| RSPL 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 AA/Stable/CRISIL A1+’ ratings on the bank facilities and debt instruments of RSPL LIMITED (RSPL).
The rating on the Rs 450 crore proposed long-term bank facilities has been withdrawn on request from the company and in line with the withdrawal policy of CRISIL Ratings.
The rating action factors in sustained operating performance of RSPL, driven by its strong market position of the 'Ghadi' brand in the detergent industry and stabilisation of the soda ash plant, which will aid backward integration and ramp up of sales. The rating action also factors in the strong financial risk profile, driven by prepayment of debt and build-up of a healthy cash surplus.
Revenue growth was flat year-on-year during fiscal 2023, amidst lower volume in the laundry segment. However, overall realisations rose to Rs 50 per kg from Rs 44 per kg in fiscal 2022. Operating margin was around 18% in fiscal 2023, as against around 21% in fiscal 2022, aided by normalisation of the soda ash prices from the all-time high prices in fiscal 2022, along with increase in cost of power and selling expenses. The soda ash project also operated at a capacity of over 87% during the fiscal. The plant met the captive requirement and contributed significantly to revenue (around 16% in fiscal 2023; up from 9% in fiscal 2022). Going forward, CRISIL Ratings expects revenue to grow by 2-5% and operating margin to remain healthy at 18-19%, supported by the established market position of the Ghadi brand and benefits from backward integration.
Financial risk profile remains healthy with sustained debt reduction and healthy accretion to networth. Total debt has reduced to Rs 1,686 crore as on March 31, 2023 (from Rs 3,198 crore as on March 31, 2020), owing to scheduled repayment and pre-payments of term debt, and lower dependence on working capital debt. Healthy cash accrual of over Rs 900 crore per annum will suffice to fund the proposed capacity expansion of the soda ash facility and also meet debt repayment and incremental working capital expenses. Consequently, debt protection metrics were healthy, marked by total debt to earnings before interest, tax, depreciation and amortisation (EBIDTA) ratio and net cash accrual to total debt ratio of 1.38 times and 0.49 time, respectively, in fiscal 2023. Total debt may be reduced further on the back of prepayments in the medium term. Consequently, total debt to EBIDTA and NCATD ratios are likely to be above one time and 0.8 time, respectively, over the medium term.
Financial flexibility remains adequate, given the ballooning nature of debt repayments, which are well-spaced out over 11 years till 2031. Liquidity also remains comfortable with cash and equivalents of Rs 839 crore as on March 31, 2023, and cushion in the working capital limit of Rs 370 crore. These rating strengths are partially offset by brand concentration risk and the competitive nature of the detergent industry |
Analytical Approach To arrive at the rating, CRISIL Ratings has consolidated RSPL and its wholly owned subsidiary - RSPL Health Private Ltd, India, RSPL Health BD Ltd, Bangladesh and RSPL Health Global FZE, Dubai as these companies are under common management and have financial and operational linkages.
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: Leadership position in the economy segment of the detergent industry, especially in North and Central India RSPL has a leadership position in the economy detergent segment through its flagship brand, Ghadi, especially in North and Central India. RSPL has established a strong network of distributors and dealers. Revenue has recorded a compound annual growth rate of around 8% over the five fiscals through March 2023. During fiscal 2023, revenue grew by 5%, supported by healthy realisations in laundry care and soda ash segments.
Going forward, the company is likely to focus on entry into new markets. In the absence of material capacity additions, revenue growth will remain modest, also depending on end-product prices.
Healthy operating efficiency Operating margin is likely to sustain at 18-20% over the medium term, aided by backward integration. Return on capital employed stood at 17% in fiscal 2023 and is expected to lie in the range of 13-15% going forward.
Operating efficiency is sound backed by a strong network of 3,700 stockists and distributors, providing a retail reach of 28-30 lakh outlets in India. The company also benefits from its cost effective and well-established sourcing strategy for raw materials.
Efficient working capital management, sustenance of healthy operating margin, along with the strong distribution channel, will support return on capital employed and operating efficiency.
Healthy financial risk profile Financial risk profile is marked by steady cash accrual and strong debt protection metrics. Post operationalization of the soda ash plant, net cash accrual was been healthy over the past two fiscals. This, along with faster repayments, has helped debt reduce to Rs 1,686 crore in fiscal 2023, from Rs 3,200 crore in fiscal 2020. Consequently, metrics such as interest coverage ratio, total debt to EBIDTA and NCATD were healthy at 8.9 times,1.38 times and 0.49 time, respectively, in fiscal 2023. Financial flexibility remains comfortable with well-spaced out debt repayments over 11 years and liquid surplus of Rs 839 crore as on March 31, 2023. RSPL plans to expand its soda ash capacity over the next 2-3 fiscals, and fund the same internally. Debt to EBITDA is likely to remain below one time in the medium term.
Weakness: Exposure to risks stemming from intense competition and high dependence on the Ghadi brand The Ghadi brand contributes to over 73% of the revenue and profit of RSPL. Over the years, the company has expanded its product and brand portfolio by adding various products such as Uniwash (mid-premium category detergent), Xpert (dish washing soap), and Venus (bathing soap), Pro-ease (sanitary pads) and Glori (bathing soap). However, it remains highly dependent on the Ghadi brand.
Further, intense competition from other large players and unorganised players in the economy detergent segment limits the ability to pass on price hikes to end-users. Large players include Hindustan Unilever Ltd (HUL; rated 'CRISIL AAA/Stable'; with its brand Wheel), Procter & Gamble Hygiene & Health Care Ltd and Nirma Ltd ('CRISIL AA/CRISIL AA-/Stable/CRISIL A1+'). These players are well-established in the domestic market, especially in the western and southern parts of India. |
Liquidity: Strong Liquidity is driven by expected cash accrual of Rs 900-1000 crore per annum, against term debt obligation of Rs 200-240 crore over the medium term. Cash and cash equivalents stood at Rs 839 crore as on March 31, 2023. The company will undertake modest capex over the medium term. CRISIL Ratings expects internal accrual, cash & cash equivalent and unutilised bank limit to comfortably cover the debt repayment, as well as incremental capex and working capital requirement. |
Outlook: Stable CRISIL Ratings believes RSPL will maintain a healthy financial risk profile over the medium term, marked by healthy net cash accrual, leading to sustained financial flexibility and modest capex spend. The company will also continue to benefit from its established market position in the economy detergent segment and improving operating efficiency, backed by backward integration in the soda ash project. |
Rating Sensitivity Factors Upward factors:
Downward factors:
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About the Company RSPL was incorporated as a detergent manufacturer in 1988. The company sells detergent powders and cakes through Ghadi, its flagship brand. RSPL has also launched other brands such as Uniwash, Xpert, Venus and Pro-ease.
RSPL has set up 0.5 MTPA soda ash plant in the Dwarka district of Gujarat. One stream of the project commenced operations in March 2019 and the second stream started operations in October 2019. RSPL also set up a cogeneration steam and power plant to produce 300 tonne per hour of steam and 50 megawatt of power. Overall project cost was around Rs 4,250 crore and involved sizeable debt funding. For the first quarter of fiscal 2024, the company has reported a revenue of Rs 1528.36 crore and EBDITA of Rs 357.99 crore |
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)
#Yet to be issued *Including sublimit of 90 Crore for NFB |
Annexure - List of Entities Consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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