| Chemi Pack India Private Limited | ||||||
| Ratings reaffirmed at 'CRISIL BBB-/Stable/CRISIL A3' | ||||||
| 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 BBB-/Stable/CRISIL A3’ ratings on the bank facilities of Chemi Pack India Private Limited (Chemi Pack).
The ratings continue to reflect the stable market position of the company in the bottles and polybags division supported by healthy relationship with the Hetero Group of companies, healthy operating efficiencies and strong financial flexibility of the promoters which lends support to the financial risk profile. These strengths are partially offset by temporary moderation in financial risk profile due to large debt funded capex, modest scale of operations and working capital intensive operations.
Revenue for fiscal 2022 was flattish at about Rs 36.1 crore vis-à-vis Rs 36.9 crore in fiscal 2021 owing to loss of sales from the bottle caps division which is yet to receive the USFDA approval. Following the same, offtake in the bottles segment suffered as well and revenues for the bottles and caps division dropped by 21% to Rs. 26.1 crore. However, increased sales from the polybags division which stood at Rs 10 crores (up by 170%) provided some respite. Company recorded revenues of Rs 10.75 crore (Rs 2.5 crore from polybags and the balance from bottles and caps) during the first quarter of fiscal 2023.
Further, Chemi Pack is setting up a new plant for bottles and caps as the earlier plant which was on lease from Symed Labs Limited (rated CRISIL A/Stable/CRISIL A1) is expiring in January 2023. This new plant would have enhanced capacities for both bottles and caps and company is planning to get the facility approved by USFDA which would enable them to fetch higher realizations. The first phase of the plant is expected to be operational by September 2022 while the second phase is expected to be executed in fiscal 2024. Capital expenditure (capex) for the plant is estimated to be ~Rs 60 crore, to be spread over fiscals 2023 and 2024, and funded through debt of Rs 55 crore and the balance through internal accrual.
Operating margin declined to 29.3% in fiscal 2022 on account of higher sales of polybags (which offer net margin of 8-9%) against bottles and caps (which offer net margins of 25-30%). Further stable pricing terms with Hetero Group will ensure operating margins to sustain at 30-35% levels as well supported by increased offtake from the bottles and caps division which offer higher margins. Further, once the new plant gets USFDA certified, it will fetch higher realizations.
Working capital cycle is expected to remain stable. Financial risk profile is expected to temporarily moderate over the medium term owing to additional debt being undertaken for the aforementioned capex. Post loading of additional debt, gearing is expected to be ~ 0.9-1.5 times, Net Cash Accruals to Total Debt (NCATD) at 0.3-0.4 times and interest coverage at 4-5 times over the near to the medium term. However, significant financial flexibility of the promoters, Dr. G Mohan Rao and Dr. B. Partha Saradhi Reddy (Promoter of Hetero Labs), which was further augmented by a majority stake sale in group company Symed Labs Limited during the previous fiscal, lends comfort to the financial risk profile.
In fiscal 2022, owing to near debt free balance sheet, financial risk profile was healthy with NCATD at 0.90 times and interest coverage ratio at 20.25 times for fiscal 2022. |
Analytical Approach For arriving at its ratings, CRISIL Ratings has considered the standalone business and financial risk profiles of Chemi Pack. |
Key Rating Drivers & Detailed Description Strengths:
Weaknesses:
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Liquidity: Adequate Cash accrual is likely to be Rs 10-15 crore per annum over the medium term. This should be sufficient to cover repayment obligations of Rs 6 crores in fiscal 2024 and ~`Rs 10-11 crores in fiscal 2025. Bank limit utilisation averaged 77% over the 12 months through June 2022. |
Outlook: Stable Business risk profile will benefit from the capex being undertaken and healthy offtake from Hetero Group. The financial risk profile though moderating owing to sizeable debt funded capex will benefit from the significant financial flexibility of its promoters. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company Set up by Dr D Mohan Rao and Dr B Parthasaradi Reddy in 2008, Chemi Pack manufactures high-density polyethylene bottles and drums and low-density polypropylene liners, which are used in packaging formulations for exports. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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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 | |||
| Facility | Amount (Rs.Crore) | Name of Lender | Rating |
| Cash Credit | 4.5 | Axis Bank Limited | CRISIL BBB-/Stable |
| Cash Credit | 1 | Axis Bank Limited | CRISIL BBB-/Stable |
| Letter of Credit | 7 | Axis Bank Limited | CRISIL A3 |
This Annexure has been updated on 13-Mar-23 in line with the lender-wise facility details as on 02-Mar-23 received from the rated entity.
Criteria Details
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