| Supreme Petrochem Limited | ||||||
| Ratings reaffirmed at 'CRISIL AA-/Stable/CRISIL A1+' | ||||||
| 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 of Supreme Petrochem Ltd (SPL).
The ratings continue to reflect the market leadership of the company in the domestic polystyrene (PS) and expandable polystyrene (EPS) industry, and sound financial risk profile. These strengths are partially offset by susceptibility to volatility in raw material prices. SPL has a healthy track record of over 25 years in the PS industry and a diversified customer base. The company has a wide product portfolio, with increasing revenue share from value-added products. Combined sales volume of PS and EPS grew 5% on-year in fiscal 2023, driven by double-digit growth in EPS led by high demand from the fisheries and packaging segments. Sales volume for PS remained flattish with sharp increase in imports after the pandemic. The company completed expansion of its PS and EPS capacities in January 2023 and higher available capacity coupled with continued healthy demand should support expected volume growth of 6-8% annually over the medium term. The spread between the prices of PS and styrene monomer (key raw material) started to normalise in fiscal 2023 from elevated levels seen during fiscals 2021 and 2022. This has resulted in SPL’s operating margin to 12.5% in fiscal 2023 from 18% previous fiscal. On a steady state basis, margin is expected to average 7-9% over the medium term. Financial risk profile is backed by nil debt, strong liquidity, and healthy cash accrual. Planned capital expenditure (capex) of Rs 350-400 crore annually over fiscals 2024-2026 towards setting up 140,000-tonne capacity for acrylonitrile butadiene styrene (ABS) in a phased manner, along with capacity expansions in existing product segments, will be entirely funded through available liquid surplus and internal accrual. SPL is likely to maintain liquid surplus of over Rs 400-500 crore and a debt-free balance sheet over the medium term. |
Analytical Approach CRISIL Ratings has considered the standalone credit risk profile of SPL. |
Key Rating Drivers & Detailed Description Strengths: Market leadership in the PS market SPL has over 50% market share in the PS and EPS segments combined, with effective installed capacity of 300,000 tonne for PS and 110,000 tonne for EPS as on date. The company has the largest installed capacity in India, after the plant of the second-largest player shut down in fiscal 2021.
SPL has established relationships with customers and suppliers, given its presence in the industry for over 25 years. The company imports styrene from multiple suppliers in the Middle East, Singapore and East Asia and enjoys favourable credit period benefited by its long-term relationships with the suppliers.
Diversified revenue profile Domestic sales of end-products accounted for over 70% of revenue in fiscal 2023, with the balance contributed by exports of end-products (6%) and traded goods (24%). The traded goods mainly consist of styrene monomer, which is in deficient supply in India. In terms of end-product sales, the company offers a variety of styrenics, including PS (52% of revenue in fiscal 2023), EPS (18%), speciality polymers and compounds (5%), and extruded polystyrene (XPS; 1%). The company supplies PS and EPS products to customers in over 100 countries. It is also setting up capacity for ABS, which will further diversify revenue profile over the next 2-3 fiscals.
Strong financial risk profile SPL continues to maintain a strong financial risk profile, as reflected in its healthy networth (Rs 1,843 crore as on March 31, 2023), nil debt and strong debt protection metrics. Healthy cash-generating ability and prudent working capital management led to substantial liquid surplus of Rs 971 crore as on March 31, 2023. This, along with healthy cash accrual, will be adequate to meet incremental working capital requirement and planned annual capex of Rs 350-400 crore. While cash surplus will moderate but remain healthy, SPL is expected to remain debt-free over the medium term.
Weakness: Susceptibility of operating margin to volatility in raw material prices Operating performance is susceptible to fluctuations in the prices of styrene, which is affected both by movement in crude oil prices and overall demand-supply dynamics. Operating margin fluctuated 3-10% till fiscal 2020, after which it spiked to 18-21% over fiscals 2021-2022. As SPL maintains raw material inventory of 30-40 days, volatility in input prices impacts profitability. While margin could fluctuate over the medium term, absolute operating profit should sustain at higher than pre-pandemic levels, benefiting from improving economies of scale and growing volume sales. |
Liquidity: Strong Liquidity is supported by sizeable liquid surplus of Rs 971 crore as on March 31, 2023, and expected annual net cash accrual of over Rs 200 crore over the medium term. This will be adequate to meet planned annual capex of Rs 350-400 crore going forward. While dividend payout could average 30-40% of net profits, SPL is expected to maintain liquid surplus of over Rs 400-500 crore on a steady-state basis. Bank limit of Rs 1,870 crore (includes fund and non-fund-based limits) was moderately utilised at less than 50% on average during the 12 months through July 2023. |
Outlook: Stable The company will maintain its strong market position in the domestic PS and EPS markets over the medium term. Financial risk profile will remain robust in the absence of any debt, with planned capex to be funded through internal accrual. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company SPL was incorporated in 1989 and is promoted by Supreme Industries Ltd and the Rajan Raheja group, which hold 30.8% stake each as on June 30, 2023. The company manufactures PS, EPS, compounds of polymers and XPS. It has a state-of-the-art manufacturing plant at Nagothane in Raigad, Maharashtra, set up in technical collaboration with ABB Lumus Crest (the USA). It also has a manufacturing plant at New Manali Town in Chennai. Furthermore, SPL imports styrene monomer and trades in the domestic market. For the first quarter of fiscal 2024, the company reported a profit after tax (PAT) of Rs 69 crore (Rs 189 crore in the corresponding period previous fiscal) on revenue of Rs 1,225 crore (Rs 1,485 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)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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