Rating Rationale
April 08, 2021 | Mumbai
Supreme Petrochem Limited
'CRISIL AA-/Stable/CRISIL A1+' assigned to Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.1200 Crore
Long Term RatingCRISIL AA-/Stable (Assigned)
Short Term RatingCRISIL A1+ (Assigned)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL has assigned its ‘CRISIL AA-/Stable/CRISIL A1+’ ratings to the bank facilities of Supreme Petrochem Ltd (SPL).

The rating reflects the market leadership of the company in the domestic polystyrene industry, its diversified product portfolio sand sound financial risk profile. These strengths are partially offset by susceptibility to volatility in raw material prices.

SPL is the market leader in domestic polystyrene industry, with healthy track record of more than two decades and diversified customer base. The company has a well-diversified product portfolio, with increasing share of high-value-added products in revenue.

The fire incident resulting in closure of plant of the second largest manufacturer in India created a demand-supply mismatch in the domestic market. This resulted in higher volume for SPL. The improved spread between the prices of polystyrene and styrene, the key raw material, helped increase operating margin to 18% in the first nine months of fiscal 2021 from 5% in fiscal 2020. SPL’s capacity expansion plans in the polystyrene and expandable polystyrene (EPS) segments, along with healthy demand, will support healthy volume growth over the medium term. Operating margin is expected at 6-10%, in line with movements in styrene prices.

The financial risk profile remains strong, with nil debt and healthy cash accrual. Planned capital expenditure (capex) of Rs 250 crore over fiscals 2021 and 2022 will be funded entirely through internal accrual. SPL is also likely to maintain cash and equivalent of Rs 350-400 crore over the medium term. CRISIL Ratings believes SPL will maintain its strong financial risk profile and debt-free balance sheet over the medium term.

Key Rating Drivers & Detailed Description

Strengths:

Market leadership in the polystyrene market

SPL has over 50% market share in the polystyrene segment, and capacity of 2,72,000 tonne in polystyrene and 72,000 tonne in EPS. The market position will be strengthened by the ongoing capacity expansion of 80,000 tonne for polystyrene and 30,000 tonne for EPS and the healthy demand from end-user industries, particularly after the second largest player in India shut down its plant.

 

SPL has established relationships with customers and suppliers, given its presence of over two decades. The company imports styrene from multiple suppliers in the Middle East and Singapore and gets healthy credit because of its long-term relationships with the suppliers.

 

Diversified revenue profile

SPL has a diversified revenue profile, with domestic sales accounting for around 60% of revenue in fiscal 2020, followed by exports at 14% and traded goods at 25%. The company offers a variety of Styrenics, including polystyrene (around 50% of revenue), EPS (around 17%), specialty polymers and compounds (SPC; around 5%), and extruded polystyrene (XPS; around 1%). SPL has customer base for polystyrene and EPS products in over 100 countries. It generates around 25% of revenue from trading in raw material styrene monomer, which has deficient supply in India and is used in manufacturing polymers. SPL enjoys a cost advantage due to bulk procurement of styrene monomer. The company will continue to benefit from healthy domestic demand and capacity addition.

 

Strong financial risk profile

Healthy networth, nil debt and strong debt protection metrics keep financial risk profile strong. Networth was at Rs 672 crore as on March 31, 2020, backed by steady growth in cash accrual. The company has been debt-free since six years. Expected net cash accrual of Rs 140-200 crore annually will be adequate to meet working capital requirement and planned capital expenditure of Rs 250 crore in fiscals 2021 and 2022. SPL will remain debt-free over the medium term. The company completed a share buyback of Rs 62 crore in fiscal 2021 and announced equity reduction of Rs 57 crore for fiscal 2022.

 

Weakness:

Susceptibility of operating margin to volatility in raw material prices

SPL is susceptible to volatility in the price of styrene which depends on crude oil prices and demand-supply dynamics. Operating margin fluctuated between 3% and 10% in the past five years, due to fluctuating styrene price leading to volatility in the spread between styrene and polystyrene prices. As SPL carries raw material inventory of about a month, the volatility in input prices impacts the working capital management. Operating profitability is expected to be healthy at 17% in fiscal 2021, supported by higher capacity utilisation and favourable spread between styrene and polystyrene prices, but will remain vulnerable to the raw material price.

Liquidity : Strong

Liquidity is strong with nil long-term debt. Hence, annual cash accrual of Rs 140-200 crore is available for meeting capex and working capital requirement. Moderate capex of Rs 250 crore in fiscals 2021 and 2022 is likely to be funded through internal accrual. Dividend payout is expected to be moderate at 40-50% of net profit. Bank line of Rs 1200 crore, including fund and non-fund based limits, was moderately utilised at 57% on average during the 12 months through March 2021. SPL is expected to have healthy cash and bank balance of Rs 500 crore plus as on March 31, 2021. On a steady state basis, SPL is expected to maintain cash and equivalent of Rs 350-400 crore.

Outlook Stable

CRISIL Ratings believe SPL will maintain its strong market position in the domestic polystyrene market. The financial risk profile should remain robust in the absence of long-term debt with proposed capex likely to be funded through internal accrual.

Rating Sensitivity factors

Upward factors:

  • Sustained revenue growth of 15% (and/or 5% or more volume growth) and steady operating margin of 8-10%
  • Efficient working capital management and sustenance of strong financial risk profile

Downward factors:

  • Steep decline in revenue with operating profitability below 5% on a sustained basis
  • Sizeable stretch in the working capital cycle
  • Weakening of capital structure because of large debt-funded capex or acquisition resulting in weakening of debt protection metrics

About the Company

SPL is promoted by Supreme Industries Ltd and the Rajan Raheja group with 29.88% stake each. The company manufactures PS, EPS and XPS. It has a state-of-the-art polystyrene manufacturing plant at Nagothane in Raigad, Maharashtra, set up in technical collaboration with ABB Lumus Crest (USA). Apart from the primary business of polystyrene and EPS production, SPL imports styrene monomer and trades in the domestic market.

SPL reported a profit after tax (PAT) of Rs 246 crore and revenue of Rs 1,916 crore for the nine months ended December 31, 2020, against a PAT of Rs 79 crore and revenue of Rs 2061 crore for the corresponding period of the previous fiscal.

Key Financial Indicators

As on / for the period ended March 31

Unit

2020

2019

Operating income

Rs crore

2724

3194

Adjusted profit after tax (PAT)

Rs crore

103

49

Adjusted PAT margin

%

3.8

1.5

Adjusted debt/adjusted networth

Times

0.01

0.01

Interest coverage

Times

25.56

26.25

 

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)

Complexity level

Rating assigned with outlook

NA

Proposed long-term bank facility

NA

NA

NA

100.00

NA

CRISIL AA-/Stable

NA

Fund-based facilities

NA

NA

NA

100.00

NA

CRISIL AA-/Stable

NA

Non-fund based limit

NA

NA

NA

1000.00

NA

CRISIL A1+

 

Annexure - Rating History for last 3 Years
  Current 2021 (History) 2020  2019  2018  Start of 2018
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 200.0 CRISIL AA-/Stable   --   --   --   -- --
Non-Fund Based Facilities ST 1000.0 CRISIL A1+   --   --   --   -- --
All amounts are in Rs.Cr.
 
 
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Fund-Based Facilities 100 CRISIL AA-/Stable - - -
Non-Fund Based Limit 1000 CRISIL A1+ - - -
Proposed Long Term Bank Loan Facility 100 CRISIL AA-/Stable - - -
Total 1200 - Total 0 -
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 Petrochemical Industry

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