| Hindustan Platinum Private Limited | ||||||
| Rating upgraded to 'CRISIL AA-/Stable'; 'CRISIL A1+' reassigned to Bank Debt | ||||||
| Rating Action | ||||||
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| 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 upgraded its rating on the long-term bank facilities of Hindustan Platinum Pvt Ltd (HPPL) to ‘CRISIL AA-/Stable’ from ‘CRISIL A+/Positive’ and reassigned 'CRISIL A1+' to the short-term bank facilities. The ratings upgrade takes into account improving scale of operations and healthy operating profitability, leading to steady growth in accrual. For fiscal 2023, the operating income is estimated to have registered healthy revenue growth of ~39% buoyed by demand from the pharmaceutical, oil and gas, engineering products and chemical sectors, in both domestic and export markets. Revenue is estimated to be around Rs 2,400 crore (Rs 1,730 crore in fiscal 2022), while the company has also sustained operating margin at strong levels of close to 20%. Over the medium term, revenue is expected to show healthy growth on account of sustained demand from end-user industries including pharmaceutical, oil and gas, engineering products and chemicals, both in the domestic and export markets. The operating efficiency is expected to be maintained due to effective hedging mechanism, international procurement of raw materials and improving operating leverage. As a result, operating profitability is expected to remain healthy at 19-20% over the medium term, resulting in strong annual cash generation. The financial risk profile continues to remain healthy supported by strong networth of over Rs 1,100 crore as on March 31, 2023, nil term debt and only working capital-related borrowings, which are backed by inventory. HPPL continues to have strong debt protection metrics with interest coverage ratio of more than 7 times, and ratio of total outside liabilities to tangible (TOLTNW) networth ratio of 0.9 time. These ratios are expected to remain at comfortable levels over the medium term. Besides, liquidity is strong supported by healthy cash and equivalent and unutilised bank lines. The ratings continue to reflect the company’s established market position in the precious metals refining business with well diversified revenues across geographies and industries, extensive industry experience and strong technical background of the promoters. The ratings are also supported by robust risk management policies and the company’s healthy financial risk profile. These strengths are partially offset by vulnerability to volatility in precious metal prices, large working capital requirement and exposure to intense competition in the global market. |
Analytical Approach For arriving at its ratings, CRISIL Ratings has combined the business and financial risk profiles of HPPL, its wholly owned subsidiaries, Hindustan Platinum International Ltd (Mauritius), Hindustan Platinum P.R. LLC (Puerto Rico), Hindustan Platinum DMCC (UAE)
CRISIL Ratings has treated metal loans from banks and financial corporations as part of HPPL’s debt to arrive at the TOLTNW ratio.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
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 are required for the production process.
The revenue is also geographically diversified with around 40% contribution from the export market. Over the last five fiscals ending 2022, revenue from the domestic market has grown at compound annual growth rate (CAGR) of 11-12% and the export revenue has grown at 25-30%. The diversity is expected to be maintained due to its established market position and presence through overseas subsidiaries.
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 the pharmaceutical and oil and gas industries.
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 at 17-19% and is expected to remain healthy over the medium term as well.
Networth is expected to strengthen over the medium term with healthy accretion to reserves. It is estimated to be around Rs 1,100 crore as on March 31, 2023, 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 7 times, over the medium term. The TOLTNW ratio is also estimated to be comfortable at ~0.9 time in fiscal 2023 (0.86 time in fiscal 2022) and is expected to remain at comfortable levels over the medium term. HPPL has undertaken capital expenditure (capex) of around Rs 300 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 was prepaid in fiscal 2023. Any sizeable debt-funded acquisitions, impacting debt metrics materially, would be a monitorable.
Weaknesses:
Raw materials account for 70-75% of total operating income on 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.
Inventory remains high on account of the nature of business that includes spent catalyst purchases and requirement to maintain certain inventory level at all times. Bank borrowings and inventory levels tend to spike in certain months due to high procurement based on the availability of the spent catalyst. However, the risk is partially offset by the extremely liquid nature of the inventory (precious metals) and efficient risk management policies.
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. |
Liquidity: Strong Cash accrual is expected to remain at Rs 320-350 crore per annum, over the medium term, against nil debt obligation. Cash and equivalent stood at Rs 28 crore as on March 28, 2023, and declined compared to earlier years, due to higher inventory stocking. Bank limit of Rs ~1,795 crore (majority of which is interchangeable between fund-based and non-fund-based limits) was utilised at 62% on average over the 12 months through February 2023, providing ample leeway to raise incremental funding for working capital-related needs. The utilisation of the fund-based limit for the last 12 months through February 2023 was 67% on average. |
Outlook: Stable CRISIL Ratings believes HPPL’s business risk profile will continue to be strong over the medium term, supported by its market position in the precious metal refining business and healthy revenue diversity. Operating efficiency is also expected to remain healthy. Also, HPPL is expected to sustain its healthy financial risk profile supported by strong cash accrual and healthy debt coverage indicators. |
Rating Sensitivity factors Upward factors
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About the Company Incorporated in 1961 in Mumbai and promoted by the Choksi brothers, HPPL refines and fabricates precious and semi-precious metals such as platinum, palladium, rhodium, ruthenium, gold and silver for use across various industries. The company is primarily into manufacturing of electric contacts for use in electric appliances, precious metal salts and supported catalyst mainly for the pharmaceuticals industry (significant contribution to revenue) and precious metals salts used in research and analytical labs, fertilizers, among others. The company also undertakes job work for various pharma and fertilizer companies.
HPPL is an affiliate member of LPPM (London Platinum and Palladium Market) since May 2014 and an associate member of LBMA (London Bullion Market Association- good delivery refiner). Only the refiners whose materials are found to meet a certain required standard can become LPPM members. LPPM members can liquidate the inventory on a T+2 basis. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Fully interchangeable with fund-based facility ^Commercial standby letter of credit fully interchangeable with fund-based facility # - Fully interchangeable with Non fund-based facility |
Annexure – List of entities consolidated
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| 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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