| Spectrum Dyes and Chemicals Private Limited | ||||||
| 'CRISIL BBB+/Stable/CRISIL A2' assigned to bank debt | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL has assigned its 'CRISIL BBB+/Stable/CRISIL A2' ratings to the bank facilities of Spectrum Dyes and Chemicals Private Limited (SDCPL). |
| Analytical Approach |
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CRISIL has factored in SDCPL's extending fund support to AIPL to cover for any potential losses and for meeting shortfall in in its cash flows for timely debt servicing. SDCPL has also extended corporate guarantee of Rs. 99.89 crore in favor of AIPL's lenders |
| Key Rating Drivers & Detailed Description |
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Strengths: * Established market position in disperse dyes industry: SDCPL has been manufacturing of disperse dyes for over three decades, and established itself as a large organised player in disperse dye industry. It is one of the largest manufacturers of disperse dyes in India and has established strong relationship with customers and suppliers. It caters to 250 customers in India and export market. Repeat orders from customers and steady increase in capacities, has led to increase in revenue to Rs 653 crore in fiscal 2019 from Rs 348 crore in fiscal 2016. * Integrated operations supporting operating margins: SDCPL benefits from partly integrated operations with backward integration for manufacturing of intermediaries. This, coupled with higher capacity utilisations have led to improvement in operating margin to 14.3% in fiscal 2019 from 12.6% in fiscal 2016. The integrated nature of operations and superior operational capabilities is expected to support the margin over medium term. * Improved risk management strategies: SDCPL's risk management has improved over last four fiscals. Inventory days has steadily improved from 141 days as on March 31, 2016 to 74 days as on March 31, 2019. This is on account of process improvement to remove bottlenecks to reduce work-in-progress and finished goods inventory. Further, debtor cycle has been improved by tightening credit norms for customers. This has helped increase scale, while controlling its counter party risks. * Above average financial risk profile: With continuous accretion to reserves over the years, SDCPL has built a strong net worth of Rs. 198.8 crore as on March 31, 2019. The capital structure is comfortable with gearing and total outside liabilities to adjusted net worth (TOL ANW) ratios at 0.81 time and 1.50 times, respectively, as on March 31, 2019. TOL ANW is slightly on a higher side on account of director's remuneration payable of Rs. 35 crore. With moderate debt and high profitability, interest coverage ratio and net cash accrual to total debt (NCATD) ratios are comfortable at 6.14 times and 0.35 time, respectively, for fiscal 2019. Financial profile is expected to remain robust, despite debt funded capital expenditure, due to steady accretions. However, any sharp increase in investment or unsecured loans to associate companies (Rs. 27.75 crores as on March 31, 2019) may lead to reassessment of financial risk profile. Weaknesses: * Significant customer and product concentration in revenue profile As the entire revenue is generated from the sale of disperse dyes and its intermediates primarily for textile industry, SDCPL is exposed to high customer and product concentration risk. SDCPL will hence remain susceptible to availability of substitutes, slowdown in end user industry or environmental concerns. Also, the top 5 customers contribute ~50% of total sales in fiscal 2019, with 28% revenues generated from a single customer'Anubha Polyweaves Private Limited. Any change in sourcing policy of key customers, may impact the business profile of SDCPL. * Investments in a weak credit quality associate entity: SDCPL has given corporate guarantee of Rs. 99.89 crore as on March 31, 2019 towards bank loans availed by associate concern AIPL. AIPL manufactures denim fabric. It has recorded net losses during the fiscal 2019 due to subdued market conditions in denim industry. Consequently, SDCPL provided fund support (Rs. 8.7 crore as equity and Rs. 8.0 crore as unsecured loans) to AIPL, and is expected to continue to support AIPL over the medium term. * Exposure to volatility in the prices of raw material and forex rates: Raw material accounts for around 60-65% of the total cost of sales. The basic raw materials used for the manufacture of dyes and pigments are benzene, and phenol which are derivatives of crude oil. As a result, unfavourable movement in crude oil prices possesses a risk to the raw material prices. Further, SDCPL imports 40-50% of its raw material requirement which exposes it to any adverse forex rate fluctuation. Company's margin in the dyes segment will remain susceptible to fluctuation in raw material prices and forex rates. |
| Liquidity Adequate |
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SDCPL has adequate liquidity driven by expected cash accruals of more than Rs. 70-80 crore in fiscal 2020 and fiscal 2021; adequate to meet term repayment obligations of Rs. 13.5 crore and Rs. 20 crore, respectively. It has cash and cash equivalents of Rs. 10 crore as on March 31, 2019. Fund based limits of Rs. 145 crore, is 68% utilized over the 12 months ended September 2019. The company has capex of around Rs.15 crore annually in fiscal 2021 and fiscal 2022, which will be funded through internal accruals. It may also infuse Rs. 15-20 crores in AIPL to support its repayment obligations. CRISIL expects internal accruals, cash & cash equivalents and unutilized bank lines to be sufficient to meet its repayment obligations as well as incremental working capital requirements. |
| Outlook: Stable |
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CRISIL believe SDCPL will continue to benefit from the established market position, strong operating efficiencies and above average financial risk profile. |
| Rating Sensitivity factors |
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Upward factors: *Sustenance of revenue growth and operating profitability leading to accruals of more than Rs.90 crores. *Strengthening of financial risk profile backed by efficient working capital management (GCA below 125 days) *Sustained reduction in exposure to group entities and removal of corporate guarantee provided Downward factors: *Decline in revenue or profitability margin leading to accruals of less than Rs. 40 crores. *Debt-funded capital structure or stretch in working capital cycle, leading to significant deterioration in financial risk profile *Higher than expected exposure to group entities. |
| About the Company |
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SDCPL, incorporated in 1989 by Mr. Mahendra Kumar Chaudhary, manufactures over 200 shades of disperse dyes used in dyeing of polyester fibre. It has manufacturing facility, at Palsana (near Surat) in Gujarat. Mr. Mahendra Kumar Chaudhary, Mr. Pramod Kumar Chaudhary, Mr. Akshat P. Chaudhary, Mr. Yogesh Gupta, Mr. Avneep Bansal and Mr. Hardutt Singh Tarar, are the directors of the company. |
| Key Financial Indicators | ||||||||||||||||||||||||
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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) | |||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||
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| For further information contact: | ||||||
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