| Vidhi Specialty Food Ingredients Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ratings on the bank facilities of Vidhi Specialty Food Ingredients Limited (VSFIL; part of Vidhi group) at ‘CRISIL A-/Stable/CRISIL A2+'.
Company’s scale of operations declined in fiscal 2023 on account of lower sales from trading segment. Company has reported dip of 23% sales year-on-year in fiscal 2023. Further, the company operating margin has been volatile in the range of 4% to 23% in past 4 fiscal ending 2023. Operating margin in fiscal 2023 was at 14.05%. Decline in the operating margins because of inventory loss incurred in the trading segment However, company’s financial risk profile continues to remain healthy. Improvement in operating performance and working capital cycle to remain monitorable.
The ratings continue reflect group’s established market position in food color 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: Well Established market position: Group has established its market position over last 25 years in the food color 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 90% of revenue. Group’s clientele includes global food color 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.
Strong financial risk profile: Group’s capital structure is comfortable indicated by low total outside labilities to adjusted networth (TOLANW) at sub 0.32 time as on March 31, 2023. Group’s networth base was healthy at Rs. 251 crore. 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 at 15.67 times and 0.83 time, respectively, in fiscal 2023. 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 187 days because of elongated receivables of 91 days and inventory of 60 days as on March 31, 2023. While debtor’s collection has improved over medium term, operations will remain working capital intensive over the medium term on back of moderate inventory levels.
Susceptibility to project risk: Group is undertaking capex of around Rs 60 crore in 2 phases. Each phase 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 utilized fully and steady demand. Ability of the company to swiftly ramp up new capacities while maintaining operating margin will be a rating monitorable. |
Liquidity :Strong Bank limit utilization is moderate at around 61 percent for the past twelve months ending March 2023. Cash accrual are expected to be over Rs 40 crore which is sufficient against nil term debt obligation over the medium term. In addition, it will act as cushion to the liquidity of the company. Current ratio is healthy at 2.65 times on March 31, 2023. Moderate cash and bank balance of around Rs 7 crore as on March 31, 2023. Low gearing and moderate net worth support its financial flexibility and provides the financial cushion available in case of any adverse conditions or downturn in the business. |
Outlook: Stable CRISIL Ratings believes VSFIL will improve on its already established position in the food colors market, backed by its long-standing associations with customers and suppliers, further supported by planned increase in manufacturing capacity. |
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About the Group VSFIL, promoted by Mr. Bipin Manek, manufactures synthetic food colors 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 colors 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
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
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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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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