|
Detailed Rationale CRISIL Ratings has upgraded its ratings on the bank facilities of Alkyl Amines Chemicals Limited (AACL) to 'CRISIL AA-/Stable/CRISIL A1+' from ‘CRISIL A+/Positive/CRISIL A1’.
The upgrade reflects sustained improvement in business risk profile of the company while maintaining its strong financial risk profile. Consequently company’s accruals are expected to remain above Rs 240 crore fiscal 2023 onwards. Company continues to have significant market share in domestic market in aliphatic amines segment which will continue to support the business risk profile over medium term.
Growth in volume sales has supported the company’s operating performance and is expected to grow in range of 10-15% over the medium term. Further, export sales contributed 20% of the operating revenue in fiscal 2023 and is expected to increase gradually. While realizations improved in fiscal 2023, they are expected to moderate with fall in raw material prices. Company’s operating income has grown at compounded annual growth rate of over 14% for past 5 years through fiscal 2023 and was at Rs Rs.1682 crore in fiscal 2023.
Despite volatility in raw material prices, company’s operating margin has remained above 20% in fiscal 2023. Though prices of key inputs like ammonia increased, better working capital management helped the company restrict the decline in operating margins. Company operates in “oligopolistic” business environment and by nature it is difficult to pass it on any price movement. With softening of ammonia prices in medium term combined with inflationary pressure, movement in the operating margin will remain key monitorable.
The financial risk profile is supported by healthy capital structure, strong debt protection metrics and comfortable liquidity. The company has nil long-term debt and short-term debt arising out of working capital requirements. Gearing is expected to remain comfortable below 0.50 times over the medium term.
The ratings continue to reflect the company’s established market position, diversified revenue profile, and healthy financial risk profile. These strengths are partially offset by the vulnerability of operating margin to sharp volatility in foreign exchange (forex) rates and commodity prices, working capital-intensive operations and exposure to intense competition. |
Key Rating Drivers & Detailed Description Strengths: Healthy business risk profile with Leadership market position in the aliphatic amines Company is engaged in the manufacturing of aliphatic amines; Indian amines industry is oligopolistic and AACL is one of the leading players with significant market share. AACL enjoys a dominant position in the domestic aliphatic amines which is supported by multiple products catering to pharmaceutical and agrochemical industry. The company's efforts are driven by higher available capacities to achieve leadership and competitiveness which have supported its volume growth. 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 last fiscal among other smaller capacity enhancements. The acetonitrile market has been favourable since fiscal 2020, resulting in steady demand and healthy realisation. Ramp up in utilisation levels in these new capacities and healthy demand should continue to drive growth over the medium term.
Strong financial risk profile Capital structure continues to remain comfortable, marked by low total outside liabilities to tangible net worth (TOL/TNW) ratio of 0.36 times, as on March 31, 2023. Company having net worth of Rs1175 Crores.Going forward, TOL/TNW to remain below 0.4 times supported by net cash accruals and in the absence of large debt funded capex. Debt protection metrics should also remain healthy with expected interest coverage and NCA/TD of over 100 times and 10 times in medium term. CRISIL Ratings believes AACL will continue to maintain adequate cash surplus of over Rs 18-20 crore in the medium term.
Weaknesses: Moderately high working capital operations Operations are working capital intensive, as reflected in gross current assets of 110 days as on March 31, 2023, driven by inventory of over 50 days. Though the company strategically maintains higher inventory to secure supply of key raw materials and offset price escalations, it remains vulnerable to volatility in raw material prices. Besides, as a portion of the raw material requirement is met through imports, sharp foreign exchange (forex) movements can result in inventory loss, despite a natural hedge by way of export of finished products.
Exposure to volatile commodity prices 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 Bank limit utilization is low at around 29% percent for the past twelve months ended March 2023.In addition, it will be act as cushion to the liquidity of the company. Company is expected to generate accruals of above Rs 290 crore over the medium term. The current ratio is healthy at 1.38 times on March 31, 2023. Low gearing and moderate net worth support its financial flexibility and provides the financial cushion available in case of any adverse conditions or downturn in the business.
ESG Profile CRISIL Ratings believes that AACL’s Environment, Social, and Governance (ESG) profile supports its already strong credit risk profile. The Chemical sector has a high impact on the environment because of the high greenhouse gas (GHG) emissions, high hazardous waste generation by its core operations. The sector has a social impact because of its large workforce, impact on health and wellbeing of its workers and local community on account of its nature of operations. AACL has continuously focused on mitigating its environmental and social impact. AACL’s Key ESG highlights:
There is growing importance of ESG among investors and lenders. AACL’s commitment to ESG principles will play a key role in enhancing stakeholder confidence, given its high share of market borrowings in its overall debt and access to both domestic and foreign capital markets. |
Outlook: Stable 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 factor
Downward factor
|
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
|
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
|
| 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 29-May-23 in line with the lender-wise facility details as on 06-Feb-23 received from the rated entity.
Criteria Details
|