­Established track record, experienced management, and reputed clientele
The legacy of GAPL dates back to year 1915 when promoter's forefathers were engaged in the business of imports of chemicals for various FMCG and pharmaceutical industries. Later, GAPL was established in 1997 by Mr. Vipul Parekh and Mrs. Kaksha Parekh, who possess experience of over two decades in flavor and fragrance industry. The promoters are very well supported by their son, Mr. Yash Parekh who joined the business in 2010 and has helped in developing the presence in international markets, leading to higher export orders. The extensive experience of the promoters has helped GAPL to establish a strong market position in Indian as well as international market.

Acuité believes that the GAPL promoter’s experience and established market presence in the flavour and fragrance industry will support its business risk profile over near to medium term.

Healthy Financial Risk Profile
The financial risk profile of the company is healthy marked by moderate net worth, comfortable coverage ratios and low gearing ratio. The company’s net worth increased to Rs.148.03 crore as on March 31, 2022 as against Rs.110.83 crore as on March 31, 2021. The company’s leverage policy is supported by the healthy tangible net-worth levels, reflected through its peak gearing and Total Outside Liabilities to Tangible Net-worth (TOL/TNW) which stood at 0.67 times as on FY2022 vis-à-vis 0.68 times as on FY2021. The gearing level remained low at 0.52 times as on March 31, 2022 as against 0.50 times as on March 31, 2021. Further, the interest coverage ratio improved to 18.61 times for FY2022 as against 16.80 in FY2021. The debt to ebitda ratio stood at 1.34 times for FY2022 as against 1.56 times in FY2021.

GAPL is planning a project of setting up new facility at Dahej under its wholly owned subsidiary, Krystal Ingredients Private Limited. The project cost is expected to be Rs 70 crore out of which Rs 47 crore is to be funded using term loans and the remaining through promoter’s contribution. Out of the above project cost, Rs 9.34 crore has been incurred so far which has been funded through internal accruals of Gem Aromatics Private Limited (GAPL). The balance amount required in the form of promoter’s contribution are expected to met through internal accruals of GAPL.

Acuité expects GAPL’s financial risk profile to remain stable over the medium term. However, timely completion of the capex without cost overruns will remain a key rating monitorable. 

­Working Capital Intensive Nature of operations
The operations of the company are of working capital intensive nature marked by high GCA days of 225 days for FY2022 as against 182 days for FY2021. The high GCA days are on account of high inventory levels of 113 days for FY2022 compared against 88 days for FY2021. The debtor days are moderate and stood at 106 days for FY2022 against 81 days for FY2021. The debtor days as on  year end are generally higher, due to relatively higher sales in  in the last quarter of the year.  The creditor days of the company stood at 20 days for FY2022 as against 21 days for FY2021. The working capital intensive nature of operations has led to the reliance on bank limits for funding its working capital requirement and the average utilisation of the working capital limits remained on the higher side at 84.69% for last ten months ended on October 2022.The bank limit utilisation is higher during the first half of the year as it is the procurement period of raw materials.

Acuité believes that GAPL’s ability to restrict further elongation of working capital cycle will remain a key rating monitorable.

Profitability susceptible to volatility in raw material prices and foreign exchange fluctuation risk
GAPL’s operating profitability is susceptible to volatility in raw material prices of clove, eucalyptus and mint which are procured locally and also imported from Europe, Indonesia to name a few. The company also exports its produce to USA, thereby exposing itself to foreign exchange fluctuation risk in turn risking the current operating margin levels. However, the same is mitigated to an extent because of equivalent imports against exports which acts as a natural hedge. Also, the company has hedging mechanism and does not keep any of its position open.