| Vidhi Specialty Food Ingredients Limited | ||||||
| Rating outlook revised to 'Positive', ratings reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has revised its outlook on the bank facilities of Vidhi Specialty Food Ingredients Limited (VSFIL) to ‘Positive’ from ‘Stable’ while reaffirming the rating at ‘CRISIL BBB+’. Rating on short term bank facility has been reaffirmed at ‘CRISIL A2’.
The revision in outlook reflects the expectation that group’s business risk profile will continue to strengthen over the medium term, driven by improvement in revenue while maintaining operating margins. Despite economic disruptions on account of lockdown and other measures taken by the central and various state governments towards containment of COVID-19 in Q1 fiscal 2021, group has reported improvement in revenue to Rs 170 crore for period April to December 2020 against Rs 160 crore, during similar period in fiscal 2020. Operating margin has also remained healthy in range of 20-23% for last 4 quarters through December 2020. Growth in scale is expected to continue on supported by proposed capacity expansion and continued strong demand in the food colour segment. Increase in cash accrual and sufficient cushion in working capital limits would further support liquidity over the medium term.
The ratings reflect group’s established market position in food colour industry and healthy financial risk profile marked by comfortable capital structure and robust debt protection metrics. These strengths are partially offset by large working capital requirement and risk associated with timely completion and offtake risk associated with new plan. |
Analytical Approach: For arriving at the ratings, CRISIL Ratings has combined the financial and business risk profiles of VSFIL and its wholly owned subsidiary, Arjun Food Colorants Manufacturing Private Limited (AFCMPL). This is because both these entities, collectively referred to as the VSFIL, have a common management and strong operational and financial links. 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: * Established market position in food colour industry: Group has established its market position over last 25 years in the food colour industry especially in the export market on back of sound operating efficiencies. Group has ISO and Kosher certifications, and product approvals from customers and majorly caters to export market with 80% of revenue. Group’s clientele include global food colour vendors such as Univar Inc, UK; Map Technologies Ltd, UK; Proquimac Food & Pharma SA, Spain; among others. Group also has strong relationship with global majors such as Nestle, Mars, Pedigree, and Sanofi.
* Healthy financial risk profile: Total outside labilities to adjusted networth of sub 0.5 time as on March 31, 2020 on a networth base of Rs 128 crore represents comfortable capital structure. On back of healthy operating profits and limited reliance on external debt, debt protection metrics are expected to remain robust. Interest coverage and net cash accrual to total debt ratios were at 16.99 times and 0.9 time, respectively, in fiscal 2020. Financial risk profile is expected to remain stable over the medium term, supported by steady accretion to reserves and controlled reliance on external debt for proposed capex.
Weakness: * Large working capital requirement: Gross current assets (excluding cash) are 211 days because of elongated receivables of 132 days and inventory of 74 days as on March 31, 2020. Operations will remain working capital intensive over the medium term on back of receivable cycle and moderate inventory levels.
* Timely completion and offtake risk associated with new plant: Group is undertaking capex of around Rs 60 crore in 2 phases. Each phase is of around Rs 30 crore will be funded entirely through internal accruals and cash and equivalents. Accordingly, the group is currently exposed to timely completion and offtake risk associated with the new plant. Demand risk is partly mitigated by current capacity being utilised fully and steady demand. Ability of the company to swiftly ramp up new capacities while maintaining operating margin will be a rating monitorable. |
Liquidity: Adequate Company is expected to generate accruals of Rs 27-30 crore adequate to meet yearly term debt obligation of Rs 1.3-1.8 crore per annum, over the medium term. Same will also act as a cushion to liquidity. Average bank limit utilisation was around 36% in the 12 months ended December 2020. Company has capex plans of around Rs 60 crore spread over 3 year period to be funded from the internal accruals. Unencumbered cash and equivalents of Rs 16.32 crore as on March 31, 2020, also underpins liquidity. Current ratio was healthy at 2.59 times as on March 31, 2020. |
Outlook Positive CRISIL Ratings believes VSFIL will improve on its already established position in the food colours market, backed by its long-standing associations with customers and suppliers, further supported by planned increase in manufacturing capacity. |
Rating Sensitivity factors Upward factor
Downward factor
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About the Company VSFIL, promoted by Mr Bipin Manek, manufactures synthetic food colours used in the foodstuff, pharmaceutical, confectionery, pet food, healthcare, dairy products, soft drinks, and cosmetics industries. The company has also set up a research and development (R&D) unit near its manufacturing facility in Roha, which enables the company to test food colours and meet the quality specification set by the US Food and Drug Administration (FDA) and other regulatory bodies around the world. The company mainly exports its products to countries in Europe, North America, Africa, and Australia with a presence in 80 countries globally. |
Key Financial Indicators
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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)
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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 various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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