Rating Rationale
October 23, 2024 | Mumbai
Vidhi Specialty Food Ingredients Limited
Ratings reaffirmed at 'CRISIL A-/Stable/CRISIL A2+'
 
Rating Action
Total Bank Loan Facilities RatedRs.116.72 Crore
Long Term RatingCRISIL A-/Stable (Reaffirmed)
Short Term RatingCRISIL A2+ (Reaffirmed)
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 ‘CRISIL A-/Stable/CRISIL A2+' ratings on the bank loan facilities of Vidhi Specialty Food Ingredients Ltd (VSFIL; a part of the Vidhi group).

 

The ratings continue to reflect the group’s established market position in the food colour industry and healthy financial risk profile. These strengths are partially offset by large working capital requirement and exposure to fluctuations in raw material prices.

Analytical approach

CRISIL Ratings has combined the financial and business risk profiles of VSFIL and its wholly owned subsidiary, Arjun Food Colorants Manufacturing Pvt Ltd (AFCMPL). This is because both these entities, together referred to as the Vidhi group, have a common management and strong operational and financial linkages.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key rating drivers and detailed description

Strengths:

  • Well-established market position: The Vidhi group has established its market position over the past 25 years in the food colour industry on the back of sound operating efficiency. The group has ISO and Kosher certification, and product approvals from customers; it majorly caters to the export market, which contributes to 90% of revenue. The clientele includes global food colour vendors such as Univar Inc, UK; Map Technologies Ltd, UK; Proquimac Food & Pharma SA, Spain; among others. The group also has strong relationship with global majors such as Nestle, Mars, Pedigree and Sanofi. This led to healthy revenue of Rs 240-270 crore from the manufacturing segment for the three fiscals through 2024. Total revenue declined in fiscal 2024 due to conscious calls taken by the management to reduce their exposure from the trading segment, while the manufacturing segment continued to be healthy. Scale of operations is expected to increase, driven by healthy demand as well as capacity expansion incurred during the previous year.

 

  • Strong financial risk profile: As the group was able to generate healthy cash flow, the reliance on external debt has been declining, leading to comfortable total outside labilities to adjusted networth ratio of 0.16 time as on March 31, 2024; networth stood healthy at Rs 273 crores as on same date. Healthy operating profits and low leverage led to robust debt protection metrics. Interest coverage and net cash accrual to total debt ratios stood at 17.8 times and 1.8 times, respectively, for fiscal 2024 as compared to 15.4 and 0.7times last year. Financial risk profile is expected to improve over the medium term, supported by steady accretion to reserve and controlled reliance on working capital debt, no debt-funded capital expenditure (capex) and moderate dividend payouts.

 

Weaknesses:

  • Large working capital requirement: Gross current assets were 121 days as on March 31, 2024, driven by receivables of 109 days and inventory of 85 days. The group extends a credit period of 60-120 days to customers leading to high debtor days. The company has to maintain high inventory of 60-90 days to meet customer requirement on time. Working capital cycle is expected to remain large over the medium term.

 

  • Susceptibility to fluctuations in raw material prices: Raw material costs accounts for 65-75% of the total operating income and since the key raw materials (naphthalene and aniline) are crude oil based, the prices are volatile in nature. While the group has the ability to pass down any increase in raw material prices to customers, the same is with a time lag and hence any sharp fluctuations in the input cost can impact the operating margin. Operating margins have range in between 14-20% over the past four years.

Liquidity: Strong

Bank limit utilisation was around 31% for the 12 months through August 2024. In the absence of any yearly repayment obligation over the medium term, the entire cash accrual -- projected at Rs 40-42 crore per annum will aid liquidity. In addition, it will act as cushion to the liquidity of the company. Current ratio was healthy at 4.8 times and cash and bank balance at around Rs 19 crore as on March 31, 2024. 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

The Vidhi group will improve on its already established position in the food colour market, backed by its longstanding associations with customers and suppliers.

Rating sensitivity factors

Upward factors:

  • Significant improvement in scale while maintaining stable operating margin leading to  cash accruals above Rs 60 crores post dividend payouts
  • Sustenance of financial risk profile amid no larger than expected dividend payouts and absence of any large, debt-funded capex

 

Downward factors:

  • Decline in revenue or operating margin remaining below 15%, resulting in lower cash accruals
  • Sizeable stretch in the working capital cycle, larger-than-expected, debt-funded capex or acquisition, or more-than-expected dividend payout, weakening the financial risk profile and liquidity.

About the Vidhi group

VSFIL, incorporated in 1994 and 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 unit near its manufacturing facility in Roha (Maharashtra), which enables the company to test food colours and meet the quality specification set by the US Food and Drug Administration and other regulatory bodies around the world. The company exports its products to countries in Europe, North America, Africa and Australia, with presence in 80 countries globally.

Key financial indicators

As on/for the period ended March 31

Unit

2024

2023

Operating income

Rs crore

300

400

Reported profit after tax (PAT)

Rs crore

36

38

PAT margin

%

12.2

9.4

Adjusted debt/adjusted networth

Times

0.07

0.21

Interest coverage

Times

17.8

15.4

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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name of the instrument Date of
Allotment		 Coupon
Rate (%)		 Maturity
Date		 Issue size
(Rs.Crore)		 Complexity
Level		 Rating assigned
with outlook
NA Bank guarantee NA NA NA 0.05 NA CRISIL A2+
NA Letter of credit NA NA NA 49 NA CRISIL A2+
NA Packing credit NA NA NA 18 NA CRISIL A2+
NA Post shipment credit NA NA NA 48.5 NA CRISIL A-/Stable
NA Working capital term loan NA NA 31-Mar-25 1.17 NA CRISIL A-/Stable

Annexure - List of entities consolidated

Names of entities consolidated

Extent of consolidation

Rationale for consolidation

Vidhi Speciality Food Ingredients Ltd

Full

Financial, operational and managerial linkages

Arjun Food Colorants Manufacturing Pvt Ltd

Full

Financial, operational and managerial linkages; 100% subsidiary of VSFPL
Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT/ST 67.67 CRISIL A2+ / CRISIL A-/Stable   -- 14-08-23 CRISIL A2+ / CRISIL A-/Stable 16-05-22 CRISIL A2+ / CRISIL A-/Stable 26-02-21 CRISIL BBB+/Positive / CRISIL A2 CRISIL BBB+/Stable / CRISIL A2
      --   --   -- 29-04-22 CRISIL A2+ / CRISIL A-/Stable   -- --
Non-Fund Based Facilities ST 49.05 CRISIL A2+   -- 14-08-23 CRISIL A2+ 16-05-22 CRISIL A2+ 26-02-21 CRISIL A2 CRISIL A2
      --   --   -- 29-04-22 CRISIL A2+   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 0.05 Bank of Baroda CRISIL A2+
Letter of Credit 22.6 HDFC Bank Limited CRISIL A2+
Letter of Credit 22 Bank of Baroda CRISIL A2+
Letter of Credit 4.4 HDFC Bank Limited CRISIL A2+
Packing Credit 18 Bank of Baroda CRISIL A2+
Post Shipment Credit 31 HDFC Bank Limited CRISIL A-/Stable
Post Shipment Credit 17.5 Bank of Baroda CRISIL A-/Stable
Working Capital Term Loan 1.17 HDFC Bank Limited CRISIL A-/Stable
Criteria Details
Links to related criteria
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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