Key Rating Drivers & Detailed Description

Strengths:

• Robust financial risk profile: The company remained debt-free as on March 31, 2020, and also estimated to remain in fiscal 2021, leading to robust capital structure and debt protection metrics.

• Established presence in the masterbatch industry and longstanding relationships with customers: The company has an established presence of more than three decades in masterbatches for dope dyeing synthetic fibers, and has longstanding relationships with key customers, resulting in a healthy business risk profile.
• Efficient working capital management: Gross current assets are estimated at 130 days, driven by moderate inventory of 66 days and receivables of 40 days, as on March 31, 2021. Working capital requirement is met through credit from suppliers and internal accruals. CRISIL Ratings believes the working capital cycle will remain stable and will be efficiently managed.

Weaknesses:

• Muted revenue growth: The company operated at almost full capacity over the five fiscals through 2020, resulting in muted revenue growth.

• Intense competition: Large and organised players such as PPL offer superior-quality products at competitive prices because of economies of scale and access to advanced technology. Nonetheless, they face competition from numerous players catering to local customers.

• Exposure to project related risks: The company is setting up a plant with an initial capacity of 5,000-6,000 tonne per annum entailing capital expenditure (capex) of Rs 85 crore to be funded through internal cash accrual. The project is expected to be completed by July/August 2021. Timely implementation of the project, stabilisation of operations, and commensurate ramp-up of sales will remain critical to achieve growth in revenue and profitability, and hence, will be monitored closely.

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