| Silox India Private Limited | ||||||
| Ratings 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 reaffirmed its ‘CRISIL AA/Stable/CRISIL A1+’ ratings on the bank facilities and commercial paper programme of Silox India Private Limited (SIPL).
Revenue for fiscal 2022 grew by 57.4% to Rs 1,340 crore from Rs 852 crore a year earlier, driven by volume growth of 17% and realisation growth of 26% owing to SIPL’s ability to pass on the increase in cost of key raw materials. Further, one of the key products, sodium hydrosulphite (29% of revenue) grew 94% on-year in fiscal 2022 owing to shortage in supply from China’s, imposition of ADD on imports and one large overseas manufacturer shutting down one of their Plants. In the near to the medium term, revenue should improve by 4-5% driven by continued market leadership across all major product segments and revenue diversity in terms of end-user industries and geographies (exports: 38% and balance: the domestic segment).
Operating margin improved 150 basis points (bps) to 15.6% in fiscal 2022 due to higher operating leverage. Though prices of key inputs -- zinc, phosphates and caustic soda -- increased sharply, ability to pass on increase in the cost of key raw materials helped the company restrict the decline in gross margins by 180 bps. Other costs including power & fuel, employee cost etc. reduced by 3.4% as a percentage of sales owing to increase in scale. Going forward, the margins are likely to sustain at 14-15%.
Financial risk profile will remain healthy as the company is expected to generate healthy cash accrual, which along with strong cash & bank balance will be sufficient to fund capital expenditure (capex) plans over the medium term. Networth stood at Rs 679 crore as on March 31, 2022, and is expected to further improve with steady accretion to reserve.
The ratings continue to reflect leadership position of SIPL in the sulphoxylates and zinc oxide, derivatives and dust segments in India, diversified revenue profile in terms of both end-user industries and geographies, and robust financial risk profile because of strong capital structure and liquidity. These strengths are partially offset by exposure to risk of lower priced alternatives from China and moderate growth prospects (because of the limited size of the industry). |
Analytical Approach Unsecured loans/advances extended by the customers have been treated as debt. |
Key Rating Drivers & Detailed Description Strengths:
Business risk profile is supported by the company’s leadership position in most of its product categories. This is backed by established brands and the absence of any other large integrated player with comparable product portfolio. Healthy operating efficiency is reflected in SIPL’s high return on capital employed through various initiatives, including complete hedging of its zinc inventory, regular upgrade of facilities, cutting down on energy cost, and optimising zinc recovery in the manufacturing process.
SIPL has a wide range of sulphoxylates and zinc-based products in its portfolio; which include sodium hydrosulphite (market share: 49%), sodium formaldehyde sulphoxylate (88%), zinc formaldehyde sulphoxylate (98%), various grades of zinc oxide (11%), zinc dust (86%), and zinc derivatives. These products find application across industries such as textiles, paints, polymers, tyres, jaggery, ceramic, pharma, agricultural and animal feed, enabling it to withstand downturns in any one end-user segment. Also, geographical diversity is strong, with exports to 65 countries contributing around 38% to total revenue in fiscal 2022. Established relationship with major clients – such as Asian Paints (‘CRISIL AAA/Stable/CRISIL A1+’), Akzo Nobel India Ltd, Jotun Group, Arvind Ltd, MRF Ltd, CEAT Ltd, and LG Chemicals Ltd -- and the ability to offer customised solutions enable SIPL to command a premium. The company plans to enter new product categories over the medium term, supported by strong technological backing of its parent, Silox. The scaling up may further improve diversity.
Networth and liquidity are healthy, and reliance on bank funding negligible. Expected cash accrual of Rs 130-140 crore per annum from fiscal 2023 will be sufficient to meet yearly capex requirement of Rs 40-50 crore. Working capital cycle is lean, as indicated by gross current assets of around 119 days as on March 31, 2022.
Weaknesses:
China is the largest producer of sodium hydrosulphite and presents pricing competition to Indian players. While SIPL is able to fully pass on zinc prices, the operating margin is susceptible to changes in the prices of other raw materials (sulphur and caustic soda). Sensitivity to fluctuations in input prices will remain a key monitorable.
Though the company’s products find application in diverse industries, they constitute a small proportion of the overall raw material requirement of the end-user segments. Consequently, scale in revenue terms is moderate. |
Liquidity: Strong In the absence of debt, healthy cash accrual of Rs 130-140 crore per annum expected over the medium term will be sufficient to meet capex and working capital requirements. Bank limit of Rs 100 crore remains moderately utilised at about 26% for the 12 months through May 2022. Except for non fund based facilities where the utilization is at about 26%, there is no utilization of fund based facilities.Cash and mutual fund investments of Rs 100 crore as on May 31, 2022, also support liquidity. |
Outlook: Stable SIPL will maintain its strong financial and business risk profiles over the medium term. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company SIPL was set up in 2001 as a joint venture of Silox (owns 83.28% of its equity shares), Transpek Industry Ltd (7.87%), and Excel Industries Ltd (8.85%). Although there has been no change in shareholding, pattern, name of company has been changed to SIPL from Transpek Silox India Pvt Ltd as part of the parent’s global branding strategy
SIPL manufactures sulphoxylates and zinc-based products such as sodium hydrosulphite, sodium formaldehyde sulphoxylate (safolite), zinc formaldehyde sulphoxylate (safolin), zinc dust, and zinc oxide; and various zinc derivatives. |
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)
*Includes WCDL/FCDL/EPC/PCFC/PSCFC, letter of credit and bank guarantee as sublimit to the extent of Rs 25 crore %Includes WCDL, IBP/IBD, letter of credit as sublimit to the extent of Rs 75 crore #Includes EPC & PCFC limit as sublimit to the extent of Rs 20 crore ^Includes PSCFC & FUBD/FBP limit as sublimit to the extent of Rs 50 crore $Includes bank guarantee limit as sublimit to the extent of Rs 50 crore |
| 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 28-Jun-2022 in line with the lender-wise facility details as on 02-Feb-2022 received from the rated entity
*Includes WCDL/FCDL/EPC/PCFC/PSCFC, letter of credit and bank guarantee as sublimit to the extent of Rs 25 crore
%Includes WCDL, IBP/IBD, letter of credit as sublimit to the extent of Rs 75 crore
#Includes EPC & PCFC limit as sublimit to the extent of Rs 20 crore
^Includes PSCFC & FUBD/FBP limit as sublimit to the extent of Rs 50 crore
$Includes bank guarantee limit as sublimit to the extent of Rs 50 crore
Criteria Details
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