependence on large players in the oil and gas industry for raw material: The domestic polymer compounds industry faces intense competition from imports from global chemical giants, such as Borealis AG and Dow Chemical Company. These players have large capacities and economies of scale. While they mainly cater to specialty-grade compounds focused on high and extra-high-voltage power cables, DPIL’s business performance remains susceptible to competition from imports. The company procures 60-70% of its raw material from Reliance Industries Ltd (‘Crisil AAA/Stable/Crisil A1+’), Indian Oil Corporation Ltd (‘Crisil AAA/Stable/Crisil A1+’) and ONGC Petro-additions Ltd, leading to limited bargaining power.

 

Susceptibility to volatility in raw material prices and foreign currency rates: Raw materials, such as low-density PE, high-density PE and polyvinyl chloride (PVC) resin, used to manufacture polymer compounds are crude derivatives and some proportions of these are imported. Input prices and currency exchange rates have been volatile because of sharp fluctuations in crude oil prices. While the company has demonstrated discipline in working capital management, profitability remains susceptible to any sharp movement in raw material prices and currency rates.

Liquidity: Strong

Liquidity is backed by no long-term debt and cumulative capex of Rs 200-250 crore over the next 2-3 fiscals being funded through internal accrual of Rs 180-260 crore per annum. The working capital requirement is expected to be met through internal accrual. Bank limit of Rs 749 crore was utilised 34% on average during the 12 months through March 2025. Unencumbered liquidity stood at Rs 72 crore as on September 30, 2024.

Outlook: Stable

DPIL will continue to benefit from healthy market position in the domestic polymer compound business, wide product range, strong clientele and comfortable financial risk profile. Going ahead, it will benefit from increasing focus on the cross-linked polyethylene segment, ramp-up of HFFR compounds and buoyant growth outlook of its key end-user segment. Also, higher cash generation with ramp-up in operations and absence of major capex should support the financial risk profile over the medium term.

Rating sensitivity factors

Upward factors

• Significant increase in revenue aided by increase in volumes of HFFR and high-voltage segments leading to improvement in operating profitability to 12-13% on a sustained basis
• Maintenance of healthy financial risk profile through prudent funding of capex and efficient working capital management

 

Downward factors

• Sluggish revenue growth impacting operating profitability (below 8%) and cash accrual
• Debt-funded capex and stretched working capital cycle weakening the financial risk profile

About the Company

Incorporated in December 2020 by the Surana family members, DPIL houses the polymer compounds business of the Kkalpana group. In March 2022, Kkalpana Industries (India) Ltd received National Company Law Tribunal approval for demerging its compounds business into DPIL. The business was started in 1985 with a unit in Daman for manufacturing PVC compounds. Sustained expansion has resulted in a diverse product portfolio comprising PE compounds, PVC compounds, masterbatches, engineering plastics and HFFR compounds. The company has five plants across West Bengal, Daman & Diu, Dadra & Nagar Haveli, and Noida and has aggregate installed capacity of 233,400 TPA.

Any other information: Not Applicable