| 20 Microns Limited | ||||||
| Ratings upgraded to 'CRISIL BBB+ / Stable / CRISIL A2 ' | ||||||
| Rating Action | ||||||
| ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has upgraded its ratings on the bank facilities of 20 Microns Limited (ML, part of the 20ML group) to 'CRISIL BBB+/Stable/CRISIL A2' from 'CRISIL BBB/Stable/CRISIL A3+'.
The rating upgrade reflects CRISIL’s expectations of sustenance of 20 ML group’s business profile and improved financial risk profile. The action also factors company’s exit from corporate debt restructuring (CDR) and release of the pledged shares by banks.
The group has clocked a turnover of Rs. 444 cr till December 2021 with an estimated growth of more than 20 % over last fiscal. Simultaneously, the operating margin is estimated over 13% with steady working capital cycle. The performance has been supported by healthy rebound in demand and group’s well entrenched presence. Over medium term, the group is expected to maintain an annual growth rate of 10% with steady margin on back of its established presence, continued focus on customer and product addition.
20 ML group’s financial profile has consolidated sequentially backed by healthy annual cash accruals, reduction in debt levels, borrowing costs and absence of any significant capex plans. 20 ML group’s net worth and TOLTNW are estimated around Rs. 250 cr and 1 times as on March 31, 2022. Group is expected to generate annual cash accruals around Rs. 55 cr in the coming fiscals which together with steady working capital cycle shall ensure continued improvement in leverage ratio.
Further CRISIL notes, ML has exited CDR paying Rs. 11.55 cr to its banks as part of recompense. Though the recompense is higher than previously expected, same has been funded internally and has not affected liquidity. Company’s exit from CDR, release of pledged shares enhances the financial flexibility of company and raises the ability to raise funds in case of any exigency. Pursuant to the CDR exit process, company has also been able to bring down its borrowing rates significant, which shall result in improved debt protection measures for the group.
The ratings reflect the group's established market position, healthy financial profile and sound operating efficiencies. These strengths are partially offset by its capital intensive operations, susceptibility to adverse changes in government regulations, and concentration in end-user industries. |
Analytical Approach: For arriving at its ratings, CRISIL Ratings has combined the business and financial risk profiles of ML and its subsidiaries, 20 Microns Nano Minerals Ltd (NANO), 20 Microns FZE (20MFZE), 20 Microns SDN BHD (20MSDN), 20 MCC Private Limited (20 MCC) and 20 Microns Vietnam Company Limited. This is because all these companies, collectively referred to as the 20ML group, have a common management team, and operational and financial linkages. ML has 97.21% stake in NANO and 100% stake in all the other entities. Moreover, 20ML has extended a corporate guarantee to the bank facilities of NANO. |
Key Rating Drivers & Detailed Description Strengths: Established market position: The group has an established presence in micronized minerals segment catering to customers like Berger Paint, Akzo Nobel, Asian paints among others. With relationship developed over years, the group is among the dominant supplier, in its product segments, to these players. The group is among the leading producers of ultrafine industrial minerals and specialty chemicals, which find application as functional fillers, additives and extenders. It generates around 15% of its turnover through export.
Moderate financial profile: The group has a strong net worth of Rs. 211 cr as on March 31, 2021. The indebtedness (total outside liabilities to tangible networth ratio) and gearing stood at 1.12 times and 0.48 times respectively as on March 31, 2021. The group’s capital structure is estimated to further consolidate in current fiscal with TOLTNW ratio estimated around 1 times. Over the last few years, the group has primarily relied on internal accruals to fund the incremental opex and capex requirements, restraining the reliance on debt. The group had interest coverage and net cash accruals to total debt ratios of 2.37 times and 0.36 times respectively in 2020-21. The moderation in debt levels, interest rate, lower recompense and recovery in margin shall result in improved interest coverage around 4 times in current fiscal with further improvement over medium term.
The exit from CDR (corporate debt restructuring) and release of pledged shares coupled with improving market capitalization also support an improved financial flexibility for the group.
Sound Operating efficiency: The group enjoys a healthy return on capital employed expected around 18-20% over medium term and maintains a moderate operating margin around 12-14%. The group benefits from its geographically widespread locations (9 plants spread in India) controlling logistics and saving time. Further, group also enjoys economies of scale supported by continued revenue growth.
Weakness Working capital intensive operations: Gross current assets were at 165 days as on March 31, 2021. This is driven by around 2.5 months of debtors and inventory of around 3 months. The buildup of inventory prior to monsoon pushes up working capital requirements during the period. The working capital requirements are partially offset by average creditors of around 4 months bridging the requirements significantly. Continued support from creditor shall remain critical in meeting the working capital requirements.
High fixed asset replacement requirements: The mineral micronization industry operates at low asset turnover ratio of 1-1.5 times indicating high fixed assets requirement. Moreover, the inherent nature of work, involving micronization of minerals, results in high wear and tear in plant. Consequently, the group needs to incur significant annual maintenance capex to sustain its production capacity, consuming a hefty share of its accruals.
Susceptibility to adverse changes in government regulations, and concentration in revenue profile: The industry is highly susceptible to government regulations, and any unfavourable changes in policies (viz. ban on mining, stringent environment norms, changes in royalties among other) may adversely impact the performance. Further, the company is exposed to high concentration in its revenue profile with paint and plastic industry contributing around three quarters of its revenues. This exposes the group to economic cycles with demand taking a beating in slowing economy.
Also, the group faces high customer concentration risk with the top five customers contributing almost half of its turnover. |
Liquidity: Adequate Liquidity profile is adequate backed by healthy cash accruals against modest repayment obligations, moderate bank limit utilization and healthy financial flexibility. The group is expected to generate annual accruals of Rs. 45-50 cr against term loan repayment of around Rs. 5 cr apart from maturing FD of Rs.7-9 cr in next 2 fiscals. Bank limit utilisation is moderate at around 77percent for the past twelve months to January 2022 despite the working capital intensity. Current ratio is moderate at 1.23 times on March 31, 2021. Further the release of pledged shares, exit from CDR and controlled leverage provide healthy financial flexibility. |
Outlook Stable CRISIL Ratings believe the group will continue to benefit from the extensive experience of its promoter, and established relationships with clients. Financial profile shall continuously improve in absence of any significant capex. |
Rating Sensitivity factors Upward factor
Downward factor
|
About the Group ML was incorporated in 1987. ML is promoted and managed by Late Mr. Chandresh Parikh and his sons- Mr. Rajesh Parikh and Mr. Atil Parikh. The company is listed on BSE Ltd and National Stock Exchange Ltd. ML is engaged in manufacturing micronized minerals such as calcium carbonate, calcined clay and other specialty minerals.
Nano was incorporated in 1993. Nano is engaged in processing and selling of specialty chemicals such as calcite, wax, SCD. |
Key Financial Indicators- Consolidated
|
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
|
Annexure – List of entities consolidated
|
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||
|
This Annexure has been updated on 24-Mar-2022 in line with the lender-wise facility details as on 30-Jul-2021 received from the rated entity.
Criteria Details
|