| Chemco Plastic Industries Private Limited | ||||||
| Ratings reaffirmed at 'CRISIL A- / Stable / CRISIL A2+ ' | ||||||
| Rating Action | ||||||
| ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL has reaffirmed its ‘CRISIL A-/Stable/CRISIL A2+’ ratings on the bank facilities of Chemco Plastic Industries Private Limited (Chemco; part of the Chemco group).
The performance in FY21 is expected to be better despite the pandemic impact in the first quarter. The group had recorded total operating income of Rs 169 crore and earnings before interest, taxes, depreciation and amortization (EBITDA) of Rs 33 crore in H1FY21 led by diversification into fast moving consumer goods (FMCG) segment. The operating performance is expected to be ramped-up with incremental sales from Halol plant in new product category and expected better performance in peak season in the current year (Q4FY21). Margins have been supported by low crude oil prices in first half and is likely to remain healthy in FY21. With diversification of products and customers, the operating performance is likely to sustain and is expected to improve over the medium term.
The ratings continues to reflect group's established market position, long track record, reputed clientele, and comfortable financial risk profile. The ratings also factor in the promoter's extensive experience in the packaging industry. These strengths are partially offset by susceptibility to volatility in raw material prices and a slower than expected ramp-up in scale of operations post completion of CAPEX for the group. |
Analytical Approach For arriving at the ratings, CRISIL has combined the business and financial risk profiles of Chemco and Gaurav Container Ltd (GCL). This is because these two companies, together referred to as the Chemco group or group, are under a common management and in the same business, and have significant operational and financial linkages.
Unsecured loans from promoters of Rs 5.7 crore as on March 31, 2020 in Chemco has been treated as neither debt nor equity (NDNE) because of track record of it being maintained in the business and carries no interest.
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, supported by long track record and reputed clientele The group is an established player in the specialty plastic PET Preforms, Jars & Bottles packaging industry with track record of over two decades in catering to the food, beverage, pharmaceutical and oil segments. Moreover, established relationships with reputed customers, such as Bisleri International Pvt Ltd, Hindustan Coca Cola Beverages Pvt Ltd (HCCBL), and Moon Beverages Ltd ('CRISIL A+/Stable'), strengthen its market position. The group has withstood the impact of the pandemic especially during peak season last year and in H1FY21 by diversifying into FMCG segment in short time period. This agility of the group aids business risk profile. However, customer concentration risk has reduced considerably. Top 2 customers namely HCCB and Bisleri International Private Limited accounted for 38% of the Chemco’s revenue in FY20 (around 45% a year ago). Nevertheless, this is expected to decline over the medium term especially post pick-up in demand for products from Halol plant.
* Extensive experience of the promoter The promoter, Mr. Ramawatar I. Saraogi, is a polymer engineer and has over 35 years of experience in the PET (polyethylene terephthalate) preforms, jars, and bottles industry. He is supported by Mr. Vaibhav R. Saraogi as managing director of the group, who is a postgraduate who has been focusing on the marketing, strategic and technological aspects of the group.
* Robust financial risk profile The group’s financial risk profile is healthy as indicated by healthy networth of Rs 135 crore. Gearing is comfortable at 0.86 time while TOLTNW is at 1.24 times as on March 31, 2020. The benefits of the CAPEX done in FY19 and FY20 are yet to fully accrue to the group. Debt protection metrics continue to remain strong with interest cover above 5 times and NCAAD of 0.34 time as on March 31, 2020.
Weakness: * Susceptibility to volatility in raw material prices Any adverse movement in the raw material prices significantly impacts operating performance of Chemco group. The operating margins have witnessed pressure in the last fiscal which stood at 14.5% before recovering to around 19.3% in H1FY21. The improvement in margins was because of low crude oil prices. CRISIL believes that while there could be volatility in the operating margins, it should remain between 15-17% over the medium term.
* Slower than expected ramp-up in scale of operations from completed CAPEX Chemco has done CAPEX of more than Rs 100 crore over the last 3 fiscals ending 2020 at Sanand and Halol. The CAPEX was completed last year and a ramp-up was expected in H2FY20. However, a full-fledged ramp-up in scale of operations is yet to be seen. The return on capital employed (RoCE) had dropped to 15% from average of around 20% seen in the last four fiscals ending fiscal 2019. The plant at Halol caters to new products like pond liners, roof liners, tarpaulin etc. for the group. CRISIL shall continue to monitor the ramp-up from new facilities which will enable group to increase diversification into new product category and further reduce dependence on beverage segment |
Liquidity-Strong The group generated cash accruals of around Rs 40 crore against term debt repayment obligation of Rs 16 crore in fiscal 2020. The cash accruals are expected to remain between Rs 50-60 crore against repayment obligation of Rs 15-20 crore over medium term. Chemco’s bank lines were utilized on average at 90% on average for past 12 months ending Sept 2020. Chemco has steadily received enhancement in its bank lines in the last 12 months. The group had availed moratorium under The Reserve Bank of India's COVID-19 relief measure. GCL‘s bank lines were utilized on average at 75% over the past 12 months ending Aug-20. Chemco has given comfort letter to the banks for availing debt in GCL. |
Outlook Stable CRISIL believes that the group will continue to benefit from extensive experience of promoters and established relationship with key customers. |
Upward factor
Downward factors
|
About the Group Chemco, promoted by Mr Ramawatar I. Saraogi, manufactures PET bottles, jars, and preforms for personal care, healthcare, confectionary, agricultural chemical, beverage, and lubricant industries.
GCL was incorporated on 9th Nov 1986 and used to earlier cater to job work related activities for Chemco. However, offlate has started manufacturing PET products. GCL holds 19.95% stake in Chemco. |
Key Financial Indicators (Consolidated)
*provisional
Key Financial Indicators (Standalone)
*provisional |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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 various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||
|