| DS Spiceco Private Limited | ||||
| Rating reaffirmed | ||||
| 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 A+/Stable’ rating on the long-term bank facility of DS Spiceco Pvt Ltd (Spiceco; part of the Dharampal Satyapal [DS] group).
The rating factors in the strategic importance of Spiceco and the operational and financial support it receives from the DS group, which comprises Dharampal Satyapal Ltd (DSL; CRISIL AA/Stable’) and Dharampal Satyapal Foods Ltd (earlier DS Confectionery Products Pvt Ltd; ‘CRISIL A+/Stable’), among others. The rating also reflects the strong business risk profile of Spiceco, backed by its established brand, Catch, and its comfortable financial risk profile. These strengths are partially offset by modest scale of operations and exposure to volatility in raw material prices in the spices industry.
Revenues for the company increased by ~21% to ~Rs. 736 crore in fiscal 2022 driven by healthy growth in core markets, price increases and stable growth across all channels with Modern Trade and HoReCa (hotels, restaurants and café) witnessing strong growth. Ecommerce and marketplace segment, supports in increasing customer reach, has also seen strong growth. Even in terms of product categories, growth was healthy across all major product categories and especially in Straight premium, Blends and asafoetida. Sales under the Catch brand (2-3% market share in the organised segment) are estimated at Rs 650-700 crore in fiscal 2022. Also, sales under the Kewal brand witnessed healthy growth. Operating margin is estimated at 10.3% in fiscal 2022, almost 170 bps increase on year supported by operating leverage, ability to pass on increase in costs and better product mix. The financial risk profile remains comfortable (gearing is estimated at 1.5 times as on March 31, 2022, and interest coverage ratio estimated at ~4 times in fiscal 2022). Spiceco will continue to enjoy strong financial flexibility as part of the DS group and receive need-based support from the group during exigencies (as seen in the past).
The credit risk profile of the DS group is driven by DSL, which accounts for over 65% of the total revenue. DSL leads the premium pan masala segment through its brand, Rajnigandha, which has 65-70% market share. However, product concentration in revenue constrains the business risk profile. The financial risk profile of DSL is supported by cash accrual of Rs 550-600 crore, limited capex and comfortable gearing below 0.3 time as on March 31, 2021. Cash and equivalent stood at over Rs 400 crore as on March 31, 2021. |
Analytical Approach CRISIL Ratings has factored in the support Spiceco receives from the DS group and has applied the group notch-up framework. |
Key Rating Drivers & Detailed Description Strengths Strong operational, financial and managerial support from the DS group The group extends need-based support to its entities. It clocks in revenue of over Rs 5,000 crore per annum. Despite regular investments, the group had healthy cash surplus of over Rs 400 crore as on March 31, 2021, on account of strong accrual. Spiceco has ICDs from group companies amounting to Rs. 103.8 crore as on March 31, 2022. The company shares suppliers and distribution channels with the group, and can leverage the latter’s network to improve product reach. Need-based support from the group will continue to benefit Spiceco.
Established brand presence in north India Spiceco sells spices under the brand Catch. The brand will increase its share with the launch of new flavours and variations. Spiceco has a dominant market position in most northern states, including Uttarakhand, Punjab and Himachal Pradesh. Also, it has access to more than 10 lakh retailers of the DS group. The operating margin of the company is estimated at 10.3% in fiscal 2022 and expected at a similar level over the medium term.
Comfortable financial risk profile Gearing and networth are estimated to have been moderate at ~1.5 times and Rs 173 crore, respectively, as on March 31, 2022. Term debt was ~Rs 70 crore and short-term debt was ~Rs 93 crore as on March 31, 2022. Other than this, the company has ICDs from group companies amounting to Rs. 103.8 crore as on March 31, 2022.
Net cash accrual to total debt and interest coverage ratios were adequate and estimated at ~0.19 time and ~4 times, respectively, in fiscal 2022, and are expected to remain comfortable over the medium term. Capex is expected to be moderate at Rs 30-35 crore in this fiscal.
Weaknesses Modest albeit improving scale of operations Spiceco was demerged from DSL in 2014. As the industry has low, albeit stable, growth, the revenue of the company grew by a modest 5% in the past three fiscals till FY2021, before increasing by almost 21% to Rs 736 crore in fiscal 2022 supported by driven by healthy growth in core markets, price increases and and stable growth across all channels with Modern Trade and HoReCa (hotels, restaurants and café) witnessing strong growth. Ecommerce and marketplace segment, supports in increasing customer reach, has also seen strong growth. However, this risk is mitigated by established brand and widespread reach.
Exposure to intense competition and volatility in raw material prices Prices of raw spices such as coriander, chilli and fennel depend on crop season and rainfall. While the company can pass on significant increase in the prices of raw materials, intense competition and varied preferences limit the risk. Also, Spiceco hedges the potential risk by building inventories of commodities where the price increase is anticipated. |
Liquidity Adequate Expected cash accrual of Rs 55-70 crore in fiscal 2023 will comfortably cover term debt obligation of Rs 20-25 crore. Moreover, enhanced limit of Rs 25 crore for meeting the increased working capital requirement will cushion liquidity. The promoters will continue to provide need-based funding support. Spiceco has substantial investments with acquisition cost of Rs 103.8 crores which can potentially support debt reduction and/or fund growth. |
Outlook Stable Spiceco will maintain comfortable business and financial risk profiles over the medium term, aided by its established position in the spices industry. Also, the company will continue to receive operational and financial support from the DS group. |
Rating Sensitivity factors Upward factors
Downside factors
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About the Company Carved out of DSL and incorporated in October 2014, Spiceco sells straight spices, blended spices and table sprinklers under the brands Catch, Kewal and Maharaja Choice.
For fiscal 2022, the company’s profit after tax (PAT) is estimated at Rs 36 crore on revenue of Rs 736 crore. |
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 | 100 | HDFC Bank Limited | CRISIL A+/Stable |
This Annexure has been updated on 16-Mar-2023 in line with the lender-wise facility details as on 14-Mar-2023 received from the rated entity.
Criteria Details
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