| Vidhi Specialty Food Ingredients Limited | ||||||
| Ratings upgraded to 'CRISIL A-/Stable/CRISIL A2+' | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has upgraded its ratings on bank facilities of Vidhi Specialty Food Ingredients Limited (VSFIL; part of Vidhi group) to 'CRISIL A-/Stable/CRISIL A2+' from 'CRISIL BBB+/Positive/CRISIL A2'.
The upgrade in ratings reflect strengthening of the business risk profile while maintaining a healthy financial risk profile.
Revenue is estimated to have improved in fiscal 2022, as reflected from the group’s operating performance during 9 month of fiscal 2022. Revenue growth has been on back of better export demand and further strengthening of its market position in the food colour business. While, operating margin is estimated to see some moderation due to high proportion of trading revenue and higher raw material prices, group’s absolute earnings before interest, depreciation, taxation and ammortisation (EDBITA) is estimated to have improved in fiscal 2022. Going ahead, business risk profile is expected to benefit from higher proportion of manufacturing in the revenue mix with the commencement of operations at its new plant coupled with continued healthy demand. Financial risk profile is expected to also improve with accretion to reserves, further augmenting the networth, resulting in very comfortable capital structure despite the capex and continued healthy debt protection metrics.
The ratings reflect group’s established market position in food colour industry and healthy financial risk profile. These strengths are partially offset by large working capital requirement and risk associated with timely completion, offtake risk associated with new plant and moderate scale of operations. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has combined the financial and business risk profiles of VSFIL and its wholly owned subsidiary, Arjun Food Colorants Manufacturing Private Limited (AFCMPL). This is because both these entities, collectively referred to as the Vidhi Group, have a common management and strong operational and financial links.
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: * Established market position in food colour industry: Group has established its market position over last 25 years in the food colour industry especially in the export market on back of sound operating efficiencies. Group has ISO and Kosher certifications, and product approvals from customers and majorly caters to export market with 80% of revenue. Group’s clientele include global food colour vendors such as Univar Inc, UK; Map Technologies Ltd, UK; Proquimac Food & Pharma SA, Spain; among others. Group also has strong relationship with global majors such as Nestle, Mars, Pedigree, and Sanofi.
* Healthy financial risk profile: Group’s capital structure is comfortable indicated by low total outside labilities to adjusted networth (TOLANW) at sub 0.5 time as on March 31, 2021. Group’s networth base was healthy at Rs. 162 crore. TOLANW is expected to remain sub 0.6 times as on March 31, 2022 in spite of capex and incremental working capital requirements. On back of healthy operating profits with limited interest outlay, debt protection metrics are expected to remain robust. Interest coverage and net cash accrual to total debt ratios are expected to remain above 20 times and 1 time, respectively, in fiscal 2022. Financial risk profile is expected to improve over the medium term supported by steady accretion to reserves and controlled reliance on external debt for proposed capex.
Weakness: * Large working capital requirement: Gross current assets were at 239 days because of elongated receivables of 133 days and inventory of 69 days as on March 31, 2021. While debtor’s collection has improved in fiscal 2022, operations will remain working capital intensive over the medium term on back of moderate inventory levels.
* Timely completion and offtake risk associated with new plant: Group is undertaking capex of around Rs 60 crore in 2 phases. Each phase is of around Rs 30 crore will be funded entirely through internal accruals and cash and equivalents. Accordingly, the group is currently exposed to risk of timely completion and offtake associated with the new plant. Demand risk is partly mitigated by current capacity being utilised fully and steady demand. Ability of the company to swiftly ramp up new capacities while maintaining operating margin will be a rating monitorable.
*Moderate scale of operations: While group’s scale of operations has improved in fiscal 2022, it continues to remain moderate relative to that of its well-established peers. This is partly mitigated by group’s new plant becoming operational and addition of new customers which is expected to result in steady increase in revenue. Ability to sustain the revenue growth while maintaining the healthy profitability would be a key rating sensitivity. |
Liquidity: Strong Group is expected to generate net cash accruals (NCA) of Rs 55-60 crore adequate to meet yearly term debt obligation of Rs 1.8-2 crore per annum, over the medium term. Same will also act as a cushion to liquidity. Average bank limit utilisation was around 70% in the 12 months ended December 2021. Company has capex plans of around Rs 60 crore spread over 3 year period to be funded from the internal accruals. Unencumbered and encumbered cash and equivalents of Rs 11 crore as on December 31, 2021, also underpins liquidity. Current ratio was healthy at 2.99 times as on March 31, 2021. |
Outlook: Stable CRISIL Ratings believes VSFIL will improve on its already established position in the food colours market, backed by its long-standing associations with customers and suppliers, further supported by planned increase in manufacturing capacity. |
Rating Sensitivity Factors Upward Factors * Significant improvement in scale with operating margin sustaining above 23% resulting in higher accruals and further augmenting the networth * Improvement in working capital cycle while maintaining financial risk profile.
Downward Factors * Decline in revenue or operating profit margin dropping below 15% resulting in much lower cash accruals * Increase in working capital requirement, larger-than-expected, debt-funded capex or acquisition, or more-than-expected dividend payout, weakening the financial risk profile and liquidity. |
About the Group VSFIL, promoted by Mr Bipin Manek, manufactures synthetic food colours used in the foodstuff, pharmaceutical, confectionery, pet food, healthcare, dairy products, soft drinks, and cosmetics industries. The company has also set up a research and development (R&D) unit near its manufacturing facility in Roha, which enables the company to test food colours and meet the quality specification set by the US Food and Drug Administration (FDA) and other regulatory bodies around the world. The company mainly exports its products to countries in Europe, North America, Africa, and Australia with a presence in 80 countries globally. |
Key Financial Indicators (Consolidated)
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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 – 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 Bank Lenders & Facilities | |||||||||||||||||||||
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Criteria Details
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