Brickwork Ratings reaffirms the long-term and short-term ratings for the total Bank Loan Facilities of Rs. 22.50 Crs. of Hindprakash Industries Limited (Formally Known as Hindprakash Industries Pvt Ltd) ["HIL" or "The Company"]
ParticularsFacilities** | Amount (Rs.Crs.) | Tenure | Rating# | ||
---|---|---|---|---|---|
Previous | Present | Previous (23 Feb 2021) |
Present | ||
Fund Based | 14.00 | 21.50 | Long Term |
BWR BBB-/Stable
Reaffirmed |
BWR BBB -
/Stable Reaffirmation |
Non Fund Based | 1.00 | 1.00 | Short Term |
BWR A3
Reaffirmed |
BWR A3
Reaffirmation |
(1.00) | (0.64) | ||||
Grand Total | 15.00 | 22.50 | (Rupees Twenty Two Crores and Fifty lakhs Only) |
The rating reaffirmation takes into account the company’s comfortable financial risk profile, characterized by healthy gearing, comfortable debt coverage indicators, and adequate liquidity position. The company reported subdued performance during the first half of FY2021 due to the disruptions caused by the outbreak of the COVID-19 pandemic; however, the revenue and earnings improved from the second half of FY2021 supported by a recovery in demand and production levels.
The rating also derives comfort from the extensive experience of the promoters in the chemical manufacturing and trading business. The rating also considers the diversified product portfolio in the chemical segment as well as diversified clientele.
The ratings, however, are constrained by the company’s moderate scale of operations, the exposure of profitability to volatility in raw material price, and the fluctuations in foreign exchange rates amidst the intensively competitive industry. The rating also considers the working capital-intensive nature of operations.
Outlook: Stable
The “Stable” outlook reflects BWR’s expectations that HIL will maintain a stable business and credit profile supported by the company’s established presence, comfortable financial risk profile, and stable demand outlook.
KEY RATING DRIVERS
Credit Strengths:
The company is part of the Ahemdabad-based “Hindprakash group” engaged in manufacturing and trading various kinds of dye intermediates, multi-utility dyes, bulk chemicals, and textile auxiliaries for the last two decades with HIL being the manufacturing arm of Hindprakash group. The group is promoted by Mr. Sanjay Prakash Mangal along with family members. The day-to-day operations of the company are handled by Mr. Sanjay Prakash Mangal and Mr. Santosh N. Nambiar who possess more than two decades of experience in the chemical trading and manufacturing business. The company has been able to diversify its product portfolio and establish strong relationships with customers as well as suppliers due to experienced promoters and management.
The manufacturing unit of the company is strategically located at Vatva, Ahmedabad which is one of the chemical hubs of Gujarat thereby providing a competitive advantage in terms of raw material procurement and proximity to major consumption centers including Maharashtra and Gujarat thereby considerably reducing the freight cost for the company. Furthermore, the unit is located in Gujarat Industrial Development Corporation which has one of the best common effluent treatment plants in India.
The company’s product profile includes 150 products of Textile Auxiliaries, Disperse dyes, reactive dyes & Green acids which find application mainly in the textile industry. The company has a pan India presence and supplies to a diversified customer base with the top 10 customers constituting around 41 percent of its total sales for FY2022.
The company has a comfortable financial risk profile marked by low gearing as the same stood at 0.24 times as of 31st March 2022 as against 0.29 times in the previous year supported by a steady flow of earnings and limited dependence on external debt levels. Further, the company has an adequate coverage ratio as the interest coverage ratio at 4.27 times and debt service coverage ratio at 2.54 times in FY2022. Going forward, the financial risk profile of the company is expected to remain comfortable with steady growth in net cash accruals and the absence of a majorly debt-funded capital expenditure plan over the near to medium term.
The scale of operations of the company continues to remain modest as the company has reported Rs. 103.3 crores in FY2022 as against Rs. 90.08 crores in FY2021. Further, the company is expected to report stable revenue growth going forward supported by a stable demand outlook for dyes and intermediates.
The profitability margins continue to remain moderate as operating profit margins stood in a range of 3 to 5 percent during the last three years. The company faces intense competition in the chemical industry with many organized and unorganized players. However, the established relationships with its customers have helped the company to receive repeat orders.
The company’s main raw materials are dyes, which is a crude oil derivative exhibiting high price volatility. Further, the raw material cost constitutes around 80 percent of the total cost of goods sold and the low bargaining power with large raw material suppliers.
Hence, any adverse movement in the prices of key raw materials against the company’s limited ability to pass on the same to its customer can adversely affect its profitability. Further, the profitability is also susceptible to foreign exchange fluctuation risk as the company has undertaken imports from China and Hongkong to the tune of Rs. 6.69 crores during FY2022 however the exports of Rs. 2.91 crores which acted as a natural hedge against the forex risk. However, the company’s profitability is shielded from currency fluctuations not only by the natural hedge in the form of exports but also by a strict hedging policy.
The company’s working capital-intensive nature of operations is reflected in the gross current asset (GCAs) of 130-170 days over the past four fiscal. The company has reported a stretched receivable days at 82 for FY2022. The company has revised its credit period from 60 to 90 days and also allowing a longer credit period fetches higher margins from customers. The company has started to maintain a higher inventory holding period in order to manage any shortage of supply of raw materials in the market resulting from the COVID-19-related disruptions. However, the company has reported an adequate liquidity position with average cash credit limit utilization of around 54 percent during the period from July 2021 to April 2022.
For arriving at its ratings, BWR has applied its rating methodology as detailed in the Rating Criteria detailed below (hyperlinks provided at the end of this rationale). BWR has principally relied upon the standalone audited financials up to FY22, publicly available information, and clarification/information provided by the Company.
RATING SENSITIVITIES
Positive:
Negative:
HIL has reported modest net cash accruals of Rs. 2.41 crores as against the annual debt repayment obligation of Rs. 0.16 crores during FY 2021. The current ratio is comfortable at 2.90 times on 31.03.2021. Further, the liquidity profile is marked by low working limit utilization with average working capital utilization of around 54 percent for the period from July 2021 to April 2022. The cash credit limit was enhanced from Rs. 14.00 crores to Rs. 21.50 crores in September 2021. Also, the company is also availing guaranteed emergency credit line (GECL) limit of Rs. 3.86 crores in September 2021 which is expected to be repaid over the next five years.
Hence, the company has scheduled repayment to the tune of Rs. 2.16 crores over the next three years and the same is expected to be adequately met through internal accruals.
ABOUT THE ENTITY
Hindprakash Industries Limited (HIL or “The Company”) was initially incorporated as Hindprakash Lonsen Industries Private Limited in the year 2008 in Vatva, Gujarat. Later in the year 2018, the name of the company was changed to Hindprakash Industries Private Limited. The constitution of the company was subsequently changed to a public limited company and the shares of the company are listed on the EMERGE (SME) platform of the National Stock Exchange of India Limited (NSE).
The company is engaged in the manufacturing and trading of dyes, intermediates, auxiliary, chemicals, and other merchandise. The company is engaged in manufacturing dry mixing to disperse dyes and textile auxiliaries utilized by textile manufacturers. The dispersed dyes are used for polyester fiber dyeing, woven and knitted fabric dyeing, and spun and textured yarn dyeing and printing. Further, the textile auxiliaries are manufactured in collaboration with Zhejiang Longsheng Group, a Chinese company engaged in the manufacturing of textile auxiliaries. The company manufactures around 25 different types of dispersed dyes and 30 different types of textile auxiliaries. The manufacturing unit of the company is located in Vatva, Gujarat with a total installed capacity of 4000 Metric tonnes per annum for manufacturing more than 150 products of textile auxiliaries, chemicals, dyes, and intermediate, and pigment. The company derives around 87 percent of its manufacturing division and around 13 percent from its trading division during FY2021. The company derives its major revenue from the sale of dyes i.e. around 81 percent, followed by chemical at ~8 percent and textile auxiliary at ~4 percent. The remaining seven percent is derived from the sale of intermediate, commodities and other materials. The company mainly supplies to the textile clusters located in the domestic market. The company is promoted by Mr. Om Prakash Mangal and his son Mr. Sanjay Prakash Mangal along with other family members. The main raw material required by the company is dyes which are mainly purchased from domestic suppliers and also import around 11 percent of the total purchases from countries including China, Japan, Vietnam, and Hongkong.
Further, the day-to-day operations of the company are being handled by Mr. Sanjayprakash O. Mangal and Mr. Santosh Narayan Nambiar among others. The management has more than two decades of experience in the chemical industry.
KEY FINANCIAL INDICATORS (Standalone)
Key Parameters | Units |
FY 21-22 (Audited) |
FY 20-21 (Audited) |
---|---|---|---|
Operating Revenue | Rs.Crs. | 103.69 | 90.08 |
EBITDA | Rs.Crs. | 3.83 | 2.95 |
PAT | Rs.Crs. | 2.81 | 2.41 |
Tangible Net Worth | Rs.Crs. | 38.95 | 36.40 |
Total Debt/Tangible Net Worth | Times | 0.24 | 0.29 |
Current Ratio | Times | 4.20 | 2.90 |
Not Applicable
ANY OTHER INFORMATIONNot Applicable
RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)Facilities | Current Rating (2022) | 2021 | 2020 | 2019 | |||||
---|---|---|---|---|---|---|---|---|---|
Type | Tenure | Amount (Rs.Crs.) |
Rating | Date | Rating | Date | Rating | Date | Rating |
Fund Based | LT | 21.50 |
BWR BBB-/Stable
(Reaffirmation) |
23Feb2021 |
BWR BBB-Stable
(Reaffirmed) |
11Feb2020 |
BWR BBB-Stable
(Upgraded) |
NA |
NA
|
FB SubLimit | ST | NA |
NA
|
23Feb2021 |
BWR A3
(Reaffirmed) |
11Feb2020 |
BWR A3
(Upgraded) |
NA |
NA
|
Non Fund Based | ST | 1.00 |
BWR A3
(Reaffirmation) |
23Feb2021 |
BWR A3
(Reaffirmed) |
11Feb2020 |
BWR A3
(Upgraded) |
NA |
NA
|
NFB SubLimit | ST | (0.64) |
BWR A3
(Reaffirmation) |
23Feb2021 |
BWR A3
(Reaffirmed) |
11Feb2020 |
BWR A3
(Upgraded) |
NA |
NA
|
Grand Total | 22.50 | (Rupees Twenty Two Crores and Fifty lakhs Only) |
BWR complexity levels are meant for educating investors. The BWR complexity levels are available at www.brickworkratings.com / download / ComplexityLevels.pdf. Investors queries can be sent to info@brickworkratings.com.
Hyperlink/Reference to applicable CriteriaAnalytical Contacts | |
---|---|
Shashikala Umanath Hegde Senior Ratings Analyst Board : +91 22 2831 1426, +91 22 2831 1439 shashikala.h@brickworkratings.com |
Vidya Shankar Principal Director - Ratings Board : +91 80 4040 9940 vidyashankar@brickworkratings.com |
1-860-425-2742 | media@brickworkratings.com |
SL.No. | Name of the Bank/Lender | Type Of Facilities | Long Term(Rs.Crs.) | Short Term(Rs.Crs.) | Total(Rs.Crs.) | |
---|---|---|---|---|---|---|
1 | IDBI Bank | Cash CreditSanctioned | 21.50 | _ | 21.50 | |
2 | IDBI Bank | Letter of CreditSanctioned | _ | 1.00 | 1.00 | |
Total | 21.50 | 1.00 | 22.50 | |||
TOTAL (Rupees Twenty Two Crores and Fifty lakhs Only) |
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