Rating Rationale
September 27, 2022 | Mumbai
DIC India Limited
Ratings reaffirmed at 'CRISIL A+/Stable/CRISIL A1'
 
Rating Action
Total Bank Loan Facilities RatedRs.59.09 Crore
Long Term RatingCRISIL A+/Stable (Reaffirmed)
Short Term RatingCRISIL A1 (Reaffirmed)
 
Rs.10 Crore Non Convertible DebenturesCRISIL A+/Stable (Reaffirmed)
Rs.50 Crore Short Term DebtCRISIL 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 A+/Stable/CRISIL A1’ ratings on the bank facilities and debt programmes of DIC India Limited (DIC India).

 

The ratings continue to reflect the stable operational performance of DIC India over the six months through fiscal 2022, with revenue growing 23% to Rs 417 crore (H1 2021: Rs 338 crore), driven by strong demand from the packaging segment offsetting fall in demand from the publication and news sector. The new flexi-packaging ink facility in Gujarat is expected to commence production during the first half of 2023. Operating margin remains constrained at 2% for H1 2022 due to sharp increase in prices of crude-linked raw materials. Despite revenue growth of 22% y-o-y in CY21 to Rs 747 crore (CY20: Rs 611 crore), operating margin remains constrained due to increase in crude-linked raw material prices and overall raw material prices due to geopolitical situation and supply chain issues depressing gross margin. However, the decline in gross margin was largely offset by higher operating leverage. Profitability is expected to remain constrained at 2.5-4% over the medium term with company undertaking periodic price hikes to pass on increase in raw material prices.

 

Financial risk profile remains healthy with adequate networth and negligible debt on the books. Debt protection metrics expected to remain strong with company not expected to tie up additional debt. DIC India has strong liquidity with cash surplus of Rs 45 crore as of June 30, 2022. Also, bank lines of Rs 132 crore remains fully unutilised. DIC India has also received the final tranche aggregating to Rs 33 crore, from the land sale in Mumbai to Godrej Properties Ltd for a total of Rs 153 crore.

 

The ratings continue to reflect the strong position of DIC India in the printing inks market in India and its healthy financial risk profile and strong technological and managerial support received by the company from its ultimate parent, DIC Japan, a global leader in printing inks. These strengths are partially offset by susceptibility to risks inherent in the printing ink industry and modest operating profitability.

Analytical Approach

CRISIL Ratings has factored in the business and need-based financial support from DIC India's parent, DIC Japan.

Key Rating Drivers & Detailed Description

Strengths:

  • Strong position in the printing inks sector: DIC India is the second largest player in the domestic printing inks market, with presence in the newsprint, publication and packaging industries. It is increasingly focusing on the packaging ink segment to meet demand from the end-user industry. Revenue share from the packaging segment increased substantially in CY22 from CY19, and future revenue will be driven by the packaging segment. Stronger presence in the packaging segment may also result in higher profitability. Capacity addition from CY22 will support growth in the future.

 

  • Strong technological, managerial and need-based financial support from DIC Japan: DIC India receives strong support from its parent in terms of technology transfer, process improvement and understanding of the global printing inks business. Moreover, DIC Japan is actively involved in DIC India's operations and product development initiatives. Operating performance of DIC Japan showed resilience during the Covid-19 pandemic, with CY20 revenue declining only by 9% compared with CY19 and the operating margin remaining steady at 7%. For CY21, DIC Japan has made revenue of JPY 855 billion (~Rs 48,000 crore) with an operating margin of 8.1%. Credit risk profile is comfortable, with gearing of 0.59 times as on December 31, 2021, and interest coverage at 32 times in CY21. As per policy, the parent will also support the financial needs of DIC India in case of distress.

 

  • Healthy financial risk profile: Gearing was 0.0 time as on June 30, 2022, on account of absence of any long-term debt and nil bank limit utilisation over the last 12 months ended August 31, 2022. The capex was funded mainly through internal cash accrual. The company is not expected to rely on external borrowing over the medium term. In February 2020, it entered into an agreement with Godrej Properties Ltd to sell its land at Chandivali in Mumbai for a consideration of Rs 153 crore; DIC India has received the full amount as on July 22, 2022. The company had cash surplus of Rs 45 crore as on June 30, 2022.

 

Weaknesses:

  • Modest operating efficiency: Profitability is susceptible to fluctuations in input price and the ability to pass on price hikes to end users, as indicated by low operating margin of 3.4% and 4.3% in CY21 and CY20, respectively, when prices of key raw materials (solvents, resins, pigments, oils) had risen. However, DIC India has been increasing its presence in the flexible packaging segment over the past two years; this offers better scope for passing on the price hike. Furthermore, change in the product mix towards higher-margin value-added products has helped increase per-unit realisation, which along with regular price hikes and higher share of the packaging segment will help contain the impact of increase in raw material prices. RoCE has ranged between negative 1.7% and 9.6% in the last five years on account of fluctuations in profitability. The company’s ability to improve its operating margin (by passing on any price hike) remains a key monitorable.

 

  • Susceptibility to risks inherent in the printing ink industry: The printing ink segment is inherently working capital intensive. The operating margin remains susceptible to volatility in the prices of petroleum-based raw materials and foreign exchange rates. Revenue has been range-bound on account of sluggish demand from the newsprint ink segment. Moreover, intense competition restricts pricing flexibility, resulting in modest profitability and low RoCE.

Liquidity: Strong

Liquidity remains strong benefitting from steady cash accruals, expected at Rs 25-30 crore per year, which should comfortably fund moderate capex requirements of Rs 5-10 crore each year and nil debt repayment obligations. Besides, the group also has estimated cash and equivalents of Rs 45 crore as on June 30, 2022, and headroom in its working capital lines of Rs 132 crore which remained fully unutilised for 12 months through August 2022.

Outlook: Stable

The credit risk profile of DIC India will remain supported by the healthy financial risk profile and parent support, while the business risk profile will remain susceptible to fluctuations in raw material prices.

Rating Sensitivity factors

Upward factors

  • Significant improvement in scale of operations driven by increase in market share in the domestic ink segment through better product mix and segment diversity.
  • Sustained improvement in operating margin to over 5-6%.

 

Downward factors

  • Sustained weak operating performance with operating margins below 2% impacting cash generation.
  • Large, debt-funded acquisition or capital expenditure or higher working capital, weakening the capital structure or debt protection metrics.

About the Company

DIC India (formerly, Coates of India Ltd) manufactures printing ink, including newsprint ink, offset ink, liquid ink, Flexographic inks, and lamination adhesives used in the newspaper, publishing and packaging industries. Facilities are in Kolkata, Ahmedabad, Noida and Bengaluru. The company has the second-largest ink manufacturing capacity in India, at 60,648 tonne per annum. Singapore-based DIC Asia Pacific Pte Ltd, a wholly owned subsidiary of DIC Japan, holds 71.75% equity stake in DIC.

 

For the six months ended June 30, 2022, the company reported revenue of Rs 417 crore (Rs 338 crore for the corresponding period of the previous fiscal), earnings before interest, taxes, depreciation and amortisation of Rs 8 crore (Rs 11 crore) and net profit of Rs 36 crore (Rs 7 crore).

Key Financial Indicators

As on December 31st   2021 2020
    Actual Actual
Operating income Rs crore 747 611
Profit after tax (PAT) Rs crore 12 86
PAT margin % 1.7 14
Adjusted debt/adjusted networth Times - -
Adjusted interest coverage Times 24.55 14.91

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 level

Rating assigned

with outlook

NA

Non Convertible Debentures*

NA

NA

NA

10

Simple

CRISIL A+/Stable

NA

Short Term Debt

NA

NA

7-365 days

50

Simple

CRISIL A1

NA

Cash Credit

NA

NA

NA

32

NA

CRISIL A+/Stable

NA

Letter of credit & Bank Guarantee

NA

NA

NA

14.7

NA

CRISIL A1

NA

Proposed Working Capital Facility

NA

NA

NA

12.39

NA

CRISIL A+/Stable

* Yet to be issued

Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 44.39 CRISIL A+/Stable   -- 30-10-21 CRISIL A+/Stable 27-10-20 CRISIL A+/Stable 11-09-19 CRISIL A+/Negative CRISIL AA-/Stable
      --   --   -- 21-05-20 CRISIL A+/Negative 11-06-19 CRISIL A+/Negative --
Non-Fund Based Facilities ST 14.7 CRISIL A1   -- 30-10-21 CRISIL A1 27-10-20 CRISIL A1 11-09-19 CRISIL A1 CRISIL A1+
      --   --   -- 21-05-20 CRISIL A1 11-06-19 CRISIL A1 --
Non Convertible Debentures LT 10.0 CRISIL A+/Stable   -- 30-10-21 CRISIL A+/Stable 27-10-20 CRISIL A+/Stable 11-09-19 CRISIL A+/Negative CRISIL AA-/Stable
      --   --   -- 21-05-20 CRISIL A+/Negative 11-06-19 CRISIL A+/Negative --
Short Term Debt ST 50.0 CRISIL A1   -- 30-10-21 CRISIL A1 27-10-20 CRISIL A1 11-09-19 CRISIL A1 CRISIL A1+
      --   --   -- 21-05-20 CRISIL A1 11-06-19 CRISIL A1 --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 25 Standard Chartered Bank Limited CRISIL A+/Stable
Cash Credit 7 State Bank of India CRISIL A+/Stable
Letter of credit & Bank Guarantee 14 Standard Chartered Bank Limited CRISIL A1
Letter of credit & Bank Guarantee 0.7 State Bank of India CRISIL A1
Proposed Working Capital Facility 12.39 Not Applicable CRISIL A+/Stable

This Annexure has been updated on 16-Mar-2023 in line with the lender-wise facility details as on 10-Mar-2023 received from the rated entity.

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
Rating Criteria for Chemical Industry
Mapping global scale ratings onto CRISIL scale
Mapping global scale ratings onto CRISIL scale
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

Media Relations
Analytical Contacts
Customer Service Helpdesk

Aveek Datta
Media Relations
CRISIL Limited
M: +91 99204 93912
B: +91 22 3342 3000
AVEEK.DATTA@crisil.com

Prakruti Jani
Media Relations
CRISIL Limited
M: +91 98678 68976
B: +91 22 3342 3000
PRAKRUTI.JANI@crisil.com

Rutuja Gaikwad 
Media Relations
CRISIL Limited
B: +91 22 3342 3000
Rutuja.Gaikwad@ext-crisil.com


Anuj Sethi
Senior Director
CRISIL Ratings Limited
D:+91 44 6656 3100
anuj.sethi@crisil.com

Naveen Vaidyanathan
Director
CRISIL Ratings Limited
D:+91 44 4226 3492
naveen.vaidyanathan@crisil.com

Ashik Joy
Rating Analyst
CRISIL Ratings Limited
B:+91 22 3342 3000
Ashik.Joy@crisil.com		Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
CRISILratingdesk@crisil.com
 
For Analytical queries:
ratingsinvestordesk@crisil.com

 

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper/magazine/agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL Ratings. However, CRISIL Ratings alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites and portals.


About CRISIL Ratings Limited (A subsidiary of CRISIL Limited, an S&P Global Company)

CRISIL Ratings pioneered the concept of credit rating in India in 1987. With a tradition of independence, analytical rigour and innovation, we set the standards in the credit rating business. We rate the entire range of debt instruments, such as bank loans, certificates of deposit, commercial paper, non-convertible/convertible/partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 33,000 large and mid-scale corporates and financial institutions. We have also instituted several innovations in India in the rating business, including ratings for municipal bonds, partially guaranteed instruments and infrastructure investment trusts (InvITs).
 
CRISIL Ratings Limited ('CRISIL Ratings') is a wholly-owned subsidiary of CRISIL Limited ('CRISIL'). CRISIL Ratings Limited is registered in India as a credit rating agency with the Securities and Exchange Board of India ("SEBI").
 
For more information, visit www.crisilratings.com 
 



About CRISIL Limited

CRISIL is a leading, agile and innovative global analytics company driven by its mission of making markets function better. 

It is India’s foremost provider of ratings, data, research, analytics and solutions with a strong track record of growth, culture of innovation, and global footprint.

It has delivered independent opinions, actionable insights, and efficient solutions to over 100,000 customers through businesses that operate from India, the US, the UK, Argentina, Poland, China, Hong Kong and Singapore.

It is majority owned by S&P Global Inc, a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.

For more information, visit www.crisil.com

Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK

CRISIL PRIVACY NOTICE
 
CRISIL respects your privacy. We may use your contact information, such as your name, address and email id to fulfil your request and service your account and to provide you with additional information from CRISIL. For further information on CRISIL's privacy policy please visit www.crisil.com.



DISCLAIMER

This disclaimer is part of and applies to each credit rating report and/or credit rating rationale ('report') that is provided by CRISIL Ratings Limited ('CRISIL Ratings'). To avoid doubt, the term 'report' includes the information, ratings and other content forming part of the report. The report is intended for the jurisdiction of India only. This report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the report is to be construed as CRISIL Ratings providing or intending to provide any services in jurisdictions where CRISIL Ratings does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this report does not create a client relationship between CRISIL Ratings and the user.

We are not aware that any user intends to rely on the report or of the manner in which a user intends to use the report. In preparing our report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the report is not intended to and does not constitute an investment advice. The report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind to enter into any deal or transaction with the entity to which the report pertains. The report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Ratings are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold or sell any securities/instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL Ratings assumes no obligation to update its opinions following publication in any form or format although CRISIL Ratings may disseminate its opinions and analysis. The rating contained in the report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the report should rely on their own judgment and take their own professional advice before acting on the report in any way. CRISIL Ratings or its associates may have other commercial transactions with the entity to which the report pertains.

Neither CRISIL Ratings nor its affiliates, third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively, 'CRISIL Ratings Parties') guarantee the accuracy, completeness or adequacy of the report, and no CRISIL Ratings Party shall have any liability for any errors, omissions or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the report. EACH CRISIL RATINGS PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Ratings Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. Public ratings and analysis by CRISIL Ratings, as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any), are made available on its website, www.crisilratings.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee - more details about ratings by CRISIL Ratings are available here: www.crisilratings.com.

CRISIL Ratings and its affiliates do not act as a fiduciary. While CRISIL Ratings has obtained information from sources it believes to be reliable, CRISIL Ratings does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and/or relies on in its reports. CRISIL Ratings has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL Ratings has in place a ratings code of conduct and policies for managing conflict of interest. For details please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html.

Rating criteria by CRISIL Ratings are generally available without charge to the public on the CRISIL Ratings public website, www.crisilratings.com. For latest rating information on any instrument of any company rated by CRISIL Ratings, you may contact the CRISIL Ratings desk at crisilratingdesk@crisil.com, or at (0091) 1800 267 1301.

This report should not be reproduced or redistributed to any other person or in any form without prior written consent from CRISIL Ratings.

All rights reserved @ CRISIL Ratings Limited. CRISIL Ratings is a wholly owned subsidiary of CRISIL Limited.
 

 

CRISIL Ratings uses the prefix 'PP-MLD' for the ratings of principal-protected market-linked debentures (PPMLD) with effect from November 1, 2011, to comply with the SEBI circular, "Guidelines for Issue and Listing of Structured Products/Market Linked Debentures". The revision in rating symbols for PPMLDs should not be construed as a change in the rating of the subject instrument. For details on CRISIL Ratings' use of 'PP-MLD' please refer to the notes to Rating scale for Debt Instruments and Structured Finance Instruments at the following link: https://www.crisil.com/en/home/our-businesses/ratings/credit-ratings-scale.html