ICRA upgrades rating of OCCL to A-
The product mix of OCCL continues to be dominated by Insoluble Sulphur which contributes to more
than 90% of the total sales. OCCL reported 13% (yoy) increase in sales volumes of IS driven by more
approvals from overseas customers, increasing radialisation of tyres in the domestic market and
revival of demand from the European market. The companyâs customer base comprises almost all
major tyre manufacturing companies of the world with whom it enjoys long standing relationships.
OCCL derives ~70% of its revenues from exports with Europe being the major market. The company
also enjoys a dominant position in the domestic tyre industry with a significant market share gained
during its long track record. Closely guarded technology, capital-intensive nature of the business and
long gestation period of about one and half years involving quality checks and approvals from the tyre
manufacturers for commercial production act as the entry barriers for other players in the industry.
OCCL is focusing on increasing the share of value-added grades of Insoluble Sulphur to consolidate
its position in the market as a premium IS supplier.
The operating income of OCCL increased by 16% to Rs. 262.39 crore in FY14 from Rs. 226.61 crore
in FY13 attributable to 13% (yoy) growth in sales volumes and 3% (yoy) higher realisation. The
operating margins of the company increased to 29.3% in FY14 from 26.1% in FY13 owing to increase
in sales of value add products resulting in higher realizations of IS along with depreciated level of INR.
Following lower debt levels due to scheduled repayments of term loan and rise in net worth owing to
robust profit, the total gearing of the company decreased to 0.58 time as on March 31, 2014 to 0.78
time as on March 31, 2013. Driven by improved profitability and capital structure, the coverage
indicators of the company improved significantly during FY14 as reflected by interest coverage of 6.95
times and NCA/Total Debt of 36% during FY14 vis-a-vis 4.63 times and 23% respectively during FY13.
The company may undertake debottlenecking at its IS plant which would increase the annual capacity
of the plant. However, the final investment decision is yet to be taken by the company.
Schrader Duncan Limited, the subsidiary of OCCL, is into manufacture of automotive tyre valves and
pneumatic products such as air cylinders, valves, and accessories. There has been improvement in
operating performance of the company over the last one year as the company reported marginal
operating profit of Rs. 2.15 crore in FY14 against operating loss to the tune of Rs. 0.58 crore in FY13
in the backdrop of increase in sales volumes in the automotive business and various restructuring and
cost reduction initiatives undertaken like shifting of facilities at single location which, in turn, eliminates
duplication of cost. The ability of SDL to trim its working capital cycle and improve internal operating
efficiencies remains critical for its liquidity profile.
The production and sales volumes of OCCL are expected to increase over FY15 on account of
improvement in capacity utilisation for Mundra plant in view of high export volumes in line with modest
recovery in demand from the Europe and higher domestic demand driven by increasing trend of
radialisation of tyres. Higher-than-anticipated debt funded capex or substantial fall in profitability
leading to significant deterioration in debt protection metrics would be the key rating sensitivities. The
ability of the company to scale up its operations while efficiently managing higher working capital
requirements would be another rating sensitivity. Further, ICRA would also keep monitoring the
operational performance of SDL and its impact on consolidated financials.