| Black Rose Industries Limited | ||||||
| Rating outlook revised to 'Positive'; Ratings reaffirmed | ||||||
| Rating Action | ||||||
| ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has revised its outlook on the long-term bank loan facilities of Black Rose Industries Limited (BRIL, Part of BRIL group) to ‘Positive’ from ‘Stable’ while reaffirming its rating at ‘CRISIL BBB’. Short term rating has been reaffirmed at ‘CRISIL A3+’
Revision in outlook reflects expected improvement in the business risk profile driven by growth in revenue and profitability; supported by improved contribution from manufacturing segment and sustained growth in the distribution business. Revenue growth from manufacturing segment is expected to be driven by new products introduction and ramp up in the enhanced capacities. acrylamide solid and N-methylol acrylamide capacities are expected to commence operations shortly and support revenue growth and profitability over medium term, in turn enhancing the business risk profile.
The ratings continue to reflect the extensive experience of the promoters in the specialty chemicals industry, its relationship with the principals and a healthy financial risk profile. These strengths are partially offset by moderate contribution from the manufacturing segment, exposure to foreign exchange (forex) fluctuations and product concentration in the manufacturing segment. |
Analytical Approach CRISIL Ratings has consolidated the business and financial risk profiles of BRIL and BR Chemicals Co Ltd (BRCC). This is because BRCC is BRIL’s 100% subsidiary and is in the same line of business.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation |
Key Rating Drivers & Detailed Description Strengths Extensive experience of the promoters and healthy relationship with principals Mr Anup Jatia, the key promoter, has experience of close to two decades in the specialty chemicals industry. He is a chemical engineer from the California Institute of Technology, USA, and possess technical expertise in the chemicals industry. The extensive experience of the promoters has helped the company establish strong relations with its principals, such as Mitsui Chemicals, Sumitomo Chemical and Taoka Chemical in Japan and Lanxess in Germany - all of whom have been associated with BRIL for 7-15 years. Further, the company has been manufacturing acrylamide and of polyacrylamide in a liquid form. It is also expected to commence manufacturing of acrylamide solids and N methylol acrylamide shortly; and plans to set up a plant to manufacture polyacrylamide solid by incurring capital expenditure (capex) of Rs 60 crore. These new products along with scale up in distribution segment should support growth in revenue and profitability over the medium term.
Healthy financial risk profile Capital structure is healthy, as reflected in networth and total outside liabilities to adjusted networth (TOLANW) ratio of Rs 92.8 crore and 0.6 times, respectively, as on March 31 2021 (Rs 67.2 crore and 1.1 times, respectively, as on March 31 2020). Capex of Rs 60 crore, likely to commence in fiscal 2023, is expected to be funded by a mix of internal accrual and equity infusion. In the absence of any large debt funding for the capex, capital structure should remain healthy, with TOLANW likely to be sustained over the medium term. Debt protection metrics is also healthy, reflected by interest coverage and net cash accrual to adjusted debt ratios of 24.2 times and 1.71 time, respectively, in fiscal 2021, likely to further improve. The financial risk profile should remain healthy over the medium term.
Weaknesses Moderate contribution from the manufacturing segment and exposure to forex fluctuations BRIL currently generates about 70% of its revenue from the distribution business, largely imported from Japan, South Korea and Germany. The business is dependent on relationships with the principals and is exposed to entry of new players, direct sales by principals and regulatory changes with respect to international trade. Profitability is also susceptible to fluctuations in forex rate because of large imports. However, longstanding relationships with the principals and partial hedging of forex exposure partially mitigate these risks.
Product concentration in the manufacturing segment Currently, BRIL manufactures two products; acrylamide and polyacrylamide liquid. While acrylamide contributed to majority of its manufacturing revenue; polyacrylamide is expected to scale up over the medium term. Product concentration in these products, exposes company to any adverse price movements, demand-supply dynamics and competition from foreign and potential domestic players. However, acrylamide is used in multiple industries such as paints, emulsions, adhesive, textile, water & sewage treatment industries etc. which should partially mitigate this risk. Further the company is in the process of introducing new products to the market, this, once scaled up, should bring diversification to its manufacturing product profile over the medium term |
Liquidity: Adequate Net cash accrual, expected at Rs 30-35 crore per fiscal, will sufficiently cover yearly debt obligation of Rs 0.5-0.6 crore per fiscal over the medium term. BRIL is expected to fund the capex of Rs 60 crore primarily through internal accruals and by raising equity; accordingly, no large debt funding is expected over the medium term. Bank limit utilisation averaged at 33% over the six months through December 2021. Current ratio was comfortable at over 2 times as on March 31, 2021 and is expected to remain comfortable over the medium term. |
Outlook: Positive CRISIL believes BRIL’s business risk profile is expected to improve backed by sustained business from its principals and improved manufacturing revenue backed by new products and enhanced capacities. |
Rating Sensitivity Factors Upward factors
Downward factors
|
About the Company Incorporated in 1990, BRIL, formerly known as Asia Fab Ltd, distributes specialty chemicals in India. It has also set up a unit in Jhagadia, Gujarat, wherein it manufactures acrylamide and polyacrylamide, which finds application in paints, emulsions and adhesives, water treatment etc, with installed capacity of 20000 and 40000 tonne per annum respectively. BRIL derives a minor portion of its revenue from sale of industrial gloves and wind power. The company has two wind power plants in Rajasthan and Gujarat with capacity of 0.8 megawatt each. Mr Anup Jatia, the promoter of the company, handles the day-to-day operations. |
Key Financial Indicators
|
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 | ||||||||||||||||||
|
Criteria Details
|