­Established track record along with experienced management
Incorporated in 1989, CSPL has an established track record of operations of more than 30 years in manufacturing and trading of food preservatives business. The directors of the company Mr. Arun Kumar, Mr. Ayush Agarwal and Mr. Amit Agarwal has extensive experience in the aforementioned line of business. The vast experience of the management has helped the company to forge long standing relationships with its reputed customers like Hindustan Unilever Limited, Nestle India Limited, ITC Limited, Britannia Industries Limited and others. The company has established relationship with suppliers like Volac International Limited, Cargil Food Ingredients, JRS Silvateam Food Ingredients among others.

Acuite believes that extensive experience of the promoters and established track record of operations along with longstanding relationship with reputed clientele will continue to support CSPL’s business operations over the medium term.

Improvement in the Operating Performance
CSPL’s revenue improved to Rs.297.23 Cr. in FY2024 from Rs.273.38 Cr. in FY2023. The FY2025 estimated revenue stood at ~Rs. 381 Cr. The revenue growth is primarily driven by a surge in orders from both existing and newly acquired customers. The company has  reputed clientele, such as HUL, Nestlé, Cream Bell, and several other esteemed FMCG organizations. The operating profit margin  for FY2025 (E) stood at 7.65 percent against 6.82 percent in FY2024 and 6.27 percent in FY2023. The PAT margin for FY2025 (E) stood at 3.07 percent against 2.10 percent in FY2024 and 1.82 percent in FY2023.

Moderate financial Risk Profile
CSPL’s financial risk profile is moderate marked by moderate net worth, gearing and debt protection metrics. The net worth stood at Rs. 57.83 Cr. as on March 31, 2024, against Rs.49.89 Cr. as on March 31, 2023. The net worth also consists USL of Rs.10.01 Cr. in FY2024 being subordinated to bank borrowings. The gearing ratio stood  at 1.65 times as on March 31, 2024, against 2.02 times as on March 31, 2023. The TOL/TNW stood at 2.30 times as on March 31, 2024, against 2.57 times as on March 31, 2023. Interest Coverage Ratio stood at 2.07 times in FY2024 against 2.09 times in FY2023. DSCR stood at 1.24 times in FY2024 against 1.84 times in FY2023. Debt/EBITDA level stood at 4.61 times in FY2024 against 5.56 times in FY2023.

Acuite’ believes that financial risk profile of CSPL is expected to improve in near term despite debt funded capex on account of expected improvement in the operating profitability.

Working Capital Intensive Operations
CSPL’s working capital operations are intensive in nature marked by GCA days of 183 days in FY2024 as compared to 180 days in FY2023. The debtor days stood at 62 days in FY2024 against 58 days in FY2023. The inventory days stood at 85 days in FY2024 against 95 days in FY2023. The creditors days stood at 6 days in FY2024 against 8 days in FY2023. The bank limit utilization for fund based limits stood moderate at 83.33% and for non-fund based limits it stood at 80.08% in the last 12 months ended Apr 25.

Acuite’ believes that working capital operations of company may continue to remain intensive considering the nature of business.

Susceptibility of operating margins to volatility in prices
Operating margins are susceptible to fluctuations in raw material prices, which are inherently tied to global demand and supply dynamics. This volatility can impact profitability. However, the company mitigates this risk by periodically adjusting prices, passing cost increases on to customers to maintain stability in profitability.