Detailed Rationale

CRISIL Ratings has upgraded its rating on the long-term bank facilities of Calibre Chemicals Private Limited (Calibre) to ‘CRISIL A+/Stable’ from ‘CRISIL A/Stable’.

 

The rating action follows strengthened business risk profile with healthy revenue growth and operating profitability, driven by growth in volumes through increasing market penetration and higher realisations for products amidst increasing global iodine prices. The rating also factors in strategic and financial support available from the parent, Everstone Capital (Everstone) and the latter’s focus on expanding the speciality chemical segment through organic and inorganic growth plans over the medium term. Everstone has already infused Rs 40 crore as equity in Calibre in fiscal 2022.

 

Calibre’s revenue grew 31% year-on-year to Rs 569 crore in fiscal 2022, while earnings before interest, tax, depreciation and amortisation (EBITDA) margin improved to 19.4%. The increase in revenue also factors in revenue from Calimara Matters Pvt Ltd (Calimara) as Calibre now owns 74% stake in the entity. Furthermore, in the first three months of the current fiscal, Calibre has registered Rs 250 crore revenue, with healthy EBITDA margin of ~27% on a standalone level. Over the medium term, the company plans to grow through both organic capex and acquisitions, by expanding its product portfolio and geographical presence, including the acquisition of RheinPerChemie GmbH (RPC) from the Evonik group in September 2022. CRISIL Ratings expects Calibre’s revenue to grow 25-35% annually, while maintaining operating margin above 18% over the medium term. 

 

Calibre’s financial risk profile is healthy, as the company repaid most of its borrowings while networth increased to ~Rs 380 crore as of June 30, 2022. Furthermore, the company has a strong liquid surplus of Rs 140 crore, which could support organic and inorganic expansion plans in the near term. The working capital cycle remains moderate with inventory of 94 days as on March 31, 2022. The financial risk profile is expected to remain healthy, though gearing may increase temporarily after factoring in moderate debt-funded inorganic growth plans. Any large, debt-funded capital expenditure (capex) or acquisition or stretch in the working capital cycle could adversely impact Calibre’s capital structure and remain key monitorables.

 

The rating also reflects the healthy financial risk profile of Calibre, its established market position and longstanding relationships with customers and suppliers. These strengths are partially offset by susceptibility to volatile raw material prices and foreign exchange (forex) rates.

Analytical Approach

For arriving at its ratings, CRISIL Ratings has combined the business and financial risk profiles of its subsidiaries, Calibre Europe BVBA and Calimara Matters Pvt Ltd, with the parent, Calibre. This is because both the entities operate in a similar line of business and have operational and financial linkages.

 

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:

• Established market position

The company has been in the iodine derivatives segment for over three decades and is one of the leading manufacturers in India. Its established market position stems from high revenue diversity and strong clientele. Presence in the international market has grown during the past few years (exports accounted for about 60% of total revenue in fiscal 2022), with widespread reach in the US, UK, Middle East, Belgium and Germany. Product and geographical diversity will shield the company from downturn in any one product or region.

 

• Healthy financial risk profile

The financial risk profile is supported by steady accretion to reserves and nil term debt obligation as on date. Networth has nearly doubled to Rs 380 crore as on June 30, 2022, from Rs 192 crore as on March 31, 2020, due to comfortable profitability. During the same period, gearing became nil from 0.26 time, post repayment of debt. The financial risk profile is expected to remain healthy, though gearing may increase temporarily after factoring in moderate, debt-funded inorganic growth plans. Any large, debt-funded capex or acquisition or stretch in the working capital cycle could adversely impact Calibre’s capital structure and remain key monitorables.

 

• Longstanding association with customers and suppliers

Calibre has been associated with many key customers for over two decades. Given the limited competition, especially from established players, customers are less likely to change their suppliers. Furthermore, the company maintains high standards of quality, health and safety, which are critical for client retention. Also, several products are compliant with the Registration, Evaluation, Authorisation and Restriction of Chemicals requirements. The company has maintained healthy relationships with key iodine suppliers and is a major purchaser globally, thus ensuring steady supply of raw material.

 

Weaknesses:

• Exposure to volatility in raw material prices

High volatility in the price of the key raw material due to demand-supply dynamics, has led to sharp fluctuations in the operating margin. Calibre imports raw materials largely from Chile, and considering the recent political unrest in that country, its availability and price will be a key monitorable. However, the company has gradually increased raw material sourcing from Japan and has therefore reduced dependence on a single source for its raw material. Furthermore, the company manages its supplies through future pricing contracts, thereby hedging itself against sharp fluctuations. However, competition in the global chemicals market may restrict its ability to pass on increase in raw material cost in a timely manner.

 

• Susceptibility to fluctuations in forex rates

Nearly 90% of the raw material is imported, exposing Calibre to the risk of sharp fluctuations in forex rates. However, with about 60% of revenue coming from exports, the exposure to forex risk is hedged to reasonable extent.

Liquidity: Adequate

Liquidity should continue to be healthy in the absence of any term debt obligation. Net cash accrual, which was about Rs 83 crore last fiscal and expected to grow further over the medium term, will comfortably cover organic capex of Rs 15-20 crore and partly fund acquisitions over the medium term. Any inorganic growth is expected to be funded by a prudent mix of liquid surplus on Calibre’s balance sheet and debt, with expected support from Everstone for any large-ticket acquisitions. Liquid surplus was strong at Rs 140 crore as on June 30, 2022, with bank limits being utilised at 48% on average for the 11 months through July 2022.

Outlook: Stable

CRISIL Ratings believes Calibre will continue to benefit from its established market position, geographical and product diversity, and strong clientele. The financial risk profile remains healthy, aided by steady cash accrual, comfortable capital structure and support from Everstone.

Rating Sensitivity factors

Upward factors

• Sustained revenue growth of 25-30% annually, coupled with sustained operating margin of 20-22%
• Significant improvement in the working capital cycle

 

Downward factors

• Steep decline in revenue and operating profitability dropping to below 15%
• Gearing rising to 0.5 time due to any large, debt-funded capex or sizeable stretch in the working capital cycle

About the Company

Incorporated in 1984 by Mr Ranjit H Bhavnani, Calibre manufactures fine inorganic chemicals using the electrolysis process at its plant in the Gujarat Industrial Development Corporation area in Sarigam, Gujarat. The company is India’s leading producer of persulphates, perchlorates, iodates and iodides

Key Financial Indicators

Particulars	Unit	2022	2021
Operating income	Rs crore	519	406
Profit after tax (PAT)	Rs crore	74	46
PAT margin	%	14.2	11.2
Adjusted debt/adjusted networth	Times	-	0.17
Adjusted interest coverage	Times	58.43	27.19

 

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of instrument	Date of allotment	Coupon rate (%)	Maturity date	Issue size (Rs crore)	Complexity levels	Rating assigned with outlook
NA	Cash Credit*	NA	NA	NA	105.0	NA	CRISIL A+/Stable
NA	Cash Credit @	NA	NA	NA	30.0	NA	CRISIL A+/Stable
NA	Cash Credit**	NA	NA	NA	50.0	NA	CRISIL A+/Stable
NA	Proposed Term Loan	NA	NA	NA	7.0	NA	CRISIL A+/Stable

*Interchangeable with cash credit up to Rs 15 crore/working capital demand loan up to Rs 25 crore/pre and post shipment finance, buyer's credit and bills discounting up to Rs 80 crore/ letter of credit up to Rs 105 crore /bank guarantee up to Rs 20 crore

@Interchangeable with overdraft up to Rs 5 crore/ working capital demand loan up to Rs 15 crore/ import documentary credit limit of up to Rs 30 crore

**Interchangeable with working capital demand loan up to Rs 50 crore/bank guarantee of up to Rs 50 crore/letter of credit up to Rs 50 crore/packing credit foreign currency up to Rs 50 crore/post shipment foreign currency up to Rs 50 crore

Annexure – List of entities consolidated

Names of Entities Consolidated	Extent of Consolidation	Rationale for Consolidation
Calibre Europe BVBA	Full	Wholly owned subsidiary
Calimara Matters Pvt Ltd	Full	Majority owned subsidiary with commonality in operations