Key Rating Drivers & Detailed Description

Strengths:

• Established position in the precious metals business and well diversified revenue across industries and geographies

HPPL has established itself as a leading manufacturer and refiner of precious metal products with wide and diverse applications. It has a strong clientele in the domestic market, the revenues are fairly diversified amongst players in the pharmaceutical, petrochemical, electrical, fertilizer, textiles, glass, and electronics industries. HPPL is also a critical supplier to majority of its customers as its supplies catalysts that is required for production process.

The revenue is also geographically diversified with 40-45% contribution from export market.  Over the last five fiscals, revenue from the domestic market has grown at compounded annual growth rate (CAGR) of 15-16% and the export revenue has grown at around 30-35%. The diversity is expected to be maintained due to its established market position and presence through overseas subsidiaries.

• Extensive experience and strong technical background of the promoters

HPPL benefits from the promoters’ extensive experience of more than six decades and their technical expertise in the precious metals business should continue to support the company. Over the years, the company has established healthy reputation with major customers in pharmaceutical and oil & gas industry.

• Robust risk management policies

The risks related to volatility in the prices of precious metals and foreign exchange (forex) rates is mitigated through efficient risk management policies. The entire exposure is hedged through plain vanilla forward contracts, which has helped to maintain and safeguard operating profitability. For instance, despite significant volatility in precious metal prices observed in the recent fiscals; operating margin has been maintained between 15-17% and is expected to remain healthy over the medium term as well.

• Healthy financial risk profile

Networth is expected to strengthen over the medium term with healthy accretion to reserves. It is estimated to be around Rs 1000 crore as on March 31, 2022, from Rs 436 crore as on March 31, 2018. Debt protection metrics are expected to remain healthy, with net cash accrual to adjusted debt ratio of more than 0.3 time and interest coverage ratio of over 8 times, over the medium term. HPPL has undertaken capex of Rs. 150 crore to enhance its manufacturing capacity, which is expected to be completed in the first quarter of the current fiscal. Term loan of Rs 125 crore was availed in fiscal 2022 and the company is expected to generate sufficient accruals to service the debt obligations.  The financial risk profile is expected to remain comfortable over the medium term.

Weaknesses:

• Susceptibility to volatility in raw material prices

Raw materials account for around 75% of total operating income on an average. Sharp volatility in input prices and in demand affects revenue and realisations. Profitability, however, has not been significantly impacted because of robust hedging policies for metal prices and forex rates, and the ability to pass on price increase to customers.

• Working capital-intensive operations

Inventory was significant as on March 31, 2021 due to high spent catalyst purchases at the end of the fiscal. Inventory level gradually normalized in the subsequent months. Bank borrowings and inventory levels tend to spike in certain months due to high procurement based on the availability of spent catalyst. However, the risk is partially offset by the extremely liquid nature of the inventory (precious metals) and efficient risk management policies.

• Exposure to intense competition from international players

While HPPL has no major domestic competitors, it faces intense competition from established international players such as Johnson Matthey Plc (London, the UK), Umicore (Belgium), and Heraeus Holding GmbH (Hanau, Germany; rated ‘BBB+/Stable/A-2’ by S&P Global Ratings), which have presence in the country either through branches or through affiliates and joint ventures.

Key Financial Indicators

Annexure – List of entities consolidated

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper/magazine/agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL Ratings. However, CRISIL Ratings alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites and portals.

About CRISIL Ratings Limited (A subsidiary of CRISIL Limited)

CRISIL Ratings pioneered the concept of credit rating in India in 1987. With a tradition of independence, analytical rigour and innovation, we set the standards in the credit rating business. We rate the entire range of debt instruments, such as bank loans, certificates of deposit, commercial paper, non-convertible/convertible/partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 33,000 large and mid-scale corporates and financial institutions. We have also instituted several innovations in India in the rating business, including ratings for municipal bonds, partially guaranteed instruments and infrastructure investment trusts (InvITs).
 
CRISIL Ratings Limited ('CRISIL Ratings') is a wholly-owned subsidiary of CRISIL Limited ('CRISIL'). CRISIL Ratings Limited is registered in India as a credit rating agency with the Securities and Exchange Board of India ("SEBI").
 
For more information, visit www.crisilratings.com 
 

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.

CRISIL is majority owned by S&P Global Inc, a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.

For more information, visit www.crisil.com

Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK

CRISIL PRIVACY NOTICE
 
CRISIL respects your privacy. We may use your contact information, such as your name, address and email id to fulfil your request and service your account and to provide you with additional information from CRISIL. For further information on CRISIL’s privacy policy please visit www.crisil.com.

DISCLAIMER

This disclaimer is part of and applies to each credit rating report and/or credit rating rationale (‘report’) that is provided by CRISIL Ratings Limited (‘CRISIL Ratings’). To avoid doubt, the term ‘report’ includes the information, ratings and other content forming part of the report. The report is intended for the jurisdiction of India only. This report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the report is to be construed as CRISIL Ratings providing or intending to provide any services in jurisdictions where CRISIL Ratings does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this report does not create a client relationship between CRISIL Ratings and the user.

We are not aware that any user intends to rely on the report or of the manner in which a user intends to use the report. In preparing our report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the report is not intended to and does not constitute an investment advice. The report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind to enter into any deal or transaction with the entity to which the report pertains. The report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Ratings are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold or sell any securities/instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL Ratings assumes no obligation to update its opinions following publication in any form or format although CRISIL Ratings may disseminate its opinions and analysis. The rating contained in the report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the report should rely on their own judgment and take their own professional advice before acting on the report in any way. CRISIL Ratings or its associates may have other commercial transactions with the entity to which the report pertains.

Neither CRISIL Ratings nor its affiliates, third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively, ‘CRISIL Ratings Parties’) guarantee the accuracy, completeness or adequacy of the report, and no CRISIL Ratings Party shall have any liability for any errors, omissions or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the report. EACH CRISIL RATINGS PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Ratings Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. Public ratings and analysis by CRISIL Ratings, as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any), are made available on its website, www.crisilratings.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee – more details about ratings by CRISIL Ratings are available here: www.crisilratings.com.

CRISIL Ratings and its affiliates do not act as a fiduciary. While CRISIL Ratings has obtained information from sources it believes to be reliable, CRISIL Ratings does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and/or relies on in its reports. CRISIL Ratings has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL Ratings has in place a ratings code of conduct and policies for managing conflict of interest. For details please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html.

Rating criteria by CRISIL Ratings are generally available without charge to the public on the CRISIL Ratings public website, www.crisilratings.com. For latest rating information on any instrument of any company rated by CRISIL Ratings, you may contact the CRISIL Ratings desk at crisilratingdesk@crisil.com, or at (0091) 1800 267 1301.

This report should not be reproduced or redistributed to any other person or in any form without prior written consent from CRISIL Ratings.

All rights reserved @ CRISIL Ratings Limited. CRISIL Ratings is a wholly owned subsidiary of CRISIL Limited.
 

CRISIL Ratings uses the prefix ‘PP-MLD’ for the ratings of principal-protected market-linked debentures (PPMLD) with effect from November 1, 2011, to comply with the SEBI circular, "Guidelines for Issue and Listing of Structured Products/Market Linked Debentures". The revision in rating symbols for PPMLDs should not be construed as a change in the rating of the subject instrument. For details on CRISIL Ratings' use of 'PP-MLD' please refer to the notes to Rating scale for Debt Instruments and Structured Finance Instruments at the following link: https://www.crisil.com/en/home/our-businesses/ratings/credit-ratings-scale.html