| RSPL LIMITED | ||||||
| Long-term rating upgraded to ‘CRISIL AA/Stable'; short-term rating reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has upgraded its rating on the long-term bank facilities and non convertible debentures of RSPL Limited (RSPL) to ‘CRISIL AA/Stable’ from ‘CRISIL AA-/Stable’. The short-term rating and commercial paper has been reaffirmed at ‘CRISIL A1+’.
The rating upgrade factors in sustained improvement in operating performance driven by strong market position in detergents and benefit of backward integration through ramp up of soda ash plant. The rating action also factors improvement in financial risk profile driven by debt reduction and build-up of healthy cash surplus.
During fiscal 2022, the company posted healthy 13% growth in the revenues primarily driven higher realisations, while the operating margins remained higher than historical levels at 21% in fiscal 2022 due to benefit of backward integration and higher soda ash market prices. The soda ash project at Dwarka for backward integration, commissioned in October 2019, also operated at over 80% utilization during the fiscal and met the captive requirement of soda ash of the company. Furthermore, external soda ash sales also contributed about 20-25% of EBITDA during the fiscal supported by healthy demand for soda ash leading to superior margins for the segment. Going forward, CRISIL Ratings expects operating margin to remain healthy at 18-20% level supported by strong market position of Ghari brand and benefit of backward integration.
Financial risk profile has improved with sustained debt reduction and healthy accretion to networth. Over last two fiscals, total debt reduced from Rs 3198 crore as on March 31, 2020, to Rs. 2000 crore as on March 31, 2022, owing to scheduled repayments and pre-payments of term debt, as well as lower working capital borrowings. Healthy cash accruals of over Rs 1000 crore per annum going forward will be sufficient to fund the proposed capacity expansion of soda ash, debt repayments and incremental working capital requirement. As a result, total debt is expected to reduce further in the medium term. Consequently, RSPL's debt metrics such as total debt to earnings before interest, tax, depreciation and amortisation (EBIDTA) further improved from ~2.1 times in fiscal 2021 to ~1.5 times in fiscal 2022 and is expected to remain below 1.5 times, over medium term.
Financial flexibility continues to be healthy, with the project debt repayments well-spaced out over 11 years till 2031 and ballooning in nature. The liquidity also remains comfortable with cash and equivalents of Rs. 616 crore as on March 31, 2022.
CRISIL Ratings’ on RSPL continue to reflect the company's strong market position with leadership of its 'Ghadi' brand in detergent industry coupled with improving financial risk profile of the company. These rating strengths are partially offset by brand concentration, and competitive nature of the industry. |
Analytical Approach For arriving at its ratings, CRISIL ratings has consolidated RSPL and its wholly owned subsidiary - RSPL Health Private Ltd, as these companies have common management and financial and operational linkages.
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: Leadership position in the economy segment of detergent industry, especially in North and Central India RSPL has a leadership position in the economy detergent segment through its flagship brand, Ghadi, especially in North and Central India. RSPL has established a strong network of distributors and dealers. Its revenues registered compound annual growth rate of around 9% over the past 5 fiscals through fiscal 2022. During fiscal 2022, revenues registered a healthy 13% growth, supported by healthy realisations in laundry care as well as soda ash segment, overall focus on hygiene during the pandemic and increased penetration in the relatively underpenetrated markets.
CRISIL Ratings believes that RSPL will continue to benefit from the strong brand equity of its flagship brand, Ghadi, and focus on penetrating into new geographies gradually over the medium term. In the absence of material capacity additions, revenue growth will continue at modest levels, depending on end-product prices.
Healthy operating efficiency RSPL enjoy healthy operating efficiency with operating profitability expected to sustain at 18-20% with benefit of backward integration. Return on capital employed also improved to 20% in fiscal 2022 after remaining subdued due to capacity addition in past years.
Operating efficiency is sound due to a strong network of about 3400 stockists and distributors, providing a retail reach of about 28-30 lakh outlets in India. The company also benefits from its cost effective and well-established sourcing strategy for its raw materials.
Efficient working capital management, sustenance of healthy operating margin along with strong distribution channel will support to sustain improved return on capital employed and operating efficiency.
Healthy financial risk profile, marked by strong debt protection metrics and steady cash accruals
The financial flexibility continues to be comfortable with well-spaced out debt repayments over 11 years and liquid surplus of Rs. 616 crore as on March 31, 2022. RSPL plans to incur capacity expansion of soda ash over next 2-3 fiscals which would be funded through internal accruals. CRISIL expects debt to EBITDA will remain below 1.5 times in the medium term.
Weaknesses: High dependence on Ghadi brand and competitive nature of the industry RSPL has high dependence on the Ghadi brand, which contributes to over 90% of its revenue and profits. The company has expanded its product and brand portfolio with new products such as Uniwash (mid-premium category detergent), Xpert (dish washing soaps), and Venus (bathing soaps), and Pro-ease (sanitary pads) as well as Glori (bathing soaps) which was launched in the fourth quarter of fiscal 2020. The company intends to diversify its product offerings further over the medium to long term; in the interim it will continue to extensively depend on the Ghadi brand. |
Liquidity: Strong RSPL has healthy liquidity driven by expected cash accruals of more than Rs 1000 crore per annum over medium term, as against term debt repayments of Rs. 200-240 crore over similar period. The liquidity is also supported by cash and cash equivalents of Rs. 616 crore as on March 31, 2022. The company will undertake modest capex over medium term. CRISIL Ratings expects RSPL’s internal accruals, cash & cash equivalents and unutilized bank lines to be sufficient to meet its repayment obligations, as well as incremental capex and working capital requirements. |
Outlook: Stable CRISIL Ratings believes that the financial profile will continue to remain healthy in medium term as a result of healthy net cash accruals leading to sustained financial flexibility, and modest capex spend over the medium term. RSPL will continue to benefit from its established market position and improving operating efficiencies due to backward integration in soda ash project. |
Rating Sensitivity Factors Upward factors:
Downward factors:
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About the Company RSPL was incorporated in 1988 as a manufacturer of detergents. The company sells detergent powders and cakes through Ghadi, its flagship brand. RSPL has also launched other brands such as Uniwash, Xpert, Venus and Pro-ease.
RSPL has set up 0.5 MTPA soda ash plant in Dwarka district of Gujarat. The company has commenced operations of one stream of the project in March 2019 while second stream commenced operations in October 2019. RSPL also set up a cogeneration steam and power plant to produce 300 tonne per hour of steam and 50 megawatt of power. The overall project cost was ~Rs. 4250 crore, and involved sizeable debt funding |
Key Financial Indicators
*Provisional |
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)
#Yet to be issued *Including sublimit of 90 Crore for NFB |
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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Criteria Details
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