| Privi Speciality Chemicals Limited | ||||||
| Ratings reaffirmed at 'CRISIL A+/Stable/CRISIL A1'; rated amount enhanced for Bank Debt | ||||||
| Rating Action | ||||||
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| 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 of Privi Speciality Chemicals Limited (PSCL).
The ratings continue to reflect PSCL’s strong business risk profile, driven by an established market position in the bulk aroma chemicals industry, long-standing customer relationships, strong relationship with suppliers, and improving profitability and asset utilisation. The ratings also factor in an above-average financial risk profile because of a comfortable capital structure and adequate debt protection metrics. These strengths are partially offset by exposure to any sudden and sharp fluctuation in foreign exchange (forex) rates, volatility in prices of raw material, particularly crude derivatives, and large working capital requirement. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has considered the consolidated financials of PSCL and its wholly owned subsidiaries - Privi Biotechnologies Pvt Ltd and Privi Organics, USA, which are strategically important to, and have a significant degree of operational integration with PSCL.
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:
Benefits from the promoters' two-decade-long experience in the industry, established relationships with suppliers and customers, and a portfolio of 65 products (across four chemical categories - pinene, citral, phenol, and sandalwood) should continue to support the business risk profile. Pinene-based products—dihydromyrcenol and amber fleur—account for sizeable revenue. Business is also bolstered by the key supplier status for all major global customers with which the company has a healthy relationship. Exports to all the major markets and is the preferred supplier to the top flavor and fragrance (F&F) houses of the world like Givaudan (Switzerland), Firmenich (Switzerland), Symrise (Germany) and leading FMCG players like P&G and Henkel. CRISIL believes that PSCL’s established industry presence, diversified product basket and long and established relations with its reputed clientele bolsters its business risk profile and the same will also facilitate the company in steady ramp up in its operations.
The company is one of the few players globally with capability to manufacture key inputs alpha and beta pinene from basic raw materials, crude sulphate turpentine and/or gum turpentine oil. The backward integration for key inputs and insulates it from fluctuations in alpha and beta pinene. The arrangements with suppliers for raw material procurement also support the company’s profitability. It also has tie-up for 65% of its capacity with customers on yearly basis, insulating from fluctuation of key products in spot market. This, coupled with steady increase in capacity utilisation has led to improved operating margin over past three fiscals.
PSCL has a healthy networth of Rs. 804 crore, with gearing and total outside liabilities to adjusted networth (TOLANW) ratio of 1.1 time and 1.7 times as on March 31, 2022, respectively (0.74 time and 1.1 times, respectively, a year ago). It increased due to capex undertaken in past two fiscals. The capital structure is expected to improve with gearing and TOLANW ratio at or below 1 time and 1.5 times, respectively, with repayment of debt and reduction in inventory, while networth continues to improve. Debt protection metrics were comfortable, with interest coverage ratio maintained above 7 times and net cash accrual to total debt ratio of 0.18 time in fiscal 2022. The debt protection metrics have improved with the increased scale of operations and consequently healthy profitability and is expected to remain at similar levels.
Weaknesses:
Exports account for 70% of revenue. While raw material imports form a partial natural hedge, the remaining is covered through forward contracts. However, the operating margin remains vulnerable to any sharp and sudden forex rate fluctuations. The company's operating margin is also exposed to volatility in prices of crude derivatives-based raw material, which form close to 30% of total raw material component.
Operations are working capital intensive marked by estimated gross current assets (GCAs) of 266 days as on March 31, 2022. Inventory levels were high in fiscal 2022 due to buildup of work in progress inventory and higher stock in trade due to freight delays. However, inventory of 100-120 days is generally maintained necessitated by the imports and the transit time involved. Furthermore, as the company deals with large global players, it has to extend an open credit of 60-90 days. Debtors stood at about 69 days as on March 31, 2022. The working capital cycle is expected to remain stretched. With the scale of operations expected to increase over the medium term, CRISIL estimates working capital requirement to remain large over the medium term. |
Liquidity: Strong PSCL enjoys strong liquidity driven by expected cash accruals of more than Rs.190-270 crores per annum in fiscals 2023 and 2024 against debt repayment of Rs 61 crores and Rs 107 crores, respectively. PSCL’s fund-based limits were utilized to the tune of 51% on an average over the 12 months ended March 2022. Although it has increased in the past six months, it is expected to improve by end of fiscal 2023. Cash and cash equivalents was about Rs.35 crores as on March 31, 2022. Current ratio was moderate at 1.13 times as of March 2022. Its cash accruals and bank lines are expected to meet its incremental working capital requirements. |
Outlook: Stable CRISIL Ratings believes PSCL will benefit from optimum utilization of capacity, addition of customers, and higher margin yielding products. A prudent funding mix and commitment towards maintenance of the capital structure and debt coverage will ensure sustenance of the financial risk profile over the medium term. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company PSCL, incorporated in 1985, manufactures aroma chemicals, which are used as ingredients for manufacturing fragrances. The company presently has six manufacturing facilities at Mahad (in Maharashtra) and Jhagadia, Gujarat. PSCL has integrated operations with existing facilities to manufacture key raw materials. Operations are managed by Mr. Mahesh Babani and Mr. D B Rao.
The company has a wide product profile which includes pinene based, citral based, phenol based, and other specialty products and its customers comprise of global leaders in the flavors and fragrance and FMCG industry. |
Key Financial Indicators
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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)
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Annexure – List of entities consolidated
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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 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 30-Sep-22 in line with the lender-wise facility details as on 30-Sep-22 received from the rated entity.
Criteria Details
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