Rating Rationale
July 30, 2020 | Mumbai
Savita Polymers Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.63.34 Crore
Long Term Rating CRISIL A/Stable (Reaffirmed)
Short Term Rating CRISIL A1 (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL A/Stable/CRISIL A1' ratings on the bank facilities of Savita Polymers Limited (SPL; a part of the Savita group).
 
Business is likely to remain constrained for the first three quarters of fiscal 2021 owing to the economic slowdown that resulted from the nationwide lockdown imposed by the government to curb the spread of Covid-19. While end users such as transformers are likely to be impacted, other industries such as fast moving consumer goods will be less impacted due to the essential nature of their business. Operating margin may remain below 6% in fiscal 2021. Liquidity should continue to be supported by the negligible debt and a healthy cash surplus.
 
Revenue declined by 36% in fiscal 2020 as volume reduced in tranformer and white oil owing to moderation in demand along with crude volatility and currency fluctuations. Thus, operating margin dropped to 6.1% in fiscal 2020 from 7.4% in fiscal 2010. While 65-75% of raw material requirement is sourced via imports exposing the company to currency risk, the exports which constitute 60-70% of overall revenue provide a natural hedge towards the same.
 
The financial risk profile has been comfortable, with total outside liabilities to tangible networth (TOL/TNW) ratio at 0.28 time as on March 31, 2020, and net cash accrual to total debt ratio(NCATD) of 297% in fiscal 2020. Liquidity remains robust, with the fund-based limit just about utilised at 7% during the 12 months through June 2020. Financial risk profile is expected to remain comfortable over medium term owing to absence of long-term debt and lack of any major, debt-funded capital expenditure (capex)
 
The ratings continue to reflect the SPL's operational synergies with the flagship company of the Savita group group, Savita Oil Technologies Ltd (SOTL; 'CRISIL AA-/Stable/CRISIL A1+'), and comfortable financial risk profile. These strengths are partially offset by SPL's modest scale of operations and vulnerability to volatile commodity prices.

Analytical Approach

The ratings of SPL factor in support from the promoter group. SPL will, in case of exigencies, receive distress support from the promoters for timely repayment of debt obligation. SPL also benefits from the operational, technical and managerial support extended by the promoter group.

Key Rating Drivers & Detailed Description
Strengths:
* Benefits arising from strong operational synergies with SOTL
SPL consistently benefits from its operational synergies with SOTL as both these companies are in similar businesses and complement each other's areas of operations. Sourcing of base oil (key raw material) is managed centrally, leading to economies of scale. Furthermore, the two companies have common promoters and top management, thereby facilitating effective decision making.
 
* Comfortable financial risk profile
The financial risk profile may continue to be healthy, supported by comfortable cash accrual and low capex. TOL/TNW ratio was 0.28 time as on March 31, 2020, and is projected at 0.09 time as on March 31, 2021. Debt protection metrics should also remain adequate, with the interest coverage ratio expected at 8.21 times and NCATD at 2.17 times in fiscal 2021.
 
Weaknesses:
* Modest scale of operations
Despite longstanding presence in the domestic and global markets (60-70% of total revenue), intense competition in the overseas market may continue to constrain scalability, pricing power and profitability.
 
* Susceptibility to prices of base oil and high volatility in foreign exchange (forex) rates
The company imports a major portion of its base oil (key raw material; accounts for 80% of total operating income) requirement. Around 65-75% of the raw material requirement is met through imports. While SPL enjoys a natural hedge as it derives 60-70% of its revenue from exports, it may remain exposed to some forex risk owing to the difference in its receivables, payables, and inventory-holding period.
Liquidity Adequate

Liquidity should continue to be healthy, supported by the absence of any major, debt-funded capex. Cash accrual is projected at Rs 5-10 crore per annum over the medium term, against no repayment obligation  Utilisation of the fund-based bank was low and averaged just about 7% during the 12 months through June 2020. Cash and cash equivalents were Rs 12 crore as on June 30, 2020.

Outlook: Stable

SPL should continue to benefit from its healthy capital structure and benefits derived from synergies with SOTL. SPL's rating outlook may be revised in line with changes in the outlook of SOTL.

Rating Sensitivity factors
Upward factors
* Operating profitability steady at above 8%, leading to higher-than-expected cash accrual
* Sustenance of financial risk profile at healthy levels
 
Downward factors
* Operating performance margin dropping to below 5%
* Significant weakening of the financial risk profile
About the Company

Incorporated in 1989 as a division of SOTL, SPL was divested from SOTL in 1992 and manufactures cable-filling compounds, petroleum jellies, micro-crystalline waxes, and specialty oils such as transformer and white oil. SPL also stated manufacture and sale of natural ester dielectric fluid, under the brand, BioTransol, which is an eco-friendly, biodegradable and fire save alternative to conventional mineral oils used in transformers. Its facility is at Mahad in Raigad, Maharashtra.

Key Financial Indicators - CRISIL-adjusted numbers
Particulars Unit 2020^ 2019
Revenue Rs crore 101 157
Profit after tax (PAT) Rs crore 8.8 11
PAT margin % 8.7 7.0
Adjusted debt/adjusted networth Times 0.02 0.05
Interest coverage Times 11.27 8.92
^Estimates

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
Annexure - Details of Instrument(s)
ISIN Name of instrument Date of allotment Coupon
rate (%)		 Maturity
date		 Issue size
(Rs crore)		 Complexity levels Rating assigned
with outlook
NA Bank Guarantee* NA NA NA 3.2 NA CRISIL A1
NA Cash Credit@ NA NA NA 8 NA CRISIL A/Stable
NA Cash Credit NA NA NA 3 NA CRISIL A/Stable
NA Letter of Credit NA NA NA 42.3 NA CRISIL A1
NA Standby Line of Credit^ NA NA NA 6.24 NA CRISIL A/Stable
NA Foreign Exchange Forward NA NA NA 0.6 NA CRISIL A1
*Fully interchangeable with letter of credit
^Fully interchangeable with fund-based and non-fund-based limits
@Interchangeable with export packing credit/export bills receivable/foreign bill discounting, and packing credit in foreign currency
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  17.84  CRISIL A/Stable/ CRISIL A1      17-10-19  CRISIL A/Stable/ CRISIL A1  31-08-18  CRISIL A/Stable/ CRISIL A1  18-05-17  CRISIL A/Stable/ CRISIL A1  CRISIL A/Stable/ CRISIL A1 
Non Fund-based Bank Facilities  LT/ST  45.50  CRISIL A1      17-10-19  CRISIL A1  31-08-18  CRISIL A1  18-05-17  CRISIL A1  CRISIL A1 
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee* 3.2 CRISIL A1 Bank Guarantee* 3.2 CRISIL A1
Cash Credit@ 8 CRISIL A/Stable Cash Credit@ 8 CRISIL A/Stable
Cash Credit 3 CRISIL A/Stable Cash Credit 3 CRISIL A/Stable
Foreign Exchange Forward .6 CRISIL A1 Foreign Exchange Forward .6 CRISIL A1
Letter of Credit 42.3 CRISIL A1 Letter of Credit 42.3 CRISIL A1
Standby Line of Credit^ 6.24 CRISIL A/Stable Standby Line of Credit^ 6.24 CRISIL A/Stable
Total 63.34 -- Total 63.34 --
*Fully interchangeable with letter of credit
^Fully interchangeable with fund-based and non-fund-based limits
@Interchangeable with export packing credit/export bills receivable/foreign bill discounting, and packing credit in foreign currency
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Chemical Industry
Criteria for Notching up Stand Alone Ratings of Companies based on Group Support

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