Rating Rationale
July 20, 2023 | Mumbai
The Sukhjit Starch and Chemicals Limited
Ratings reaffirmed at 'CRISIL A+/Stable/CRISIL A1'
 
Rating Action
Total Bank Loan Facilities RatedRs.380 Crore
Long Term RatingCRISIL A+/Stable (Reaffirmed)
Short Term RatingCRISIL A1 (Reaffirmed)
 
Rs.80 Crore Fixed DepositsCRISIL A+/Stable (Reaffirmed)
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 A+/Stable/CRISIL A1’. ratings on the bank loan facilities and fixed deposits of The Sukhjit Starch and Chemicals Ltd (SSCL)

 

The ratings reflect the strong market position of SSCL as a leading manufacturer of starch and its derivatives in the domestic maize processing industry. The ratings also factor in the extensive industry experience of the promoters along with the strong operational track of the company and its diverse and reputed clientele. The financial risk profile remains robust due to strong debt protection metrics and healthy leverage. These strengths are partially offset by susceptibility to volatility in raw material prices and moderate scale of operations.

Analytical Approach

CRISIL Ratings has considered the standalone business and financial risk profiles of SSCL and factored in the debt of subsidiary Sukhjit Mega Food Park & Infra Ltd (SMFP), which is guaranteed by SSCL.

Key Rating Drivers & Detailed Description

Strengths:

  • Strong market position in the domestic maize processing industry: The company was established in 1943 and has a strong track record of operations. It has a maize grinding capacity of 1,600 tonne per day (TPD) and around 12% share in the domestic market based on installed capacity. The facilities are strategically located across North, South, and Eastern parts of the country, in proximity to source the key raw material, maize. Further, different weather conditions in stated regions allow steady procurement of maize throughout the year at competitive prices, providing additional edge to SSCL to price its products. The market position is further supported by the extensive industry experience of key promoters, Sardana family, and company’s vintage in the industry. Resultantly, business has benefitted from the promoters’ sound understanding of the industry and healthy relations with customers and suppliers. Hence, capacity utilisation remains high, and its regular offtake has led to compound annual growth in revenue of 22% over the three fiscals through 2023. Further, with steady demand from all end-user segments such as packaging, FMCG and pharmaceuticals, SSCL booked revenue of Rs 1436 crore. Going forward, the company is likely to benefit from increase in business from existing customers as well as new customers like Mankind Pharma, Leeford Healthcare, Akums Drugs and Pharmaceuticals etc and is expected revenue to further grow to Rs. 1600-1650 crores in fiscal 2024.

 

  • Diversified and reputed clientele: Revenue depends on the product mix, which varies according to the demand and market prices of finished products. A major proportion of the starch output goes to the paper, packaging, and food and beverages industries. Derivatives such as glucose and sorbitol are used in the food and beverages and pharmaceutical sectors whereas by-products are used in the poultry and cattle feed and partly in the food industry as maize oil. The clientele is diversified with the top five customers contributing 15% to overall revenue in the three fiscals through 2023. The customer profile includes reputed brands such as Dabur India Ltd, Heinz India Pvt Ltd, Nestle India Ltd and Marico Ltd.

 

  • Robust financial risk profile: The capital structure is supported by strong capital structure backed by steady accretion to reserve along with low dependence on external debt for working capital requirements. Networth has improved significantly over the past 2-3 years to Rs 481 crore as on March 31, 2023 and is expected to further augment to around Rs 550 crore as on March 31, 2024, backed by steady accretion to reserve and limited dividend outgo. Debt protection metrics stood comfortable in the past due to steady rise in operating profitability and shall remain healthy over the medium term as well; interest coverage and net cash accrual to adjusted debt ratios are expected at 6-7 times and 0.5-0.6 time, respectively, during fiscal 2024. The absence of debt-funded capital expenditure will aid the financial metrics over the medium term.

 

Weaknesses:

  • Operating margin susceptible to volatility in raw materials prices and regulatory changes: Operations are susceptible to the inherent risks associated with agriculture-based commodity business, such as availability of raw materials, fluctuation in prices, and changes in government regulations. Cost of maize forms 70% of the operating income. When the price of maize falls significantly, the government implements minimum support prices at which maize should be sold in the market to protect farmers' interests. This impacts the cost of procurement of maize. Though SSCL has shown a steady increase in operating profitability over the three fiscals through 2022 backed by improved capacity utilisation, economies of scale and input price pass on arrangement with end customers, profitability will remain susceptible to any sharp volatility in maize prices. Going forward, sustained increase in operating profitability amid improved volumes will remain a key monitorable.

 

  • Moderate scale of operations: Though scale of operations has improved over the years, it is expected to remain moderate at around Rs 1436 crore in fiscal 2023. Scalability will remain constrained on account of higher utilisation of existing capacities, hence any further growth over the medium term will require timely capacity expansion and its stabilisation thereafter, along with steady realisations. With expected capacity expansion of around 400 tonne per day, expected over fiscals 2024 and 2025, SSCL will be able to accommodate more demand, however, the timely commencement of stated capacities and offtake arrangements with counter parties will remain a monitorable.

Liquidity: Strong

Expected annual cash accrual of Rs 100-110 crore should comfortably cover yearly debt obligation of Rs 20-25 crore and support liquidity. Because of prudent working capital management, bank limit utilisation remains moderate at 68% over the 12 months through March 2023, providing sufficient cushion to encounter exigencies and any sharp increase in input prices. Low gearing and healthy networth provide further financial flexibility. Current ratio stood moderate at 1.26 times as on March 31, 2022 and is expected at 1.3-1.4 times as on March 31, 2023.

Outlook: Stable

SSCL will continue to benefit from its established market position backed by long-standing industry presence and healthy industrial relations, robust financial risk profile due to low-to-moderate dependence on external debt.

Rating Sensitivity factors

Upward factors:

  • Timely commencement of new capacities leading to sustained volume growth of over 30-40% and hence an improved market share in the maize processing industry
  • Efficient management of commodity related risks and improved negotiations with end consumers leading to sustained growth in operating profitability at over 12-14%
  • Sustenance of financial risk profile at healthier levels amid business growth

 

Downward factors:

  • Weaker-than-expected operating profitability (below 8%), impacting net cash accrual and liquidity.
  • Significant impact on debt metrics and return on capital employed due to more-than-expected debt on account of sizeable capex or stretch in working capital cycle.

About the Group

SSCL was incorporated in 1943 by the Sardana family and associates. The company primarily manufactures starch, its derivatives and other by-products. SSCL has four operational manufacturing units―at Nizamabad in Telangana, Malda in West Bengal, Tahiwal in Himachal Pradesh and a new unit in Phagwara inside the mega food park, which became operational in November 2020. Its overall maize grinding capacity is 1,600 TPD.

 

SMFP is a special purpose vehicle (SPV) formed to set up and operate a mega food park which was commissioned in November 2020. The SPV will develop plots for setting up food processing units including for integrated milk processing units, canning, ready to serve juices and beverages, dal and rice milling, instant traditional foods and starch extraction. It will generate revenue by leasing these plots to companies and levying user charges for common core infrastructure facilities

Key Financial Indicators

As on / for the period ended March 31

 

2022

2021

Operating income

Rs crore

1,157.21

698.56

Reported profit after tax (PAT)

Rs crore

79.89

24.01

PAT margin

%

6.68

3.24

Adjusted debt/adjusted networth

Times

0.58

0.77

Interest coverage

Times

7.27

3.12

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

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Annexure - Details of Instrument(s)

ISIN Name of the
instrument		 Date of
Allotment		 Coupon
Rate (%)		 Maturity
Date		 Issue size
(Rs. Crore)		 Complexity
Level		 Rating assigned
with outlook
NA Term loan NA NA Sep-25 50 NA CRISIL A+/Stable
NA Term loan NA NA Jun-24 10 NA CRISIL A+/Stable
NA Cash credit NA NA NA 200 NA CRISIL A+/Stable
NA Working capital demand loan NA NA NA 100 NA CRISIL A1
NA Non-fund-based limits NA NA NA 20 NA CRISIL A1
NA Fixed deposit NA NA NA 80 Simple CRISIL A+/Stable
Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities ST/LT 360.0 CRISIL A+/Stable / CRISIL A1 02-02-23 CRISIL A+/Stable / CRISIL A1 22-06-22 CRISIL A/Positive / CRISIL A1   --   -- --
      -- 30-01-23 CRISIL A+/Stable / CRISIL A1 02-02-22 CRISIL A/Positive / CRISIL A1   --   -- --
Non-Fund Based Facilities ST 20.0 CRISIL A1 02-02-23 CRISIL A1 22-06-22 CRISIL A1   --   -- --
      -- 30-01-23 CRISIL A1 02-02-22 CRISIL A1   --   -- --
Fixed Deposits LT 80.0 CRISIL A+/Stable 02-02-23 CRISIL A+/Stable 22-06-22 CRISIL A/Positive   --   -- --
      -- 30-01-23 CRISIL A+/Stable 02-02-22 F A+/Positive   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 200 Punjab National Bank CRISIL A+/Stable
Non-Fund Based Limit 20 Punjab National Bank CRISIL A1
Term Loan 50 HDFC Bank Limited CRISIL A+/Stable
Term Loan 10 YES Bank Limited CRISIL A+/Stable
Working Capital Demand Loan 25 HDFC Bank Limited CRISIL A1
Working Capital Demand Loan 10 YES Bank Limited CRISIL A1
Working Capital Demand Loan 65 Citibank N. A. CRISIL A1
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Approach for Rating SRs
CRISILs Bank Loan Ratings
The Rating Process
CRISILs criteria for rating fixed deposit programmes
Understanding CRISILs Ratings and Rating Scales

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