­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.

Substantial growth in revenue, with stable growth in profitability:
DSPL registered significant revenue growth, registering Rs.1,513.66 Cr. in FY2024 (Prov.) with a growth rate of 36 percent on the previous year’s revenue of Rs.1109.70 Cr. In the first four months of FY2025, the company registered revenue of Rs.625 Cr, which is 53 percent higher compared to last year’s revenue for the same period, posing similar growth in revenue for the current fiscal. The growth in revenue is mainly due to the high demand and better realizations for HPDOC and refined oil. In FY2022, DSPL launched its value added product “High protein De Oiled Cake”, which contains 50 percent more protein compared to regular DOC. Additionally, towards the end of FY2023, company also set up an oil refinery plant with 100 tons per day (TPD) capacity. Previously, the raw oil, a by-product of the crushing process, was sold to the refineries. However, with the new in-house oil refinery, DSPL now sells refined edible oil to other companies, who market it under their own brands in the Latur region. Both HPDOC and refined oil has better demand and yields higher realization compared to regular DOC and raw oil, which helped in substantial growth in revenue and profitability during the past 2 years. Consequently, the operating profit margin of the company improved to 3.97 percent in FY2024 (Prov.) from 2.25 percent in FY2023. Despite of substantial increase in finance cost during FY2024 (Prov.), the PAT margin improved due to significant growth in absolute EBITDA. Acuite expects, further improvement in DSPL’s revenue and profitability in the medium term, due to increasing demand for HPDOC and refined edible oil, as the company has capacity to accommodate the growth over the medium term.

Efficient working capital management:
DSPL’s working capital operations are efficiently managed as evident from the gross current days at 51 days in FY2024 (Prov.), which remained similar to previous year’s. The company maintains raw material inventory of around 3-4 weeks and finished goods inventory of just 1-2 weeks as the work in process cycle time is low. DSPL extends a credit period of 15 days to its customers and pays the suppliers upfront to benefit from discounts, resulting in lower creditor days. The company has working capital limits of Rs.149 Cr. which was highly utilized at an average of 97 percent during the past 12 months ending July, 2024. While peak utilization stood around 99 percent during the same period. Acuite expects the working capital management to remain efficient over the medium term on account of the lean inventory levels and limited credit period.

Above average financial risk profile:
DSPL’s financial risk profile is average-average, marked by moderate net worth, moderate gearing and above average debt protection metrics. The company’s net worth stood at Rs.85.94 Cr. as on March 31, 2024 (Prov.) against Rs.59.13 Cr. as on March 31, 2023. The improvement in net worth is due to accretion of profits to reserves during the period. Consequently, the company’s leverage indicators have shown marginal improvement, despite the increase in overall debt levels to Rs.135.50 Cr. as on March 31, 2024 (Prov.) from Rs.106.38 Cr. as on March 31, 2023. The gearing and total outside liabilities to tangible net worth (TOL/TNW) levels stood at 1.58 times 2.05 times as of March 31, 2024 (Prov.) respectively compared to 1.80 times and 2.43 times as on March 31, 2023 respectively. The debt protection metrics stood above average with DSCR and ICR of 1.93 times and 3.86 times respectively as on March 31, 2024 (Prov.) Debt to EBITDA also improved to 2.23 times as on March 31, 2024 (Prov.) from 4.21 times as on March 31, 2023. Acuite believes that the financial risk profile of the company will improve over the medium term due to its moderately conservative leverage policy and increasing scale of operations.

­Thin operating margins
The operating margins of the company are thin as per the characteristic trait of edible oil business. 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.  The margins have remained low in the range of 3-4 percent since for the past three-year period ended FY2024 (Prov.). The operating margins stood at 3.94 percent in FY2024 (Prov.) as against 2.25 percent in FY2023. DSPL's plan to foray into the refined oil segment and selling their own branded product as well as the higher margins from Hi-pro DOC are expected to improve DSPL's realizations and margins in medium term.

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.