| Synthite Industries Private 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 loan facilities of Synthite Industries Pvt Ltd (Synthite).
The ratings continue to reflect the healthy business risk profile of Synthite supported by its established market position with a domestic market share of 45-50% and global market share of 30-40% aided by its robust distribution network both in India and overseas. Also, it has strong brand recall and diversified product portfolio of over 500 products. The rating is also supported by a healthy financial risk profile. These strengths are partially offset by susceptibility to volatility in raw material prices and large working capital requirement.
The company registered revenue growth of 9% in fiscal 2023 driven by modest 6% growth in the oleoresins (bio-ingredients) segment and 17% growth in the spices segment (which together contributes to 98% of total revenue in fiscal 2023) supported by healthy offtake across key export markets. The realty and hospitality segment, which accounts for ~2% of revenue, witnessed modest growth. In fiscal 2024, revenue is expected to moderate by 9-10% on account of sluggish demand from key export markets such as the US and Europe, and sizeable inventory, which was stacked up during fiscals 2021 and 2022 in anticipation of supply chain disruption during the Covid-19 pandemic. With inventory level normalising from fiscal 2023, companies in the export markets have deferred their purchases resulting in lesser demand.
Operating margin declined by 700 basis points (bps) to 10.6% in fiscal 2023 (operating margin at 13-14% pre-Covid time) on account of steep increase in raw materials prices along with one time provision for gratuity/ pension payments to directors amounting to Rs 46 crore. The operating margin is expected to improve to 13-14% over the medium term aided by softening of raw material prices and normalisation of employee cost in fiscal 2024. Despite decline in EBIDTA in FY 23, PAT has remained at similar levels on account of the net gains of Rs.161 crore fetched from divestment of some investments). Revenue stood at Rs 993 crore in the H1 of fiscal 2024, down by 6% on-year, and operating margin had recovered to 14.3%.
The financial risk profile was healthy supported by comfortable debt metrics. Gearing improved to 0.26 time as on March 31, 2023, from 0.33 time as on March 31, 2022, aided by steady cash accrual. Networth was sizeable at Rs 2,100 crore as on March 31, 2023. Steady annual cash accrual of Rs 240-250 crore, moderate capital expenditure (capex) plans and prudent working capital management will reduce reliance on external debt over the medium term and improve the financial risk profile. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of Synthite and its subsidiaries and joint-venture due to operational and financial linkages (refer to annexure for the list of entities consolidated).Together, these are known as Synthite Group. Besides, Türer Synthite Food Ingredients Bitkisel which is the JV with local turkey player incorporated in current fiscal will be consolidated effective fiscal 2024 onwards.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
The company has longstanding relationships with leading food processing companies globally and a diverse clientele. The top client contributes to less than 10% of revenue, mitigating client concentration risk. The company has around 500 products and continues to invest in research and development to meet global quality standards and customise products as per client requirements.
Weaknesses:
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Liquidity: Strong Liquidity is supported by estimated cash accruals of Rs.~240-250 crores will comfortably cover nominal yearly capex of Rs 30-50 crore, debt obligation of Rs 8-10 crore per annum and incremental working capital requirement over the medium term. Further company has a liquid surplus of Rs.321 cr as on March 31st 2023 and 47% utilised bank lines in the 11 months through June 2023 which provides further cushion to liquidity. |
Outlook: Stable CRISIL Ratings believes that Synthite’s business risk profile will continue to be supported by its established position in the oleo resins and spices segment, wide distribution network, measures to improve market penetration, and adequate operating efficiencies. Besides, its financial risk profile will also continue to remain healthy driven by steady accruals and only moderate capex spend. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company Synthite, which was set up by Mr CV Jacob as Synthite Industrial Chemicals Ltd in 1972, manufactures oleoresins from Indian spices, such as pepper, turmeric and cardamom. The company got its current name in September 2008. It has subsidiaries in the US, Brazil, China, Vietnam and Sri Lanka. Subsidiaries in the US and Brazil act as marketing hubs and subsidiaries in Sri Lanka and Vietnam serve as procurement arms. The subsidiary in Dezhou, China, has a manufacturing setup and will be used both as a procurement arm and export unit.
The company offers over 500 products, including spice oleoresins, essential oils, floral concretes/absolutes, seasonings, resinoids (for the perfume industry), health and functional ingredients and application-oriented value-added products. It has diversified into other businesses, including realty and hospitality; however, these segments remain smaller than the large spice and spice-derivatives business. |
Key Financial Indicators (Consolidated)
*Provisional |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
**100% interchangeability between letter of credit |
Annexure – List of entities consolidated
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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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^100% interchangeability between packing credit in foreign currency, import letter of credit, standby letter of credit, short-term loan, and overdraft export invoice financing
%100% interchangeability between packing credit in foreign currency, foreign documentary bill purchase, and foreign usance discount bill purchase
# 100% interchangeability between packing credit in foreign currency, foreign bill purchase, foreign bill discounting, foreign bill negotiation, bill purchase, bill discounting, working capital demand loan, and short-term loan
Criteria Details
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