| Alkyl Amines Chemicals Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed it ‘CRISIL A+/Positive/CRISIL A1’ rating on the bank facilities of Alkyl Amines Chemicals Limited (AACL).
The continuation of outlook reflects expectation of improvement in AACL’s business risk profile supported by sustained growth in revenue and profitability across key product segments – methylamines, ethyl amines and speciality chemicals – owing to ramp up in utilisation of the enhanced capacities, especially the newly set up acetonitrile plant. While revenue is expected to grow further over the medium term, operating margins are expected to moderate in fiscal 2022 due to increase in input prices. However, margins are expected to improve in the coming quarters as the price increase is passed on to clients and the input prices moderate, strengthening business risk profile. The outlook also reflects strengthened financial risk profile supported by decline in debt levels, improved capital structure and overall financial flexibility of the company, likely to be sustained over the medium term.
The ratings continue to factor in AACL’s established market position in aliphatic amines and its derivatives and growing speciality chemicals segment, driven by a strong in-house research and development (R&D) capability, and well-diversified customer portfolios. The ratings also take into account a strong financial risk profile. These strengths are partially offset by susceptibility to volatility in commodity prices and sizeable working capital requirement. |
Key Rating Drivers & Detailed Description Strengths:
The Indian amines industry is oligopolistic and AACL is one of the leading players with significant market share. The company continues to be the one of the foremost manufacturers of ethylamine and methylamine segments and leading player in acetonitrile, diethyl hydroxylamine, and dimethylamine hydrochloride (DMA HCL). It had commissioned a methylamine plant at Dahej in March 2018. Market share in the methylamines market improved since fiscal 2019 as the capacity utilisation at the new plant augmented to optimum levels. The company further enhanced its DMA HCL, isopropyl capacities in fiscal 2020 and has enhanced its acetonitrile capacity during current fiscal among other smaller capacity enhancements. The acetonitrile market has been favourable since fiscal 2020, resulting in steady demand and healthy realisation. The company is also in the process of enhancing its ethyl amines capacities in the coming 12-18 months along with other capacity enhancements. Ramp up in utilisation levels in these new capacities and healthy demand should continue to drive growth over the medium term.
Operating margin improved to in fiscal 2021; supported by growth in volumes, increase in realisation in some of the key products, especially methylamines and acetonitrile segment. The margins moderated during first nine months of fiscal 2022 ended as of March 31st, 2021, largely on account of increase in cost of major raw materials such an ascetic acid, ammonia, and coal. The operating margins are expected to improve over the medium term, as these higher costs are passed on to customers and prices moderate, strengthening operating efficiency.
Financial risk profile improved in fiscal 2021, supported by healthy increase in accretion to reserve and steady growth in accruals, thereby minimising dependency on outside debt to meet working capital requirements. Long-term debt also declined significantly, backed by repayment and absence of any net debt addition. Adjusted networth improved to Rs 791 crore as on March 31, 2021, from Rs 535 crore a year earlier, while total outside liabilities to adjusted networth ratio sustained, at around 0.44 times. Debt protection metrics remained strong, with interest coverage and net cash accrual to adjusted debt ratios improving to 69 times and 6 times, respectively. Capital expenditure (capex) is projected at around Rs 650-700 crore over the next 2-3 fiscals, likely to be funded by internal accruals. Financial risk profile is likely to be sustained over medium term
Weaknesses:
Operations are likely to remain working capital intensive over the medium term. Gross current assets were moderately high at 144 days as on March 31, 2021, driven by inventory and debtors of 55 days and 68 days, respectively. Credit of 60-90 days are provided to customers with good track record and inventory of around 45-60 days is maintained owing to the large product portfolio and bulk purchase of ethanol and methanol to take advantage of better prices. Operations are expected to remain working capital intensive over the medium term
Cost of raw material inputs (alcohols, ammonia, and acetic acid) and the company’s products (amines) has been volatile, thus impacting profitability. Domestic ethanol prices are dependent on the cyclicality in the sugar industry and methanol prices are driven by crude price movements and demand-supply dynamics in the international markets. Market prices of amines and other speciality chemicals are also volatile depending up on the demand-supply dynamics in the market. This is also reflected in movement in operating margins during the second half of current fiscal due to spike in input prices. Thus, profitability may remain susceptible to any unfavourable price movement. |
Liquidity: Strong Net cash accrual is expected to be around Rs 200-250 crore per fiscal over the medium term should comfortably cover yearly debt obligation of Rs 21.2 crore. Capex of Rs 500-550 crore over the medium term is expected to be funded by internal accrual and liquid assets. Bank limit of Rs 65 crore largely remain unutilised during the 12 months through January 2022. Cash and bank balances were comfortable at over Rs 140 crore as on January 31st, 2022. Healthy capital structure also supports financial flexibility. |
Outlook: Positive AACL should significantly benefit from its leadership position in the amines market, ramp up in enhanced capacities, sustained operating efficiency backed by volume growth and strong financial risk profile. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company AACL, incorporated in 1979, is promoted by Mr Yogesh Kothari and his family members and DSP Financial Consultants Ltd. The company, based in Mumbai, manufactures aliphatic amines such as ethylamine and methylamine, amine derivatives, and specialty chemicals at its facilities in Patalganga and Kurkumbh in Maharashtra, and Dahej. The company also has an R&D facility in Hadapsar, Maharashtra. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | |||
| Facility | Amount (Rs.Crore) | Name of Lender | Rating |
| Bank Guarantee | 0.8 | Axis Bank Limited | CRISIL A1 |
| Bank Guarantee | 6 | State Bank of India | CRISIL A1 |
| Cash Credit | 20 | Axis Bank Limited | CRISIL A+/Positive |
| Cash Credit | 10 | Citibank N. A. | CRISIL A+/Positive |
| Cash Credit | 15 | State Bank of India | CRISIL A+/Positive |
| Export Packing Credit | 25 | Standard Chartered Bank Limited | CRISIL A+/Positive |
| External Commercial Borrowings | 43.86 | Citibank N. A. | CRISIL A+/Positive |
| External Commercial Borrowings | 46.78 | Standard Chartered Bank Limited | CRISIL A+/Positive |
| External Commercial Borrowings | 22.45 | State Bank of India | CRISIL A+/Positive |
| Foreign Exchange Forward | 9.4 | State Bank of India | CRISIL A1 |
| Letter of Credit | 3.6 | Axis Bank Limited | CRISIL A1 |
| Letter of Credit | 20 | Citibank N. A. | CRISIL A1 |
| Letter of Credit | 30 | Standard Chartered Bank Limited | CRISIL A1 |
| Letter of Credit | 17 | State Bank of India | CRISIL A1 |
| Line of Credit | 2 | Axis Bank Limited | CRISIL A+/Positive |
| Line of Credit | 3 | State Bank of India | CRISIL A+/Positive |
| Proposed Long Term Bank Loan Facility | 13.46 | Not Applicable | CRISIL A+/Positive |
This Annexure has been updated on 08-Mar-23 in line with the lender-wise facility details as on 06-Feb-23 received from the rated entity.
Criteria Details
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