| Dharampal Satyapal Foods Limited | ||||
| Rating continues on 'Watch Developing' | ||||
| 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 continued its rating on the long-term bank facility of Dharampal Satyapal Foods Ltd (DSFL; part of the Dharampal Satyapal [DS] group) on ‘Rating Watch with Developing Implications’.
The rating was placed on watch on October 30, 2024, following management update on the proposed transfer of the business of DS Spiceco Pvt Ltd (Spiceco; ‘Crisil A+/Watch Developing’) to DSFL, both part of the DS group. The proposed merger is subject to approval of the National Company Law Tribunal and other necessary statutory and regulatory approvals, which are expected to take 4-5 months. Crisil Ratings will monitor the developments and continue to engage with the management to understand the details of the transaction; this includes assessing expected synergies, long-term business and financial plans, among others. The watch will be resolved after all requisite regulatory approvals are in place, resulting in the conclusion of the proposed transaction, and when there is more clarity on these aspects.
The rating continues to factor in the strategic importance of DSFL to, and the financial flexibility of, the DS group, which includes Dharampal Satyapal Ltd (DSL; ‘Crisil AA/Stable’), Spiceco and other smaller entities. The rating also reflects the company’s strong business risk profile supported by established brands, such as Pulse and Pass Pass, and comfortable financial risk profile. These strengths are partially offset by modest scale of operations, concentrated product profile and exposure to intense competition in the confectionery industry.
Revenue grew 15% in fiscal 2024 to Rs 943 crore owing to sustenance of healthy demand as well as geographical expansion. Operating margin was 7.6% in fiscal 2024, as against 12% in fiscal 2023, amid investments to scale up sales and distribution. Revenue is expected to be driven by growth in core brands as well as addition of new brands over the medium term.
Cash accrual, expected at Rs 50-60 crore in the near term, will adequately cover annual capital expenditure (capex) as well as any outlay for inorganic growth. The financial risk profile should remain comfortable with nil debt and healthy cash and bank balance, with low utilisation of working capital limit. |
Analytical Approach Crisil Ratings has considered the standalone business and financial risk profiles of DSFL and has factored in the need-based support from the DS group while applying the group notch-up framework. |
Key Rating Drivers & Detailed Description Strengths:
The company has common suppliers and distribution channels with the DS group, and there is scope to leverage the latter’s distribution network to improve the reach of its confectionery products. Strong, need-based support from the group will likely continue over the medium term.
Weaknesses:
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Liquidity: Adequate Cash accrual is expected at Rs 50-60 crore against nil debt obligation over the medium term. Bank limit utilisation was moderate at 48%. Cash surplus stood at Rs 28 crore as on March 31, 2024. Cash and unutilised limit will be sufficient to fund the working capital cycle and operating cost. Need-based funding support from the promoters will continue. |
Rating sensitivity factors Upward factors
Downward factors
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About the Company DSFL started operations in October 2019 and is a part of the DS group, focusing on confectionery products. It sells mouth fresheners and HBC under the Pass Pass, Pulse, Chingles and Rajnigandha Silver Pearls brands. |
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)
* Fully interchangeable with working capital demand loan |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||
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Criteria Details
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