| Silox India Private Limited | ||||||
| Ratings reaffirmed at 'CRISIL AA / Stable / CRISIL A1+ ' | ||||||
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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 commercial paper programme of Silox India Private Limited (SIPL).
Revenue for fiscal 2023 grew by ~23% to Rs 1,652 crore from Rs 1,340 crore in fiscal 2022 driven by realization growth of ~27% despite marginal reduction in overall volumes. Realizations increased owing to shortage in supply from China, imposition of ADD on imports coupled with increase in prices of key zinc based raw materials which are pass through in nature. However, in the later part of the year, volume de-growth was witnessed primarily in the Hydro and Safolin segments owing to demand slowdown in textile segment which is a key end user industry. With raw material prices having corrected from levels witnessed last fiscal, realizations are also expected to come down in fiscal 2024. However, expected demand recovery in key end user segments along with contributions from enhanced plant capacity in zinc dust segment (capacity being enhanced from 28000 TPA to 40000 TPA) will ensure revenues at steady levels. Company continues to maintain leadership across the product segments in which it operates and capex being undertaken in zinc dust segment will further aid product diversification.
Operating margin improved by 150 basis points (bps) to 17.1% in fiscal 2023 due to higher operating leverage. Though prices of key inputs – Zinc, Caustic, Sodium Format, Sulphur, Phosphoric acid etc increased sharply, ability to pass on increase in the cost of key raw materials helped the company restrict the decline in gross margins by ~70 bps. Other costs including power & fuel, employee cost etc. reduced by 2.2% as a percentage of sales owing to increase in scale of operations. Going forward, the margins are likely to sustain in the range of 14.5-16%.
Financial risk profile remains strong with networth of Rs. 877 crore as against a nil outstanding debt. Annual accruals expected in the range of Rs. 130-160 crore (post dividend) would be sufficient to cover capex requirements. Healthy liquid surplus of Rs. 273 crore as on march 31, 2023 provides additional comfort
The ratings continue to reflect leadership position of SIPL in the Sulphoxylates and Zinc Oxide, derivatives and dust segments in India, and robust financial risk profile driven by strong capital structure and liquidity. These strengths are partially offset by exposure to risk of lower priced alternatives from China and moderate growth prospects (because of the limited size of the industry). |
Analytical Approach Unsecured loans/advances extended by the customers have been treated as debt. |
Key Rating Drivers & Detailed Description Strengths Established market position, underpinned by strong operating efficiencies and technological support from parent, Silox SA (Silox) Business risk profile is supported by the company’s leadership position in most of its product categories. This is backed by established brands and the absence of any other large integrated player with a comparable product portfolio. Healthy operating efficiency is reflected in SIPL’s high return on capital employed through various initiatives, including complete hedging of its zinc inventory, regular upgrade of facilities, cutting down on energy cost, and optimizing zinc recovery in the manufacturing process.
Strong market position and diverse revenue profile SIPL has a wide range of sulphoxylates and zinc-based products in its portfolio; which include sodium hydrosulphite (domestic market share: 46%), sodium formaldehyde sulphoxylate (88%), zinc formaldehyde sulphoxylate (98%), various grades of zinc oxide (11%), zinc dust (80%), and zinc derivatives. These products find application across industries such as textiles, paints, polymers, tyres, jaggery, ceramic, pharma, agricultural and animal feed, enabling it to withstand downturns in any one end-user segment. Also, geographical diversity is strong, with exports to over 65 countries contributing around 38% to total revenue in fiscal 2023.
Established relationship with major clients – such as Asian Paints (‘CRISIL AAA/Stable/CRISIL A1+’), Akzo Nobel India Ltd, Jotun Group, Arvind Ltd., MRF Ltd, CEAT Ltd,Davis Trade Company USA , LG Chemicals Ltd. and the ability to offer customized solutions enable SIPL to command a premium. The company plans to enter new product categories over the medium term, supported by strong technological backing of its parent, Silox. The scaling up may further improve diversity.
Robust financial risk profile Networth and liquidity are healthy, and reliance on bank funding is negligible. Expected net cash accrual of Rs 130-160 crore (post dividend) per annum from fiscal 2024 will be sufficient to meet yearly capex requirement. Working capital cycle is lean, as indicated by gross current assets of around 88 days as on March 31, 2023.
Weaknesses Exposure to price-led competition from China and raw material price volatility China is the largest producer of sodium hydrosulphite and presents pricing competition to Indian players. While SIPL is able to fully pass on zinc prices and imposition of ADD on Sodium Hydrosulphite is in place , the operating margin is susceptible to changes in the prices of other raw materials (Sulphur and caustic soda). Sensitivity to fluctuations in input prices will remain a key monitorable.
Average growth prospects Though the company’s products find application in diverse industries, they constitute a small proportion of the overall raw material requirement of the end-user segments. Consequently, scale in revenue terms is moderate. Company is currently undertaking capacity enhancement in the zinc dust segment from 28,000 TPA to 40,000 TPA owing to favorable demand conditions which might add to its scale of operations. In addition, company is in discussions with its parent to enter into newer and related business segments which might further aid product diversity and benefit scale of operations. |
Liquidity: Strong In the absence of debt, healthy cash accrual of Rs 130-160 crores per annum is expected over the medium term. The same will be sufficient to meet capex and working capital requirements. Out of Bank Limits of Rs. 100 Crs., except for non fund based facilities where the utilization is at about 31%, there is no utilization of fund based facilities. Cash and mutual fund investments of Rs 273 crore as on March 31, 2023, also support strong liquidity. |
Outlook: Stable SIPL credit risk profile is expected to remain stable driven by leadership position in key product segments where it operates and a strong financial risk profile. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company SIPL was set up in 2001 as a joint venture of Silox (owns 83.28% of its equity shares), Transpek Industry Ltd (7.87%), and Excel Industries Ltd (8.85%). Although there has been no change in shareholding, pattern, name of company has been changed to Silox India Private Limited from Transpek Silox India Pvt Ltd as part of the parent’s global branding strategy
SIPL manufactures sulphoxylates and zinc-based products such as sodium hydrosulphite, sodium formaldehyde sulphoxylate (safolite), zinc formaldehyde sulphoxylate (safolin), zinc dust, and zinc oxide; and various zinc derivatives. |
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)
*Includes WCDL/FCDL/EPC/PCFC/PSCFC, letter of credit, and bank guarantee as sublimit to the extent of Rs 25 crore %Includes WCDL, IBP/IBD, letter of credit as sublimit to the extent of Rs 75 crore #Includes EPC & PCFC limit as sublimit to the extent of Rs 20 crore ^Includes PSCFC & FUBD/FBP limit as sublimit to the extent of Rs 50 crore $Includes bank guarantee limit as sublimit to the extent of Rs 30 crore |
| 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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