| The Supreme Industries Limited | ||||||
| Rating outlook revised to 'Positive'; 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 revised its outlook on the long-term bank facilities of The Supreme Industries Ltd (Supreme) to 'Positive’ from ‘Stable’, while reaffirming the rating at ‘CRISIL AA’. The rating on the short-term facilities and the Rs 200 crore commercial paper programme has been reaffirmed at ‘CRISIL A1+'. Rating on the bank facilities worth Rs 166.1 crore has been withdrawn as per the company request, in line with the withdrawal policy of CRISIL Ratings.
The outlook revision reflects the improvement in the business risk profile, driven by healthy pick up in sales and operating margin since the third quarter of fiscal 2021. Revenue has grown by 5% year-on-year to Rs 4,722 crore during the first nine months of fiscal 2021, despite the disruptions related to Covid-19 pandemic and lockdown measures. Healthy rural demand and better realisations, amidst rising crude prices, have led to healthy sales growth. Operating margin has improved to 18.1% during the first nine months of this fiscal, from 14.8% in fiscal 2020, driven by better realisations, ability to pass on hike in raw material prices to customers and increased share of higher-margin value-added products. CRISIL Ratings expects revenue growth of 10-12% year-on-year in fiscal 2021, alongwith healthy operating margin above 15%. Financial risk profile is also robust, supported by strong capital structure and debt protection metrics (net cash accrual to adjusted debt and interest coverage ratios of over 7 times and over 60 times, respectively, for fiscal 2020).
The ratings continue to reflect the company’s strong business risk profile, healthy market position across segments, and robust financial risk profile. These strengths are partially offset by intense competition and exposure to volatility in raw material prices in-line with the industry, though Supreme has the ability to pass on price fluctuations to customers. |
Analytical Approach CRISIL has combined the business and financial risk profiles of Supreme and its wholly-owned subsidiary, Supreme Industries Overseas FZE. Investment in associate company, Supreme Petrochem Ltd (Supreme Petrochem), has been recognised as per the equity method, as Supreme holds 30.78% stake in it. Investment in the joint venture, Kumi Supreme India Pvt Ltd (with 20.67% shares that was exited in March 2020) has been moderately consolidated.
CRISIL has also factored in the income from the real estate segment as a part of non-operating income as the entity is mainly engaged in manufacture of plastic products (and not real estate).
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
Supreme produces plastic-based products for piping systems (accounted for 63% of revenue in fiscal 2020), industrial goods (12%), consumer goods (7%), packaging products (18%). Catering to a diverse end-user profile mitigates the risk of slowdown in any segment or industry. Furthermore, revenue is supported by the increasing contribution of value-added products (40% during the first nine months of fiscal 2021), which have operating margin of over 17%.
Supreme has an established track record and strong market position in each segment it operates in, backed by its widespread distribution network and ability to introduce new products. Collaborations with international manufacturers has strengthened the product development capabilities, and translated into strong revenue growth and above-average profitability. The company has over 4,000 channel partners and 25 plants across the country. Supreme has set up a facility each in Giloth (Rajasthan) and Jadcherla (Telangana) in fiscal 2019, and is prioritising construction of the greenfield plant at Odisha, Tamil Nadu and Assam. Strong countrywide presence reduces freight cost and lead time for products to reach customers.
Financial risk profile is marked by a comfortable networth, low gearing and strong debt protection metrics. Networth was Rs 2,245 crore as on March 31, 2020, with steady growth in cash accrual and low gearing of 0.19 time. Debt protection metrics were marked by net cash accrual to adjusted debt and interest coverage ratios of 0.76 time and about 30 times, respectively, for fiscal 2020. Expected annual net cash accrual of around Rs 550 crore should suffice to fund the capital expenditure (capex) and working capital in the absence of any long-term debt.
Weakness
Prices of key raw materials, polyvinyl chloride, high-density polyethylene and polypropylene remain susceptible to movement in crude oil prices and foreign exchange rates, though Supreme has the ability to pass on any price fluctuations to consumers. With a large raw materials component in revenues (forming about 66% of revenue in fiscal 2020), the company also remains exposed to volatility in input prices. Further, the plastic processing industry is highly fragmented, especially in commoditised segments such as plastic furniture. However, Supreme partially mitigates such pressure by offering value-added products and has been able to maintain a healthy market share across segments. |
Liquidity: Strong Liquidity should remain strong, as the entire cash accrual can be used to meet the working capital expenses in the absence of any debt. Bank lines of Rs 1,704 crore, including fund and non-fund based limits, was utilised moderately, at 23% on an average during the 12 months through December 2020. Cash and bank balance was healthy at Rs 432 crore as on December 31, 2020. Moderate capex of Rs 400 crore in fiscal 2021, is likely to be funded internally. Dividend payout of 40% of net profit could constrain accretion to liquid reserves. Working capital requirement is sizeable with receivables and inventory at 22 and 70 days, respectively, as on March 31, 2020, albeit with moderation in inventory levels vis-a-vis March 2020 levels. |
Outlook: Positive CRISIL Ratings expects sustained improvement in Supreme’s operating performance, backed by its diversified revenue profile, healthy demand in end user industries and increasing share of value-added products. The financial risk profile should remain robust too, in the absence of long-term debt. Capex is likely to be funded through internal accrual. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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About the Company Supreme, India's leading processor of plastic, was incorporated in 1942. The company has a diverse product portfolio, comprising piping systems, cross laminated films and products, protective packaging products, industrial moulded components, moulded furniture, storage and material handling products, performance packaging films and composite, and liquefied petroleum gas cylinders. It has 25 manufacturing facilities across India.
For fiscal 2020, revenue was flat with 9% y-o-y growth in the plastic piping segment, offsetting the decline in other segments. Overall volume grew 3% y-o-y, partly shielding the fall in aggregate realisations. Profit after tax was higher at Rs 467 crore, against Rs 449 crore in the previous year. |
Key Financial Indicators*
*CRISIL adjusted numbers |
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)
***under e-SBD programme of Tata Auto Comp ^Fully interchangeable with working capital demand loan, buyer's credit's sub-limit of Rs 40 crore, letter of credit sub-limit of Rs 30 crore, and bank guarantee sub-limit of Rs 11 crore $Fully interchangeable with buyer's credit, purchase bill discounting sub-limit of Rs 50 crore and working capital loan sub-limit of Rs 75 crore ** Bank Guarantee Interchangeable upto Rs 14 crore @Fully interchangeable with letter of credit and buyer's credit, interchangeable with Rs 25 crore of bank guarantee |
Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Facility | Amount (Rs.Crore) | Name of Lender | Rating |
| Bill Discounting** | 10 | Kotak Mahindra Bank Limited | CRISIL AA/Positive |
| Cash Credit^ | 50 | Citibank N. A. | CRISIL AA/Positive |
| Cash Credit | 8 | ICICI Bank Limited | CRISIL AA/Positive |
| Cash Credit | 10 | Standard Chartered Bank Limited | CRISIL AA/Positive |
| Cash Credit & Working Capital Demand Loan | 15 | Axis Bank Limited | CRISIL AA/Positive |
| Cash Credit & Working Capital Demand Loan | 45.6 | BNP Paribas Bank | Withdrawn |
| Import Documentary Credit | 150 | The Hongkong and Shanghai Banking Corporation Limited | CRISIL A1+ |
| Letter of Credit^ | 100 | Citibank N. A. | Withdrawn |
| Letter of Credit^ | 100 | Citibank N. A. | CRISIL A1+ |
| Letter of Credit$ | 110 | HDFC Bank Limited | CRISIL A1+ |
| Letter of Credit | 175 | Kotak Mahindra Bank Limited | CRISIL A1+ |
| Letter of credit & Bank Guarantee** | 75 | Axis Bank Limited | CRISIL A1+ |
| Letter of credit & Bank Guarantee | 20.5 | Central Bank Of India | Withdrawn |
| Letter of credit & Bank Guarantee | 97.9 | ICICI Bank Limited | CRISIL A1+ |
| Letter of credit & Bank Guarantee | 140 | Standard Chartered Bank Limited | CRISIL A1+ |
| Letter of credit & Bank Guarantee | 125 | YES Bank Limited | CRISIL A1+ |
| Overdraft Facility | 30 | Axis Bank Limited | CRISIL AA/Positive |
| Overdraft Facility | 45 | HDFC Bank Limited | CRISIL AA/Positive |
| Overdraft Facility | 25 | YES Bank Limited | CRISIL AA/Positive |
| Working Capital Demand Loan | 30 | Axis Bank Limited | CRISIL AA/Positive |
| Working Capital Demand Loan | 50 | ICICI Bank Limited | CRISIL AA/Positive |
| Working Capital Demand Loan | 75 | JP Morgan Chase Bank N.A. | CRISIL AA/Positive |
| Working Capital Demand Loan@ | 125 | Kotak Mahindra Bank Limited | CRISIL AA/Positive |
This Annexure has been updated on 16-Dec-2021 in line with the lender-wise facility details as on 06-Dec-2021 received from the rated entity.
***under e-SBD programme of Tata Auto Comp
^Fully interchangeable with working capital demand loan, buyer's credit's sub-limit of Rs 40 crore, letter of credit sub-limit of Rs 30 crore, and bank guarantee sub-limit of Rs 11 crore
$Fully interchangeable with buyer's credit, purchase bill discounting sub-limit of Rs 50 crore and working capital loan sub-limit of Rs 75 crore
** Bank Guarantee Interchangeable upto Rs 14 crore
@Fully interchangeable with letter of credit and buyer's credit, interchangeable with Rs 25 crore of bank guarantee
Criteria Details
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