| Savita Oil Technologies Limited | ||||||
| Ratings reaffirmed at 'CRISIL AA/Stable/CRISIL A1+' | ||||||
| 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 AA/Stable/CRISIL A1+’ ratings on the bank facilities of Savita Oil Technologies Limited (SOTL).
The ratings continue to reflect the company’s established market position, diversified revenue profile basis across end user industries and products, and healthy financial risk profile. These strengths are partially offset by the susceptibility of its operating margin to sharp volatility in foreign exchange (forex) rates and base oil prices, working capital-intensive operations and exposure to intense competition.
The company has an established market position in the domestic transformer oil and white oil segments, which contributed ~35% each to revenue during fiscal 2023. The other major product is lubricating oil, which forms 28% of the revenue. The volume in the transformer oil and lubricating oil segments has increased consistently over the past three years and the similar trend is expected to continue over the medium term aided by the government focus on infrastructure and demand from the automotive industry. In fiscal 2024, SOTL started manufacturing synthetic ester-based transformer oil, which is more environment friendly. The Company during April, 2024 relaunched its own lubricant brand as “Savsol Easter5” to increase market share. The post pandemic pent-up demand during fiscal 2022 mainly from the fast-moving consumer goods (FMCG) and pharmaceuticals sectors stabilised during fiscal 2023, resulting in a decline in the volume of white oil / liquid paraffin on a high base. The demand for white oil is expected to remain stable hereon.
Savita Polymers Limited (SPL), formerly a 100% subsidiary of SOTL, merged with SOTL as per the NCLT order dated May 08, 2023. SPL was engaged in manufacturing of cable filling compounds, petroleum jellies, microcrystalline waxes, and specialty oils such as transformer oils and white oils at its plant situated in Mahad Maharashtra.
SOTL registered 23% -on-year revenue growth during fiscal 2023 driven by increased realisation in line with base oil prices, the key raw material. During the nine months ended December 31, 2023, the volume growth of around 9% was partly offset by the decline in realisations, resulting in on-year revenue growth of 3%. Stable volume growth of 3-5% is expected over the medium term, driven by demand from end user industries such as power distribution, FMCG, pharmaceuticals and automobiles. SOTL is focusing on increasing revenue from exports (~20% of revenue currently).
During fiscal 2023, the operating margin contracted by 300 basis points (bps) on-year to 9.4% due to rise in input costs., Earnings before interest, tax, depreciation and amortisation (Ebitda) per kilolitre (KL ) remained largely stable at Rs 8,806 per KL as against Rs 9,288 per KL in fiscal 2022, supported by stable volume and healthy realisations. As the company has to maintain inventory of 2-3 months at any given point of time, cooling input prices during the first half of fiscal 2024 resulted in carryforward of high-cost inventory. This impacted the gross margins and Ebitda per KL was Rs 6,895 per KL. During the first nine months of fiscal 2024, the operating margin was 7.9% as against 10.5% in the corresponding period of the previous fiscal. Ebitda per KL is expected to sustain at ~Rs 7,000 per KL, which will be higher than the pre-pandemic level, and operating margins at ~8% over the medium term, supported by a better product mix.
SOTL floated a 100% subsidiary, Savita Greentec Ltd (SGL), in October 2022. SGL will manufacture Recycled Polythelene Terephthalate (rPET) Flakes and rPET Pallets from PET waste bottle. The Company is expected to commence operations within 24-30 months. The overall project cost is estimated at Rs 250 crore and will be funded entirely through internal accrual of SOTL. There are no plans to avail of external debt in both SOTL and SGL. SOTL infused Rs125 crore during fiscal 2024 by subscribing to Optionally Convertible Debentures (OCDs) issued on private placement basis. Land was purchased in Bharuch for Rs 65-70 crore during fiscal 2024. The balance capex will be spread over three years till fiscal 2027.
Despite incurring annual capex of Rs 85-100 crore for SGL in addition to maintenance capex of Rs 30-35 crore, the financial risk profile of SOTL will continue to be strong supported by strong capital structure, debt free capex and healthy debt protection metrics. Adjusted networth stood at Rs.1448 crore and gearing was 0.27 times as on March 31, 2023. SOTL has no long-term debt, and its short-term debt is entirely because of trade acceptances for import of base oil. Gearing is expected to remain below ~0.3 times over the medium term. The debt protection metrics should remain healthy, too, with interest coverage expected over 8 times in the medium term. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of SOTL and SGL due to their common management and financial interlinkages.
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:
SOTL has an established market position with one-third market share each in the domestic transformer oil and white oil segments. In the lubricating oil segment, the market share is relatively lower. SOTL caters to established and reputed clients, including Hindustan Unilever Ltd (‘CRISIL AAA/Stable’), Dabur India Ltd (‘CRISIL AAA/Stable/CRISIL A1+’), ABB India Ltd (‘CRISIL AAA/Stable/CRISIL A1+’), in addition to various state electricity boards (SEBs). Demand for the company’s major three product segments– transformer oil, liquid paraffin /white oils and lubricating oil is expected to remain stable.
Diversity in end-user base and geographical reach lends stability to SOTL’s revenue profile. The company’s products (transformer oil, white oil, and lubricants) cater to three different end-user segments: power and distribution transformers, cosmetics and healthcare, and automotive and industrial lubricants, respectively. Exports which contribute 15-20% to revenue enhance the geographical outreach. Furthermore, SOTL’s wind power plants, aggregating 53.80 megawatt (MW), generated revenue of Rs 31 crore in fiscal 2023 from sale to SEBs and other customers.
The capital structure should remain strong, with total outside liabilities to tangible networth (TOLTNW) ratio and adjusted gearing expected to remain below 0.5 time and 0.3 time, respectively, supported by healthy annual net cash accrual of Rs 170-190 crore, debt free capex and efficient working capital management. The TOLTNW ratio was 0.56 time and gearing 0.27 time as on March 31, 2023. Debt protection metrics will remain healthy, too (interest coverage was over 10 times for fiscal 2023). CRISIL Ratings believes SOTL will maintain healthy cash and equivalent of Rs 250 crore and above over the medium term.
Weaknesses:
Base oil, the key raw material (constituting 85-90% of total input cost), is a crude derivative. Hence, its price is susceptible to any sharp volatility in crude prices. Moreover, as the company imports over 80% of its base oil requirement, on account of limited availability in the domestic market, it is exposed to sharp fluctuations in forex rates. Against this, exports comprise 15-20%of total revenue which act as natural hedge. SOTL covers 40-50% of total forex exposure through forward contracts, options along with natural hedge.
Gross current assets were at 160-240 days over the five years ended March 31, 2023, led by inventory of 77-95 days. The company has to maintain base oil inventory of 2-3 months given the transit time of 4-6 weeks. Focus on raising the revenue proportion of exports will lead to a moderate increase in receivables. .
Low entry barriers and limited product differentiation have led to intense competition in the base oil processing industry. Focus on volume leads to competitive pricing and players are unable to fully pass on any increase in base oil prices to customers immediately. However, SOTL can pass on increase in raw material cost with a lag. SOTL also benefits from technical approvals from key customers for the supply of products. This acts as an entry barrier as obtaining such approvals is time consuming for new entrants. |
Liquidity: Strong SOTL has strong liquidity, with cash and equivalent of Rs 348 crore as on September 30, 2023. Cash accrual is expected at Rs 170-190 crore over the medium term and will be sufficient to fund annual capex of ~Rs 65-120 crore. Fund-based bank limit of Rs 60 crore was unutilised over the 12 months through January 2024, and will provide financial cushion during any exigency.. |
Outlook: Stable CRISIL Ratings believes SOTL will benefit from its market leadership position, healthy product diversity and sound risk management practices. The company will maintain its healthy financial risk profile over the medium term, supported by its strong capital structure and liquidity. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company Established in 1961, SOTL is a leading player in the transformer oil, white oil, and industrial and automotive lubricants industries. These products are essentially obtained by refining base oil, and topping with additives to derive the required characteristics. The company’s facilities in Turbhe, and Mahad in Maharashtra; and Kharadpada and Silli in Silvassa have combined manufacturing capacities of ~550,000 KL/MT per annum. The company also has wind power capacity of 53.80 MW; sold to SEBs and other users, under long-term agreements.
For the nine months ended December 31, 2023, the company reported revenue of Rs 2768 crore (Rs 2675 crore for the corresponding period of previous fiscal) and net profit of Rs 170 crore (Rs 189 crore). |
Key Financial Indicators (CRISIL Ratings-adjusted numbers)
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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 – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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