Detailed Rationale

Crisil Ratings has upgraded its ratings on the bank facilities of Privi Speciality Chemicals Ltd (PSCL) to 'Crisil AA-/Stable/Crisil A1+' from 'Crisil A+/Positive/Crisil A1'.

 

The upgrade reflects sustained improvement in PSCL’s overall credit profile of PSCL. PSCL reported revenues of Rs 1488 crore from April-December 2024 against Rs. 1755 crores in fiscal 2024;  and is expected to achieve revenues of Rs.2000 crores for fiscal 2025, driven by increase in capacity,  healthy orders from customers and product additions. Operating margins improved to above 21.5% for April-December 2024, from 19.95% in fiscal 2024 and is expected to sustain above 20% over the medium term.

 

With operations remaining working capital intensive, debt levels remain at similar levels, resulting in gearing to remain around 1 time. However, with higher operating profit, interest coverage improved to around 5 times for Apr-Dec 2024 from 3.5 times in fiscal 2024, and is expected to remain at similar levels over the medium term. Liquidity is strong with expected cash accruals of Rs. 280-Rs.385 crores in medium term against repayment obligations of Rs. 117-137 crores, and average bank limit utilization of 70%.   

 

The ratings continue to reflect PSCL’s strong business risk profile, driven by an established market position in the bulk aroma chemicals industry, longstanding customer relationships, strong relationship with suppliers and improving profitability and asset utilisation. The ratings also consider comfortable financial risk profile because of comfortable capital structure and adequate debt protection metrics. These strengths are partially offset by exposure to any sudden and sharp fluctuation in foreign exchange (forex) rates, volatility in prices of raw material, particularly crude derivatives, and large working capital requirement.

Analytical Approach

Crisil Ratings has considered the consolidated financials of PSCL and its wholly owned subsidiaries and joint ventures – Privi Biotechnologies Pvt Ltd, Privi Speciality Chemical USA Corp and Prigiv Specialties Pvt Ltd, which are strategically important to, and have a significant degree of operational integration with, PSCL.

 

Loans from Givaudan India Private Limited and Givaudan SA of Rs. 232 crores as on March 31, 2025 (Rs. 70 crores as on March 31, 2024) is treated as debt.

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:

• Established market position, longstanding customer relationships and diversified product basket: Benefits from the three-decade-long experience of the promoters, their established relationships with suppliers and customers and a portfolio of 70 products (across four chemical categories -- pinene, citral, phenol and musk and speciality) should continue to support the business risk profile. Pinene-based products—dihydromyrcenol and amber fleur—account for sizeable revenue. Business is also bolstered by the key supplier status for all major global customers with which the company has healthy relationship. It exports to all major markets and is the preferred supplier to the top flavour and fragrance (F&F) houses of the world such as Givaudan (Switzerland), Firmenich (Switzerland), Symrise (Germany) and leading fast-moving consumer goods (FMCG) players such as The Procter & Gamble Company and Henkel. PSCL’s established industry presence, diversified product basket and established relations with a reputed clientele bolsters its business risk profile and will facilitate steady ramp up of operations.

 

• Strong relationship with suppliers, improving profitability and asset utilization: The company is one of the few players globally with capability to manufacture key inputs alpha and beta pinene from basic raw materials, crude sulphate turpentine and/or gum turpentine oil. The backward integration for key inputs insulates the business from fluctuations in alpha and beta pinene prices. Arrangements with suppliers for raw material procurement also supports profitability. The company has tie-ups with customers for 65-70% of its capacity on yearly basis, insulating the business from price fluctuation in key products in spot market. This, coupled with steady increase in capacity utilisation has led to improved operating margin over past three fiscals through 2025.

 

• Comfortable financial profile: With adjusted networth of Rs 921 crore and moderate reliance on external debt, capital structure has been comfortable with gearing and total outside liabilities to adjusted networth ratios of 1.06 time and 1.51 time, respectively, as on March 31, 2024. Despite debt funded capex and addition of intercorporate debt the gearing and total outside liabilities to adjusted networth ratios are expected to be in the range of 1-1.05 times and 1.4-1.5 times respectively for FY 2025. Further the management stance of maintaining gearing below 1.1 times over the medium term, further supports the financial risk profile to remain healthy over the medium term. Debt protection metrics is comfortable with interest coverage and net cash accrual to adjusted debt ratios of 3.51 times and 0.22 time, respectively, for fiscal 2024 and expected to be in the range of 4.8-5 times and 0.25-0.3 times respectively for FY 2025. Despite debt funded capex, financial profile is expected to remain comfortable over the medium term with healthy accretion to reserve and repayments of existing debt.

 

Weaknesses:

• Exposure to sudden and sharp fluctuation in forex rates and volatility in raw material prices: Exports account for 70% of revenue. While raw material imports form a partial natural hedge, the remaining is covered through forward contracts. However, the operating margin remains vulnerable to any sharp and sudden forex rate fluctuations. The operating margin is also exposed to volatility in prices of raw materials and realizations. The margin dipped to 13% in fiscal 2023 from 16% in fiscal 2022 due to higher volatility in prices. Sustenance of healthy operating margin, despite input price volatility, will remain monitorable.

 

• Large working capital requirement: The working capital cycle is likely to remain stretched and will be closely monitored. Gross current assets (GCA) were 222 days as on March 31, 2024, driven by inventory of 171 days due to stocking of key raw materials and debtors of about 72 days. The inventory levels are expected to be in similar range in medium term, as per business requirement given the lead time for imports. Furthermore, as the company deals with large global players, it has to extend an open credit of around 60-70 days. GCA days are projected to be around 210-215 days over the medium term with inventory days of around 160-165 days and debtors of around 65-70 days.

Liquidity: Strong

Cash accruals is expected to be around Rs 283-385 crore per annum, against debt repayment of Rs 117-137 crore over the medium term. The fund-based limit was utilised at around 70% during the 12 months through December 2024. The group has unencumbered cash and cash equivalents of about Rs 65 crore as on December31, 2024. Current ratio was moderate at 1.18 times as on March 31, 2024. Liquidity is further supported by need-based unsecured loans extended by the promoters. Internal cash accrual and unutilised bank lines are sufficient to meet the incremental working capital requirement.

Outlook: Stable

Crisil Ratings believes PSCL will benefit from optimum utilization of capacity, addition of customers, and higher margin yielding products. A prudent funding mix and commitment towards maintenance of the capital structure and debt coverage will ensure sustenance of the financial risk profile over the medium term.

Rating sensitivity factors

Upward factors:

• Strengthening of business risk profile, driven by ramp-up of revenue and operating profitability , leading to ROCE over 15%.
• Controlled reliance on external debt, leading to TOLANW below 1.2 times and interest coverage above 6 times, and sustenance of liquidity.

 

Downward factors:

• Gearing increasing to above 1.2 times, due to any unanticipated capital expenditure or continued high inventory.
• Weaker profitability because of high cost of production, slower ramp-up, or lower realisations, impacting cash accrual.

About the Company

PSCL, incorporated in 1985, manufactures aroma chemicals, which are used as ingredients for manufacturing fragrances. The company has six manufacturing facilities at Mahad in Maharashtra and one manufacturing facility in Jhagadia at Gujarat. PSCL has integrated operations with existing facilities to manufacture key raw materials. Mr Mahesh Babani and Mr D B Rao manage the operations.

 

The company has a wide product profile, which includes pinene-based, citral-based, phenol-based and other specialty products; customers comprise global leaders in the flavour and fragrance, and FMCG industries. It is listed in both NSE and BSE.

 

Privi Biotechnologies Pvt Ltd: The company has R&D unit for manufacturing of natural aromas.

 

Privi Speciality Chemicals USA Corporation: This is a 100% subsidiary of PSCL, carrying out the marketing and distribution of PSCL's products in the US markets.

 

Prigiv Specialties Private Limited: It is a JV with Givaudan SA for a Strategic Partnership in which PSCL has shareholding of 51%. The company has set up anew greenfield production facility in Mahad, Maharashtra and planning to manufacture 40 products exclusively for Givaudan SA.

Any other information: Not Applicable

Annexure – List of entities consolidated

Names of Entities Consolidated	Extent of Consolidation	Rationale for Consolidation
Privi Speciality Chemicals Limited	Full	Parent
Privi Speciality Chemicals USA Corporation	Full	Subsidiary company
Privi Biotechnologies Private Limited	Full	Subsidiary Company
Prigiv Specialties Pvt Ltd*	Full (51%)	Subsidiary Company

*51% owned by Privi Speciality Chemicals Ltd and 49% by Givaudan SA