Rating Rationale
March 20, 2023 | Mumbai
The Supreme Industries Limited
Ratings reaffirmed at 'CRISIL AA+/Stable/CRISIL A1+'
 
Rating Action
Total Bank Loan Facilities RatedRs.1445.9 Crore
Long Term RatingCRISIL AA+/Stable (Reaffirmed)
Short Term RatingCRISIL A1+ (Reaffirmed)
 
Rs.200 Crore Commercial PaperCRISIL A1+ (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 AA+/Stable/CRISIL A1+’ ratings on the bank facilities and commercial paper programme of The Supreme Industries Limited (Supreme).

 

The ratings continue to reflect the company’s strong business risk profile, healthy market position across segments, and robust financial risk profile. These strengths are partially offset by exposure to intense competition and to volatility in raw material prices in-line with the industry, though Supreme has the ability to pass on price fluctuations to its customers.

 

Revenue grew 27% on-year to Rs 6,603 crore during the first nine months of fiscal 2023 with improving volumes while operating margin moderated to 10.9%, owing to declining realisations and inventory losses. In fiscal 2022, revenue growth of 23% to Rs 7,723 crore was mainly driven by improving realisation even as aggregate volumes fell while operating margin stood at 15.9%.

 

CRISIL Ratings expects Supreme to register revenue growth of 18-20% on-year this fiscal and 10-12% thereafter mainly driven by healthy volumes from end-user demand across agriculture and real estate sectors along with operating margin remaining healthy above 15%, leading to strong annual cash generation. Financial risk profile is also robust, supported by strong capital structure with high net worth, healthy cash position and strong debt protection metrics.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of Supreme and its wholly-owned subsidiary, Supreme Industries Overseas FZE. Investment in associate company, Supreme Petrochem Ltd (Supreme Petrochem), has been recognised as per the equity method, as Supreme holds a 30.78% stake in it.

 

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:

Diversified revenue

Supreme produces plastic-based products for piping systems (accounted for 66% of revenue in fiscal 2022), industrial goods (16%), consumer goods (5%) and packaging products (13%). Catering to a diverse end-user profile mitigates the risk of slowdown in any segment or industry. Furthermore, revenue is supported by the increasing contribution of value-added products (38% during fiscal 2022), which have operating margin of over 17%.

 

Healthy market position across business segments

Supreme has an established track record and strong market position in each segment it operates in, backed by its widespread distribution network and the ability to introduce new products. Collaboration with international manufacturers has strengthened the product development capabilities and translated into strong revenue growth along with above-average profitability. The company has over 4,300 distributors and 28 plants across the country. Supreme has commenced commercial production from new greenfield plants at Assam, Tamil Nadu and Odisha. Strong country-wide presence reduces freight cost and lead time for products to reach customers.

 

Robust financial risk profile

Financial risk profile is marked by a comfortable net worth, nil debt, healthy liquidity and strong debt protection metrics. Net worth is expected to be over Rs 4,200 crore as on March 31, 2023, with steady growth in cash accrual and nil gearing. Debt protection metrics were marked by net cash accrual to adjusted debt and interest coverage ratios of more than 150 and 300 times, respectively, for fiscal 2022. Expected annual net cash accrual of more than Rs 700 crore should suffice to fund the capital expenditure (capex) and working capital in the absence of any long-term debt.  Dividend payout is expected to range between 30-50% of profit after tax.

 

Weakness:

Susceptibility to intense competition and volatility in raw material prices

Prices of key raw materials, polyvinyl chloride, high-density polyethylene and polypropylene remain susceptible to movement in crude oil prices and foreign exchange rates, though Supreme has the ability to pass on any price fluctuations to consumers. With a large raw materials component in revenues (forming about 65-70%), the company also remains exposed to volatility in input prices, as particularly seen in fiscal 2023. Further, the plastic processing industry is highly fragmented, especially in commoditised segments such as plastic furniture. However, Supreme efficiently mitigates such pressure by offering value-added products and has been able to maintain a healthy market share across segments.

Liquidity: Strong

Liquidity should remain strong, as the entire cash accrual can be used to meet working capital requirements in the absence of any debt. Bank lines of Rs 1,471 crore, including fund and non-fund based limits, were utilised moderately, at 47% on average during the six months through December 2022. Cash and bank balance was healthy at Rs 687 crore as on December 31, 2022.  Capex (excluding last years work in progress) is expected to be about Rs 500 crore annually and shall be funded internally from cash accruals. Dividend payout of 40% of net profit could constrain accretion to liquid reserves. Incremental working capital levels are expected to be managed largely from internal accruals.

Outlook: Stable

CRISIL Ratings expects sustained improvement in Supreme’s operating performance, backed by its diversified revenue profile, healthy demand in end-user industries and increasing share of value-added products. The financial risk profile should remain robust too, in the absence of long-term debt. Capex is likely to be funded through internal accruals.

Rating Sensitivity factors

Upward factors

  • Sustained healthy double digit revenue growth and operating margin above 16-18%, leading to better than anticipated cash accruals
  • Efficient working capital management and prudently funded capital expenditure leading sustenance of strong financial risk profile and debt metrics
  • Maintenance of healthy liquidity surpluses

 

Downward factors

  • Steep decline in revenue, with operating margin falling below 13-14%, also impacting cash generation
  • Sizeable large debt funded capital expenditure or acquisitions, leading to material deterioration in debt metrics
  • Sizeable reduction in cash surpluses, due to material dividend payout or share buyback.

About the Company

Supreme, India's leading processor of plastic, was incorporated in 1942. The company has a diverse product portfolio, comprising piping systems, cross laminated films and products, protective packaging products, industrial moulded components, moulded furniture, storage and material handling products, performance packaging films and composite, and liquefied petroleum gas cylinders. It has 28 facilities across India.

 

For the first nine months of fiscal 2023, revenue grew 27% to Rs 6,603 crore driven by improved volumes while profit after tax grew to Rs 506 crore during the same period from Rs 645 crore during the same period last year.

Key Financial Indicators

Particulars

Unit

2022

2021

Revenue

Rs crore

7765

6350

Profit after tax (PAT)

Rs crore

968

978

PAT margin

%

12.5

15.4

Adjusted debt/adjusted networth

Times

0.00

0.01

Interest coverage

Times

300.46

72.74

*CRISIL adjusted numbers

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.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. 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 
levels
Rating assigned
with outlook
NA Bill Discounting* NA NA NA 10 NA CRISIL AA+/Stable
NA Cash Credit NA NA NA 18 NA CRISIL AA+/Stable
NA Cash Credit ^ NA NA NA 50 NA CRISIL AA+/Stable
NA Cash Credit & Working Capital Demand Loan NA NA NA 150 NA CRISIL AA+/Stable
NA Letter of credit NA NA NA 225 NA CRISIL A1+
NA Letter of credit $ NA NA NA 110 NA CRISIL A1+
NA Letter of credit & bank guarantee NA NA NA 312.9 NA CRISIL A1+
NA Letter of credit & Bank guarantee ** NA NA NA 75 NA CRISIL A1+
NA Overdraft facility NA NA NA 100 NA CRISIL AA+/Stable
NA Working capital demand loan NA NA NA 220 NA CRISIL AA+/Stable
NA Working capital demand loan ^ NA NA NA 100 NA CRISIL AA+/Stable
NA Working capital demand loan @ NA NA NA 75 NA CRISIL AA+/Stable
NA Commercial paper NA NA 7-365 days 200 Simple CRISIL A1+

@ - Fully interchangeable with letter of credit and buyer's credit, interchangeable with Rs 25 crore of bank guarantee
$ - Fully interchangeable with buyer's credit, purchase bill discounting sub-limit of Rs 50 crore and working capital loan sub-limit of Rs 75 crore
^ - Fully interchangeable with working capital demand loan, buyer's credit's sub-limit of Rs 40 crore, letter of credit sub-limit of Rs 30 crore, and bank guarantee sub-limit of Rs 11 crore
** - BG Interchangeable upto Rs 14 crore
* - under e-SBD programme of Tata Auto Comp

Annexure – List of entities consolidated

Names of Entities Consolidated Extent of Consolidation  Rationale for Consolidation 
Supreme Industries Overseas FZE Full Wholly-owned subsidiary
Supreme Petrochem Ltd Moderate 30.78% stake
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 LT 723.0 CRISIL AA+/Stable   -- 25-03-22 CRISIL AA+/Stable 05-04-21 CRISIL AA/Positive 01-07-20 CRISIL AA/Stable CRISIL AA/Positive
      --   --   --   -- 30-04-20 CRISIL AA/Stable --
Non-Fund Based Facilities ST 722.9 CRISIL A1+   -- 25-03-22 CRISIL A1+ 05-04-21 CRISIL A1+ 01-07-20 CRISIL A1+ CRISIL A1+
      --   --   --   -- 30-04-20 CRISIL A1+ --
Commercial Paper ST 200.0 CRISIL A1+   -- 25-03-22 CRISIL A1+ 05-04-21 CRISIL A1+ 01-07-20 CRISIL A1+ CRISIL A1+
      --   --   --   -- 30-04-20 CRISIL A1+ --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bill Discounting* 10 Kotak Mahindra Bank Limited CRISIL AA+/Stable
Cash Credit^ 50 Citibank N. A. CRISIL AA+/Stable
Cash Credit 8 ICICI Bank Limited CRISIL AA+/Stable
Cash Credit 10 Standard Chartered Bank Limited CRISIL AA+/Stable
Cash Credit & Working Capital Demand Loan 150 The Hongkong and Shanghai Banking Corporation Limited CRISIL AA+/Stable
Letter of Credit 225 Kotak Mahindra Bank Limited CRISIL A1+
Letter of Credit$ 110 HDFC Bank Limited CRISIL A1+
Letter of credit & Bank Guarantee 140 Standard Chartered Bank Limited CRISIL A1+
Letter of credit & Bank Guarantee 97.9 ICICI Bank Limited CRISIL A1+
Letter of credit & Bank Guarantee** 75 Axis Bank Limited CRISIL A1+
Letter of credit & Bank Guarantee 75 YES Bank Limited CRISIL A1+
Overdraft Facility 25 YES Bank Limited CRISIL AA+/Stable
Overdraft Facility 45 HDFC Bank Limited CRISIL AA+/Stable
Overdraft Facility 30 Axis Bank Limited CRISIL AA+/Stable
Working Capital Demand Loan@ 75 Kotak Mahindra Bank Limited CRISIL AA+/Stable
Working Capital Demand Loan 45 Axis Bank Limited CRISIL AA+/Stable
Working Capital Demand Loan 75 JP Morgan Chase Bank N.A. CRISIL AA+/Stable
Working Capital Demand Loan 50 YES Bank Limited CRISIL AA+/Stable
Working Capital Demand Loan^ 100 Citibank N. A. CRISIL AA+/Stable
Working Capital Demand Loan 50 ICICI Bank Limited CRISIL AA+/Stable
This Annexure has been updated on 20-Mar-2023 in line with the lender-wise facility details as on 06-Dec-2021 received from the rated entity.
@- Fully interchangeable with letter of credit and buyer's credit, interchangeable with Rs 25 crore of bank guarantee
$ - Fully interchangeable with buyer's credit, purchase bill discounting sub-limit of Rs 50 crore and working capital loan sub-limit of Rs 75 crore
^ - Fully interchangeable with working capital demand loan, buyer's credit's sub-limit of Rs 40 crore, letter of credit sub-limit of Rs 30 crore, and bank guarantee sub-limit of Rs 11 crore
** - BG Interchangeable upto Rs 14 crore
* - under e-SBD programme of Tata Auto Comp
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 Criteria for rating short term debt
CRISILs Criteria for Consolidation

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