| Supreme Petrochem Limited | ||||||
| 'CRISIL AA-/Stable/CRISIL A1+' assigned to Bank Debt | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL has assigned its ‘CRISIL AA-/Stable/CRISIL A1+’ ratings to the bank facilities of Supreme Petrochem Ltd (SPL). The rating reflects the market leadership of the company in the domestic polystyrene industry, its diversified product portfolio sand sound financial risk profile. These strengths are partially offset by susceptibility to volatility in raw material prices. SPL is the market leader in domestic polystyrene industry, with healthy track record of more than two decades and diversified customer base. The company has a well-diversified product portfolio, with increasing share of high-value-added products in revenue. The fire incident resulting in closure of plant of the second largest manufacturer in India created a demand-supply mismatch in the domestic market. This resulted in higher volume for SPL. The improved spread between the prices of polystyrene and styrene, the key raw material, helped increase operating margin to 18% in the first nine months of fiscal 2021 from 5% in fiscal 2020. SPL’s capacity expansion plans in the polystyrene and expandable polystyrene (EPS) segments, along with healthy demand, will support healthy volume growth over the medium term. Operating margin is expected at 6-10%, in line with movements in styrene prices. The financial risk profile remains strong, with nil debt and healthy cash accrual. Planned capital expenditure (capex) of Rs 250 crore over fiscals 2021 and 2022 will be funded entirely through internal accrual. SPL is also likely to maintain cash and equivalent of Rs 350-400 crore over the medium term. CRISIL Ratings believes SPL will maintain its strong financial risk profile and debt-free balance sheet over the medium term. |
Key Rating Drivers & Detailed Description Strengths: Market leadership in the polystyrene market SPL has over 50% market share in the polystyrene segment, and capacity of 2,72,000 tonne in polystyrene and 72,000 tonne in EPS. The market position will be strengthened by the ongoing capacity expansion of 80,000 tonne for polystyrene and 30,000 tonne for EPS and the healthy demand from end-user industries, particularly after the second largest player in India shut down its plant.
SPL has established relationships with customers and suppliers, given its presence of over two decades. The company imports styrene from multiple suppliers in the Middle East and Singapore and gets healthy credit because of its long-term relationships with the suppliers.
Diversified revenue profile SPL has a diversified revenue profile, with domestic sales accounting for around 60% of revenue in fiscal 2020, followed by exports at 14% and traded goods at 25%. The company offers a variety of Styrenics, including polystyrene (around 50% of revenue), EPS (around 17%), specialty polymers and compounds (SPC; around 5%), and extruded polystyrene (XPS; around 1%). SPL has customer base for polystyrene and EPS products in over 100 countries. It generates around 25% of revenue from trading in raw material styrene monomer, which has deficient supply in India and is used in manufacturing polymers. SPL enjoys a cost advantage due to bulk procurement of styrene monomer. The company will continue to benefit from healthy domestic demand and capacity addition.
Strong financial risk profile Healthy networth, nil debt and strong debt protection metrics keep financial risk profile strong. Networth was at Rs 672 crore as on March 31, 2020, backed by steady growth in cash accrual. The company has been debt-free since six years. Expected net cash accrual of Rs 140-200 crore annually will be adequate to meet working capital requirement and planned capital expenditure of Rs 250 crore in fiscals 2021 and 2022. SPL will remain debt-free over the medium term. The company completed a share buyback of Rs 62 crore in fiscal 2021 and announced equity reduction of Rs 57 crore for fiscal 2022.
Weakness: Susceptibility of operating margin to volatility in raw material prices SPL is susceptible to volatility in the price of styrene which depends on crude oil prices and demand-supply dynamics. Operating margin fluctuated between 3% and 10% in the past five years, due to fluctuating styrene price leading to volatility in the spread between styrene and polystyrene prices. As SPL carries raw material inventory of about a month, the volatility in input prices impacts the working capital management. Operating profitability is expected to be healthy at 17% in fiscal 2021, supported by higher capacity utilisation and favourable spread between styrene and polystyrene prices, but will remain vulnerable to the raw material price. |
Liquidity : Strong Liquidity is strong with nil long-term debt. Hence, annual cash accrual of Rs 140-200 crore is available for meeting capex and working capital requirement. Moderate capex of Rs 250 crore in fiscals 2021 and 2022 is likely to be funded through internal accrual. Dividend payout is expected to be moderate at 40-50% of net profit. Bank line of Rs 1200 crore, including fund and non-fund based limits, was moderately utilised at 57% on average during the 12 months through March 2021. SPL is expected to have healthy cash and bank balance of Rs 500 crore plus as on March 31, 2021. On a steady state basis, SPL is expected to maintain cash and equivalent of Rs 350-400 crore. |
Outlook Stable CRISIL Ratings believe SPL will maintain its strong market position in the domestic polystyrene market. The financial risk profile should remain robust in the absence of long-term debt with proposed capex likely to be funded through internal accrual. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company SPL is promoted by Supreme Industries Ltd and the Rajan Raheja group with 29.88% stake each. The company manufactures PS, EPS and XPS. It has a state-of-the-art polystyrene manufacturing plant at Nagothane in Raigad, Maharashtra, set up in technical collaboration with ABB Lumus Crest (USA). Apart from the primary business of polystyrene and EPS production, SPL imports styrene monomer and trades in the domestic market. SPL reported a profit after tax (PAT) of Rs 246 crore and revenue of Rs 1,916 crore for the nine months ended December 31, 2020, against a PAT of Rs 79 crore and revenue of Rs 2061 crore for the corresponding period of the previous fiscal. |
Key Financial Indicators
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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 - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||
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