Rating Rationale
July 05, 2017 | Mumbai
Savita Oil Technologies Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.835.57 Crore (Reduced from Rs.909.71 Crore)
Long Term Rating CRISIL AA-/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its ratings on the bank facilities of Savita Oil Technologies Limited (SOTL) at 'CRISIL AA-/Stable/CRISIL A1+'.
 
The ratings continue to reflect the company's established market position, diversified revenue profile, and healthy financial risk profile backed by low debt repayment obligation and largely unutilised fund-based limit. These strengths are partially offset by modest growth in demand from end-user industries, vulnerability of operating margin to volatility in foreign exchange (forex) rates and raw material prices, working-capital-intensive operations, and exposure to intense competition.

Key Rating Drivers & Detailed Description
Strengths
* Established market position
With a market share of 35-40% in the transformer oil and white oil segments, the company has a strong market position. It has a low market share of 3% currently in the lubricant industry, however has developed a strong customer profile. CRISIL believes that SOTL will maintain its established market position, given its long track record, and established relations with major customers.
 
* Diversified revenue profile across end-user industries and geographies
SOTL enjoys end-user and geographical diversity, which lends stability to its revenue profile. The company's products (transformer oil, white oil, and lubricants) primarily cater to three different end-user segments: power and distribution transformers, cosmetics and healthcare, and automotive and industrial lubricants, respectively. Exports, which contribute around 16% to overall revenue, also lend geographical diversity. Furthermore, the company has wind power plants aggregating 54.15 megawatt (MW), which generated revenue of Rs 43.7 crore in fiscal 2017 from sale to state electricity boards and others.
 
* Healthy financial risk profile
Total outside liabilities to tangible networth ratio was comfortable at 0.7 time as on March 31, 2017. Also, unutilised fund-based bank limit and unencumbered cash of Rs 31 crore support liquidity. Absence of substantial debt-funded capital expenditure (capex) over the medium term will help sustain capital structure.
 
Weaknesses
* Susceptibility to volatility in forex rates and prices of base oil
Since base oil, key raw material (85-90% of total input cost), is a crude derivative, prices remain susceptible to any sharp volatility in crude prices. Also, the company imports 90% of base oil requirement because of limited availability in the domestic market, which exposes it to adverse fluctuations in forex rates. Against this, exports comprise only around 16% of total revenue. However, SOTL covers 50-60% of forex exposure through forward contracts, options, and natural hedge.
 
* Working capital-intensive operations
Gross current assets have been in the 175-200 days' range in the past five years because of large inventory. The company has to maintain large stock of 4-6 weeks for receiving base oil at its site from its suppliers and to insulate itself from price volatility due to supply-side concerns in spot markets.
 
* Exposure to intense competition
The base oil processing industry is intensely competitive due to low entry barrier, leading to limited differentiation in products. Also, players mostly focus on volume, which leads to competitive pricing and hence inability to fully pass on increase in base oil prices to customers. However, SOTL benefits from technical approvals that it has received from main customers, which serves as a barrier for new entrants as processing base oil is a time-consuming process.
Outlook: Stable

CRISIL believes SOTL will maintain its healthy financial risk profile over the medium term, supported by its comfortable capital structure, moderate debt repayment obligation and adequate liquidity.
 
Upside Scenario:
* More-than-anticipated improvement in operating performance in terms of revenue, margins, and return on capital employed on a sustained basis
* Steady financial risk profile
 
Downside Scenario:
* Substantial decline in business performance, profitability, and cash accrual
* Larger-than-expected debt-funded capex limiting expected improvement in key credit metrics

About the Company

Established in 1961, SOTL is a leading player in the transformer oil, white oil, and industrial and automotive lubricants industries. These products are essentially obtained through refining base oil and are topped with additives to get the required characteristics. Facilities in Turbhe, Maharashtra; and Kharadpada and Silli in Silvassa have refining capacity of 450,000 kilolitres per annum. The company also has wind power capacity of 54.15 MW; this power is sold to state electricity boards and other users under long-term agreements.
 
Profit after tax (PAT) was Rs 93.6 crore on a net operating income of Rs 1497.2 crore in fiscal 2017, against a PAT of Rs 36.2 crore on a net operating income of Rs 1485.4 crore for the previous fiscal.

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs crore) Rating assigned with outlook
NA Cash Credit NA NA NA 60 CRISIL AA-/Stable
NA Letter of credit & Bank Guarantee NA NA NA 767 CRISIL A1+
NA Term Loan NA NA 30-May-2018 8.57 CRISIL AA-/Stable
Annexure - Rating History for last 3 Years
  Current 2017 (History) 2016  2015  2014  Start of 2014
Instrument Type Quantum Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  68.57  CRISIL AA-/Stable    No Rating Change  23-02-16  CRISIL AA-/Stable  30-01-15  CRISIL AA/Negative    No Rating Change  CRISIL AA/Stable 
Non Fund-based Bank Facilities  LT/ST  767  CRISIL A1+    No Rating Change    No Rating Change    No Rating Change    No Rating Change  CRISIL A1+ 
Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit 60 CRISIL AA-/Stable Cash Credit 60 CRISIL AA-/Stable
Letter of credit & Bank Guarantee 767 CRISIL A1+ Letter of credit & Bank Guarantee 822 CRISIL A1+
Term Loan 8.57 CRISIL AA-/Stable Proposed Long Term Bank Loan Facility 29.08 Withdrawal
-- 0 -- Term Loan 27.71 CRISIL AA-/Stable
Total 835.57 -- Total 938.79 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Chemical Industry
Criteria for rating Short-Term Debt (including Commercial Paper)

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