Rating Rationale
July 15, 2020 | Mumbai
Transpek-Silox Industry Private Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.117 Crore
Long Term Rating CRISIL AA/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
 
Rs.10 Crore Commercial Paper CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL AA+/Stable/CRISIL A1+' ratings on the bank facilities and commercial paper programme of Transpek-Silox Industry Private Limited (TSIPL). 
 
Revenue is likely to be impacted during fiscal 2021 due to moderation in demand from end-user industries such as textiles, tyres and paints owing to the impact of the Covid-19 induced lockdown in the country from March last week till June first week. Resultantly, operating margin is expected to be below 13%. However, given the strong market position along with customer and product diversity, performance is expected to recover in the second half as demand gradually recovers. Liquidity is expected to remain comfortable with cash and equivalents of Rs 175 crore and unutilised limits of ~Rs 107 crore as on June 30, 2020 against nil external debt and moderate capital expenditure (capex) requirements. 
 
Earlier, revenue declined 4% y-o-y during fiscal 2020 on the back of lower realisations of end products in both domestic and international markets, which is in-line with the corresponding drop in zinc prices. While domestic volumes remained flat that of exports grew 7% y-o-y during fiscal 2020. Operating margin fell 105 bps to 14.87% in fiscal 2020 mainly due to fall in product prices and increase in employee costs. Financial risk profile remains strong, with cash surplus and minimal external debt. A capex of Rs 10-20 crore funded through cash accrual will result in sustenance of healthy debt protection metrics. 
 
The ratings continue to reflect TSIPL's leadership position 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 price-led competition from China and moderate growth prospects (because of the limited size of the industry in which TSIPL operates).

Key Rating Drivers & Detailed Description
Strengths
* Established market position, underpinned by strong operating efficiencies and technological support from parent, Silox SA (Silox)
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 TSIPL'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.
 
* Strong market position and diverse revenue profile
The company has a wide range of sulphoxylates and zinc-based products in its portfolio; which include sodium hydro sulphite (market share: 41%), sodium formaldehyde sulphoxylate (81%), zinc formaldehyde sulphoxylate (99%), various grades of zinc oxide (10%), zinc dust (85%), and zinc derivatives. These products find application across industries such as textiles, paints, polymers, tyres, and jaggery, enabling it to withstand downturns in any one end-user segment. Also, geographical diversity is strong, with exports to 65 countries contributing around 37% to total revenue in fiscal 2020. Established relationship with major clients such as Asian Paints (rated 'CRISIL AAA/Stable/CRISIL A1+'), Akzo Nobel India Ltd, Jotun Group, Arvind Ltd, MRF Ltd, CEAT Ltd, etc. among others and the ability to offer customised solutions enable TSIPL 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 improve diversity.
 
* Robust financial risk profile
Networth and liquidity are healthy, and reliance on bank funding negligible. Expected cash accrual (post dividend) of Rs 60-70 crore per annum from fiscal 2022 will be sufficient to meet yearly capex requirements of Rs 30-40 crore. Working capital cycle is lean, as indicated by low gross current assets to operating income ratio of around 104 days for fiscal 2020.
 
Weaknesses
* Exposure to price-led competition from China and raw material price volatility
China is the largest producer of sodium hydrosulphite and presents pricing competition to Indian players. While TSIPL is able to fully pass on zinc prices, 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.
 
* Moderate growth prospects
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 of operations in revenue terms is moderate.
Liquidity Strong

In the absence of debt, healthy cash accrual of Rs 50-60 crore per annum expected over the medium term (from fiscal 2022) will support liquidity. Bank limit of Rs 107 crore remained unutilised during the 12 months ended June 2020. Cash and mutual fund investments of Rs 175 crore as on June 30, 2020, also support liquidity. Net cash accrual is expected to be sufficient to meet capex and working capital requirements over the medium term.

Outlook: Stable

Despite the economic slowdown that resulted due to the nation-wide lockdown imposed by the Government of India to contain the spread of Covid-19, TSIPL will continue to benefit from its established market position and healthy financial risk profile.

Rating Sensitivity factors
Upward Factors
* Increase in revenue due to product diversification and entry in to new product segment, while maintaining healthy profitability of 18-20%
* Sustenance of moderate financial risk profile and cash surplus

Downward Factors
* Steady decline in profitability or market share
* Significant time or cost overrun in relocation of plant weakens the capital structure marked by gearing of above 1 time.
About the Company

TSIPL 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%). TSIPL manufactures sulphoxylates and zinc-based products such as sodium hydro sulphite, sodium formaldehyde sulphoxylate (safolite), zinc formaldehyde sulphoxylate (safolin), zinc dust, and zinc oxide; and various zinc derivatives.

Key Financial Indicators
As on/for the period ended March 31 (CRISIL Adjusted Numbers)  Unit 2020 2019
Revenue Rs crore 979 1020
Profit After Tax (PAT) Rs crore 107 97
PAT Margin % 11.0 9.5
Adjusted debt/adjusted networth Times 0.0 0.0
Interest coverage Times 49.60 49.99

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)
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs.Crore) Complexity levels Rating assigned with outlook
NA Commercial Paper NA NA 7-365 days 10 Simple CRISIL A1+
NA Cash Credit NA NA NA 11.4 NA CRISIL AA/Stable
NA Letter of credit & Bank Guarantee NA NA NA 10 NA CRISIL A1+
NA Packing Credit NA NA NA 20.6 NA CRISIL A1+
NA Overdraft*#^$ NA NA NA 75.0 NA CRISIL AA/Stable
*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
$Includes Bank guarantee limit as sublimit to the extent of Rs 30 crore.
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  10.00  CRISIL A1+      29-08-19  CRISIL A1+  17-08-18  CRISIL A1+  24-08-17  CRISIL A1+  CRISIL A1+ 
Fund-based Bank Facilities  LT/ST  107.00  CRISIL AA/Stable/ CRISIL A1+      29-08-19  CRISIL AA/Stable/ CRISIL A1+  17-08-18  CRISIL AA/Stable/ CRISIL A1+  24-08-17  CRISIL AA/Stable/ CRISIL A1+  CRISIL AA/Stable/ CRISIL A1+ 
Non Fund-based Bank Facilities  LT/ST  10.00  CRISIL A1+      29-08-19  CRISIL A1+  17-08-18  CRISIL A1+  24-08-17  CRISIL A1+  CRISIL A1+ 
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit 11.4 CRISIL AA/Stable Cash Credit 11.4 CRISIL AA/Stable
Letter of credit & Bank Guarantee 10 CRISIL A1+ Letter of credit & Bank Guarantee 10 CRISIL A1+
Overdraft*#^$ 75 CRISIL AA/Stable Overdraft*#^$ 75 CRISIL AA/Stable
Packing Credit 20.6 CRISIL A1+ Packing Credit 20.6 CRISIL A1+
Total 117 -- Total 117 --
*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 30 crore.
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Chemical Industry
CRISILs Criteria for rating short term debt

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