| Privi Speciality Chemicals Limited | ||||||
| Ratings Reaffirmed | ||||||
| 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 reaffirmed its ‘CRISIL A+/Stable/CRISIL A1’ ratings on the bank facilities of Privi Speciality Chemicals Limited (PSCL).
The ratings continue to reflect PSCL’s strong business risk profile, driven by an established market position in the bulk aroma chemicals industry, long-standing customer relationships, strong relationship with suppliers, and improving profitability and asset utilization. The ratings also factor in an above-average financial risk profile because of a 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 For arriving at the ratings, 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 Private Limited (PSPL), which are strategically important to, and have a significant degree of operational integration with PSCL.
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 promoters' two-decade-long experience in the industry, established relationships with suppliers and customers, and a portfolio of 65 products (across four chemical categories - pinene, citral, phenol, and sandalwood) 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 a healthy relationship. Exports to all the major markets and is the preferred supplier to the top flavor and fragrance (F&F) houses of the world like Givaudan (Switzerland), Firmenich (Switzerland), Symrise (Germany) and leading FMCG players like P&G and Henkel. PSCL’s established industry presence, diversified product basket and long and established relations with its reputed clientele bolsters its business risk profile and the same will also facilitate the company in steady ramp up in its 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 and insulates it from fluctuations in alpha and beta pinene. The arrangements with suppliers for raw material procurement also support the company’s profitability. It also has tie-up for 65% of its capacity with customers on yearly basis, insulating from fluctuation of key products in spot market.
Comfortable financial risk profile: While PSCL has a healthy net worth of Rs. 819.33 crores, the reliance on external borrowings have increased in fiscal 2023 leading to gearing and total outside liabilities to adjusted net worth (TOLANW) ratio of 1.29 time and 1.89 times respectively as on March 31, 2023 (1.13 times and 1.67 times respectively as on March 31, 2022). The capital structure is expected to improve in fiscal 2024 with gearing and TOLANW ratio at or below 1 time and 1.6 times, respectively, with scheduled repayment of debt and reduction in inventory levels, while net worth continues to improve with steady accretion to reserves. Debt protection metrics were comfortable, with interest coverage ratio at 3 times and net cash accrual to total debt ratio of 0.12 time in fiscal 2023. The debt protection metrics are also expected to improve backed by increased scale of operations and consequently healthy profitability.
Weakness: 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 company's operating margin is also exposed to volatility in prices of crude derivatives-based raw material, which form close to 30% of total raw material component. This led to sharp margin fluctuations margins dipping to 13% in fiscal 2023 from 16% in fiscal 2022. Going forward, sustenance of healthy operating margins despite raw material price volatility will remain a key monitorable
Large working capital requirement: Operations are working capital intensive marked by gross current assets (GCAs) of 265 days as on March 31, 2023. Inventory levels were high in fiscal 2023 at 208 days due to excess stocking of key raw materials on account of global disruptions with Russia-Ukraine war and slowdown in export markets. However, inventory levels are expected to reduce back to 140 to 160 days in fiscal 2024 as per business requirements given the lead time for imports. Furthermore, as the company deals with large global players, it has to extend an open credit of 60-90 days. Debtors stood at about 67 days as on March 31, 2023. The working capital cycle is expected to improve but remain large with GCA around 200 to 230 days over the medium term. |
Liquidity: Strong PSCL enjoys strong liquidity driven by expected cash accruals of more than Rs.180-215 crores per annum in fiscals 2024 and 2025 against debt repayment of Rs 103 crores and Rs 100 crores, respectively. PSCL’s fund-based limits were utilized to the tune of 79% on an average over the 12 months ended July 2023. Unencumbered cash and cash equivalents was about Rs.20 crores as on March 31, 2023. Current ratio was moderate at 1.09 times as of March 2023. Liquidity is further supported by need based promoter support through unsecured loans. CRISIL Rating believes that internal cash accruals and unutilised bank lines are sufficient to meet its incremental working capital requirements. |
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. |
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About the Company PSCL, incorporated in 1985, manufactures aroma chemicals, which are used as ingredients for manufacturing fragrances. The company presently has six manufacturing facilities at Mahad (in Maharashtra) and Jhagadia, Gujarat. PSCL has integrated operations with existing facilities to manufacture key raw materials. Operations are managed by Mr. Mahesh Babani and Mr. D B Rao.
The company has a wide product profile which includes pinene based, citral based, phenol based, and other specialty products and its customers comprise of global leaders in the flavors and fragrance and FMCG industry. |
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)
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Annexure - List of Entities Consolidated
*51% owned by Privi Speciality Chemicals Ltd and 49% by Givaudan SA |
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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