| Chemco Plastic Industries Private Limited | ||||||
| Rating Action | ||||||
| ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings on the bank facilities of Chemco Plastic Industries Private Limited (Chemco part of the Chemco group)continue reflects steady improvement in Chemco Group’s overall credit profile, backed by steady revenue growth, healthy profitability and controlled debt levels. Revenues is expected to grow by more than 35% in fiscal 2022 over previous fiscal, primarily driven by strong demand from existing customers as well as new customer wins and continuous capacity expansions. Revenue is expected to further grow with higher capacity utilization. Operating margin has remained stable in range of 15-17% and expected to remain at similar levels with pass through for raw material changes. Business risk profile is hence expected to continue to remain strong over the medium term.
CRISIL Ratings had upgraded its ratings on the bank facilities of Chemco group to 'CRISIL A/Stable/CRISIL A1' from 'CRISIL A-/Stable/CRISIL A2+' on March 21, 2022.
Controlled debt levels despite capital expenditure has led to gearing and total outside liabilities to adjusted networth (TOLANW)to remain below 1 times and 1.5 times, respectively, and is expected to sustain at similar levels over the medium term.
The ratings continue to reflect group's established market position, long track record of promoter's extensive experience in the packaging industry, reputed clientele and increasing revenues. The ratings also factor in the strong financial risk profile backed by healthy debt protection measures and strong networth. These strengths are partially offset by susceptibility to volatility in raw material prices and high working capital requirements. |
Analytical Approach For arriving at the ratings, CRISIL Rating has combined the business and financial risk profiles of Chemco and Gaurav Container Ltd (GCL). This is because these two companies, together referred to as the Chemco group or group, are under a common management and in the same business, and have significant operational and financial linkages.
Unsecured loans from promoters of Rs 16.39 crore as on March 31, 2021 in Chemco has been treated as neither debt nor equity (NDNE) because of track record of it being maintained in the business and carries no interest.
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, supported by long track record and reputed clientele The group is an established player in the specialty plastic PET Preforms, Jars & Bottles packaging industry with track record of over two decades in catering to the food, beverage, pharmaceutical and oil segments. The group has also ventured into other product segments such as geotextiles, babycare products, female hygiene and other houseware products. Moreover, established relationships with reputed customers, such as Bisleri International Pvt Ltd, Hindustan Coca Cola Beverages Pvt Ltd (HCCBL), and Moon Beverages Ltd ('CRISIL A+/Positive'), strengthen its market position. The group has withstood the impact of the pandemic by diversifying into FMCG and geotextile segment in short time period.
Extensive experience of the promoter The promoter, Mr. Ramawatar I. Saraogi, is a polymer engineer and has over 35 years of experience in the PET (polyethylene terephthalate) preforms, jars, and bottles industry. He is supported by Mr. Vaibhav R. Saraogi as managing director of the group, who is a postgraduate who has been focusing on the marketing, strategic and technological aspects of the group.
Increasing scale backed by capacity expansion and new customer wins The group's revenues have increased at a CAGR of 17% for past four fiscal year through fiscal 2021, driven by strong demand from existing customers and new customer additions wins. and capacity expansion. It is further supporting strong growth in fiscal 2022 by more than 35%. The group has added approximately 5,600 additional tonnes of capacity in November 2021, towards preform products to serve the increasing demand from new as well as existing customers. The additional capacity is expected to ramp up and operate at optimum capacity utilisation levels in fiscal 2023.
Strong financial risk profile The group’s financial risk profile is healthy as indicated by healthy networth of Rs 152.89 crore, comfortable gearing and TOLANW of 0.77 time and 1.44 times, respectively as on March 31, 2021 and is expected to gradually improve in fiscal 2022 and 2023 on the back of increasing earnings. Management indicated that it aims to maintain its net debt to equity below 1 times. Debt protection metrics continue to remain strong with interest cover of 5.53 times and net cash accruals to adjusted debt of 0.42 time as on March 31, 2021 and is expected to remain above 6 times and around 0.5 times in fiscal 2022, respectively. With healthy profitability the debt protection metrics are expected to remain comfortable over the medium term. The capital structure is expected to remain comfortable over the medium term, with strong accretion to reserve and absence of large debt-funded capital expenditure (capex).
Weakness: Susceptibility to volatility in raw material prices Under cost plus billing model, raw material costs are passed on to the customers, which limits the margin susceptibility to raw material volatility. The group has maintained its margins in the range of 15% to 20% since past five years. CRISIL believes that while there could be volatility in the operating margins, it should remain between 15-17% over the medium term.
Large working capital requirement Gross current assets were around 148 days as on March 31, 2021, driven by inventory of 81 days and receivables of 49 days. The group’s inventory of raw materials increased during the pandemic as the group stocked-up to de-risk from any supply side risks, debtor days are expected to be in the range of 45-55 days over the medium term. Operations will remain working capital intensive, driven by operating policies of the group. |
Liquidity: Strong Chemco has strong liquidity driven by expected cash accruals of more than Rs.75 to 80 crore per annum in fiscal 2023 and 2024, against long term repayment obligations around Rs.25 crores annually. The group’s fund-based limits was 60% utilized on an average over the 12 months ended January 2022. The group has cash and bank balance of Rs. 11.9 crores as on March 31, 2021. The group has capex plan of Rs. 150 crore over the next three fiscals which will be partly funded though debt. With a gearing of 0.7 times, the group has sufficient gearing headroom, to raise additional debt to meet its capex requirement. Its bank lines are expected to meet its incremental working capital requirements. |
Outlook Stable CRISIL Rating believes that the group will continue to benefit from its established market position in the plastic packaging industry and strong financial risk profile. |
Rating Sensitivity factors Upward factor
Downward factors
|
About the Company Chemco, incorporated in 1996 by Mr Ramawatar I. Saraogi, manufactures PET bottles, jars, and preforms for personal care, healthcare, confectionary, agricultural chemical, beverage, and lubricant industries. Chemco Group has four manufacturing units viz. Silvassa, Vadodara, Halol and Sanand.
GCL, incorporated in 1986 manufactures PET products. GCL holds 19.95% stake in Chemco. GCL has one unit in Daman.
The group is managed by Mr. Vaibhav R. Saraogi and Mr. Gaurav R. Saraogi as Managing Directors. |
Key Financial Indicators
|
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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)
|
Annexure – List of entities consolidated
|
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
This Annexure has been updated on 28-Mar-2022 in line with the lender-wise facility details as on 21-Mar-2022 received from the rated entity.
Criteria Details
|