| Supreme Petrochem Limited | ||||||
| Ratings reaffirmed; Rated amount enhanced | ||||||
| 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 of Supreme Petrochem Limited (SPL).
SPL is the market leader in the domestic polystyrene (PS) industry, with a healthy track record of more than 25 years of operations and a diversified customer base. The company has a diversified product portfolio, with an increasing revenue share from the value-added products over the years. However, a fire incident in fiscal 2021, resulting in closure of the plant of the second largest PS manufacturer in India, created a demand-supply mismatch in the domestic market. This resulted in higher PS volume sales for SPL over the past two fiscals, thereby increasing its contribution to over 50% of overall revenues.
The improved spread between the prices of PS and styrene monomer, the key raw material, over the past two fiscals due to global supply issues created by the Covid-19 pandemic, led to SPL’s operating margin improving to 18% in fiscal 2022 as compared to 5% in fiscal 2020. The company’s ongoing capacity expansion plans in the PS and expandable polystyrene (EPS) segments, along with expected continued healthy demand, will support steady sales volume growth over the medium term. However, operating margin is expected to moderate as the spread between PS and styrene monomer normalizes in the near to medium term.
The financial risk profile remains strong, with nil debt and healthy cash accrual. Planned capital expenditure (capex) of Rs 1,200 crore over fiscals 2022-2025 towards setting up capacity for acrylonitrile butadiene styrene (ABS) and other capacity expansions, will be funded entirely through internal accruals. SPL is also likely to maintain cash and equivalent of Rs 400-500 crore over the medium term. CRISIL Ratings believes the company will maintain its strong financial risk profile and debt-free balance sheet over the medium term.
The ratings continue to reflect the market leadership of the company in the domestic PS and EPS industry, its diversified product portfolio and sound financial risk profile. These strengths are partially offset by susceptibility to volatility in raw material prices. |
Analytical Approach For arriving at its ratings, CRISIL Ratings has considered the standalone credit assessment of SPL. |
Key Rating Drivers & Detailed Description Strengths: Market leadership in the PS market SPL has over 50% market share in the PS and EPS segments combined, with nameplate installed capacity of 2,72,000 metric tonne (MT) for PS and 72,000 MT for EPS. The market position will be strengthened by ongoing capacity expansion and healthy demand from end-user industries, particularly after the second largest player in India had to shut down its plant in fiscal 2021.
SPL has established relationships with customers and suppliers, given its presence in the industry for over 25 years. The company imports styrene from multiple suppliers in the Middle East, Singapore and East Asia and gets healthy credit because of its long-term relationships with the suppliers.
Diversified revenue profile SPL’s domestic sales accounted for over 65% of revenue in fiscal 2022, followed by exports at ~10% and traded goods at ~23%. The company offers a variety of styrenics, including PS (~55% of revenue in fiscal 2022), EPS (16%), specialty polymers and compounds (SPC; 5%) and extruded polystyrene (XPS; 1%). The company has customers for PS and EPS products in over 110 countries. It also generates around 23% 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 the financial risk profile strong. Networth was Rs 1,515 crore as on March 31, 2022, backed by steady growth in cash accrual. The company has been debt-free over the past several years. Expected net cash accrual of over Rs 350 crore annually will be adequate to meet working capital requirement and planned capex of Rs 1,200 crore over fiscals 2022-2025. SPL will remain debt-free over the medium term. The company completed a capital reduction in fiscal 2022, resulting in total outflow of Rs 57 crore.
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 till fiscal 2020, due to fluctuating styrene prices leading to volatility in the spread between styrene and PS prices. As SPL carries raw material inventory of about a month and has contract in the pipeline for about a month’s requirement, the volatility in input prices impacts the working capital management. Operating profitability improved to a healthy 21% in fiscal 2021 and 18% in fiscal 2022, supported by higher capacity utilisation and favourable spread between styrene and PS and EPS prices due to market conditions, but will remain vulnerable to fluctuations in raw material prices. |
Liquidity: Strong Liquidity is supported by nil long-term debt. Expected net cash accrual of over Rs 350 crore annually will be adequate to meet working capital requirement and planned capex of Rs 1,200 crore over fiscals 2022-2025. Dividend payout is expected to be moderate at 25-30% of net profit. Bank limit of Rs 1,200 crore, including fund and non-fund-based limits, was moderately utilised at 67% on average during the 12 months through March 2022. The working capital limit has been enhanced to Rs. 1,700 crore in June 2022, improving the liquidity cushion. SPL had healthy liquid surplus of Rs 987 crore as on March 31, 2022 and is expected to maintain liquid surplus of over Rs 400-500 crore on a steady-state basis. |
Outlook: Stable CRISIL Ratings believes SPL will maintain its strong market position in the domestic PS and EPS market. The financial risk profile should remain robust in the absence of any debt with proposed capex likely to be funded through internal accruals. |
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 30.78% stake each as on March 31, 2022. The company manufactures PS, EPS, compounds of polymers and XPS. It has a state-of-the-art manufacturing plant at Nagothane in Raigad, Maharashtra, set up in technical collaboration with ABB Lumus Crest (USA). It also has a manufacturing plant at New Manali Town in Chennai, Tamil Nadu. Apart from the primary business of PS and EPS production, SPL imports styrene monomer and trades in the domestic market. |
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)
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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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This Annexure has been updated on 29-Jun-2022 in line with the lender-wise facility details as on 29-Jun-2022 received from the rated entity.
Criteria Details
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