| Synthite Industries Private Limited | ||||||
| Long-term rating upgraded to 'CRISIL AA/Stable'; short-term rating reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL has upgraded its rating on the long-term bank facilities of Synthite Industries Private Limited (Synthite) to 'CRISIL AA/Stable' from 'CRISIL AA-/Positive', while reaffirming the rating on the short-term bank facilities at 'CRISIL A1+'. CRISIL has withdrawn its rating on bank loan facilities of Rs 78 crore following a request from the company and confirmation from the bank. The withdrawal is in line with CRISIL's rating-withdrawal policy. |
| Analytical Approach |
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CRISIL has combined the business and financial risk profiles of Synthite and its subsidiaries and joint-venture, due to operational and financial linkages. All the entities are together herein referred to as Synthite. |
| Key Rating Drivers & Detailed Description |
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Strengths: * Leading exporter of spice oils and oleoresins with an established brand: Synthite is India's largest producer and exporter of spice oils and oleoresins. The company, which accounts for almost 50% of Indian exports of these commodities, derives 70-75% of revenue from the overseas market. It exports to more than 75 countries around the globe, lending considerable geographical diversity. The company has longstanding relationships with leading food processing companies globally and a diverse client base as well. The top client contributes less than 10% of revenue, thereby mitigating client concentration risk. It has around 500 products and continues to invest in research and development to meet global quality standards and customise products as per client requirements.. * Healthy financial risk profile and liquidity: The gearing and debt protection metrics are comfortable. Reducing debt, and rising cash accrual improved the net cash accrual to total debt ratio to about 0.46 time in fiscal 2020, from 0.42 time in the previous fiscal. No substantial, debt-funded capex or acquisition is expected over the medium term. The capital structure is likely to remain comfortable, despite the working capital-intensive nature of operations. The networth was around Rs 1,400 crore as on March 31, 2020, and is expected to improve further, aided by steady cash generation. Liquidity is supported by average unutilised bank lines of around Rs 450 crore in the 12 months through July 2020 and liquid funds of around Rs 60 crore as on March 31, 2020. The company also holds 6.5% of shares in Cochin International Airport Authority. Weaknesses: * Susceptibility to volatility in raw material prices and forex rates: Key raw materials are spices, such as pepper, chilli and turmeric, the prices of which have been volatile depending on supply level. While multiple procurement sources and the ability to pass on major increases in costs to customers mitigate this risk, any significant volatility in prices can impact margins. Also, despite the natural hedge available through input imports and product exports, and hedging undertaken on net exposure, any significant fluctuation in forex rates could impact the operating margin. * Working capital-intensive operations: Due to seasonal procurement of raw materials, large inventory of 4-5 months is maintained; this is expected to continue with slight reduction due to better inventory management. Average gross current assets were around 270 days in the five fiscals ended March 31, 2020, and are expected to remain at a similar level over the medium term. |
| Liquidity Strong |
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Cash accrual of Rs 180-200 crore per fiscal in fiscals 2021 and 2022, and cash and cash equivalents of Rs 98 crore as on March 31, 2020, should comfortably cover capex, minimal maturing debt obligation and part of the incremental working capital requirement. The company is expected to invest around Rs 62 crore per fiscal (Rs 40 crore for expanding facilities and Rs 22 crore for maintenance capex) in fiscals 2021 and 2022. Average utilisation of the fund-based bank lines of Rs 745 crore was 27% during the 12 months through June 2020. With a gearing of about 0.27 time as on March 31, 2020, there is sufficient headroom to raise additional debt to fund capex, if required. |
| Outlook: Stable |
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CRISIL believes the business risk profile will remain stable over the medium term, backed by a healthy market position, pick-up in end-market demand and improving operating efficiency. The financial risk profile should remain healthy driven by healthy cash accrual, moderate capex plans and reducing reliance on bank borrowing for working capital funding. |
| Rating Sensitivity factors |
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Upward factors * Sustained revenue growth of 20% per fiscal while maintaining a healthy operating margin of over 17%, resulting in significantly higher-than-expected cash accrual * Sustenance of healthy credit metrics, with the gearing below 0.2 time and an increase in liquid surplus Downward factors * Significant decline in revenue by over 15% per fiscal and in the operating margin to below 10%, affecting cash accrual * Large, debt-funded capex or acquisition, or a significant stretch in the working capital cycle, leading to weakening of key credit metrics |
| About the Company |
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Synthite, which was set up by Mr CV Jacob as Synthite Industrial Chemicals Ltd in 1972, commenced operations by manufacturing oleoresins from chosen Indian spices, such as pepper, turmeric and cardamom. It got its present name in September 2008. The company has subsidiaries in the US, Brazil, China, Vietnam and Sri Lanka. Subsidiaries in the US and Brazil act as marketing hubs, while the ones in Sri Lanka and Vietnam serve as procurement arms. The subsidiary at Dezhou, China, has a manufacturing setup and will be used both as a procurement arm and export unit. |
| Key Financial Indicators - (Consolidated) | ||||||||||||||||||||||||
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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 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) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
##100% interchangeability between packing credit in foreign currency, foreign documentary bill purchase, and foreign usance discount bill purchase *100% interchangeability between packing credit in foreign currency, foreign bill purchase, foreign bill discounting, foreign bill negotiation, bill purchase, bill discounting, working capital demand loan, and short-term loan @@100% interchangeability between packing credit in foreign currency, import letter of credit, standby letter of credit, short-term loan, and overdraft export invoice financing. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - List of entities consolidated | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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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 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
##100% interchangeability between packing credit in foreign currency, foreign documentary bill purchase, and foreign usance discount bill purchase *100% interchangeability between packing credit in foreign currency, foreign bill purchase, foreign bill discounting, foreign bill negotiation, bill purchase, bill discounting, working capital demand loan, and short-term loan @@100% interchangeability between packing credit in foreign currency, import letter of credit, standby letter of credit, short-term loan, and overdraft export invoice financing. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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