Experienced management and moderate track record of operations
DSPL is into the solvent extraction business since past 6 years. Final products include De-oiled cakes and soyabean edible oil. Mr. Dhanraj Pallod, founder and promoter of the company has been in the business of soyabean and cereal trading since past 2 decades. With the expertise and experience in soyabean industry gained over the years, Mr. Pallod started solvent extraction plant in October 2016. The long-term presence in the industry has helped DSPL garner reputed clientele which include names like ITC Limited, Cargill India Private Limited, Godrej Agrovet etc. Acuite believes that going ahead, the promoter’s experience would continue to support DSPL’s growth.

Moderate financial risk profile
The company has a moderate financial risk profile marked by tangible net worth of Rs.32.81 crore as on 31 March 2022 as against Rs.25.96 crore as on 31 March 2021. The networth of the company has increased in FY2023 due to the equity infusion of Rs.15 crore during that period for the capital expenditure. The gearing level of the company stood at 1.47 times as on 31 March 2022 as against 1.28 times as on 31 March 2021. The total debt of the company stood at Rs.48.29 crore as on 31 March 2022. It consists of long-term debt of Rs.9.06 crore, unsecured loans of Rs.5.80 crore and short-term debt of Rs.28.35 crore as on 31 March 2022. The company has taken a term loan of Rs.32 crore for the capital expenditure and has also enhanced the CC limits from 29 crore to Rs.46 crore in FY2023. The coverage ratios of the company stood moderate with Interest Coverage Ratio (ICR) of 4.02 times for FY2022 against 2.85 times for FY2021. The Debt Service Coverage Ratio (DSCR) stood at 1.63 times for FY2022 against 1.86 times for FY2021. The total outside liabilities to tangible net worth (TOL/TNW) of the company stood at 2.56 times for FY2022 as against 3.93 times in FY2021. Acuité believes that the company is likely to maintain its moderate financial risk profile on account of no major debt funded capex in medium term.

Working capital efficient operations
The company’s operations are working capital efficient as evident from Gross Current Asset (GCA) of 44 days as on March 31, 2022, as against 70 days as on March 31, 2021. The inventory levels have improved and stood at 31 days for FY2022 compared against 60 days for FY2021. Average inventory holding period for the raw materials is around 15 days. The inventory has improved in FY22 as the company immediately dispatches the hi-pro product and not much inventory is stocked up. The debtor days stood at 13 days for FY2022 against 10 days for FY2021. The average credit period allowed to the customers is around 8-10 days. The creditor days of the company stood at 7 days for FY2022 as against 20 days for FY2021. The average credit period received from the customers is around 5 days. The company needs to pay the suppliers immediately after procuring the soyabean seeds. The average utilization of the CC limits of the company remains high at ~94 percent in last six months ended February’ 2023. Acuité believes that the working capital operations are likely to remain efficient in the medium term.

­Thin operating margin
DSPL’s operating margin has remained low in the range of 3 per cent since for the past three-year period ended FY2022. In FY2022 operating margin stood at 1.94 per cent against to 2.12 per cent in FY2021. The marginal decline in the operating margins in FY2022 is because of the higher freight outward charges. However, the fragmented nature of the industry and dominance of unorganised players also impact the pricing power of the organised players making it difficult to maintain high level of operating margins. Since September 2021 DSPL has introduced a new product (Hi-Pro DOC) which contains higher protein and vitamin content added to the de-oiled cakes at no major cost to the company. These have demands in the poultry, animal feed, marine and aqua farming companies. Further, DSPL's plan to foray into the refined oil segment by installing its own refinery is expected to improve DSPL's realizations and margins.

Susceptibility to fluctuations in agro-based raw material price
Operations are exposed to the inherent risks associated with the agriculture-based commodity business, such as availability of raw materials, fluctuations in prices, and changes in government regulations. The group is engaged in the extracting and edible oil business. The prices of crude edible oil are volatile in nature hence the profitability is highly susceptible to the ability of the company to pass on the same to its customers. Further, the demand-supply of soya bean oil and de-oiled cake (DOC) is affected by change in regulations in exporting and importing countries.