Rating Rationale
April 07, 2025 | Mumbai
Chemcon Speciality Chemicals Limited
Rating outlook revised to 'Stable'; Rating Reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.53 Crore
Long Term RatingCrisil BBB+/Stable (Outlook revised from 'Negative'; Rating Reaffirmed)
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 revised its outlook on the long-term bank facility of Chemcon Speciality Chemicals Limited (CSCL) to ‘Stable’ from ‘Negative’ while reaffirming the rating at ‘Crisil BBB+’.

 

The outlook revision factors in the improvement in the business risk profile of the company, with operating margin increasing to 17.65% in the first nine months of fiscal 2025 from 10.84% in the corresponding period of fiscal 2024 owing to moderation in raw material cost, though revenue is likely to remain moderate at Rs 210-220 crore in fiscal 2025. Revenue growth is likely to sustain from fiscal 2026 and the operating margin is expected to remain above 15% over the medium term, with consistent increase in scale of operations improving the absorption of fixed overheads. With expected revival in price of raw materials and growing demand for anti-AIDS (anti-acquired immunodeficiency syndrome) drugs and as well as launch of new products, demand is expected to increase by 10-15% along with likely improvement in realisations over the medium term. The financial risk profile remains strong supported by comfortable debt protection metrics. Considering the working capital-intensive nature of operations, the ability of the company to efficiently manage the same and achieve revenue growth with healthy profitability will be key monitorable.

 

The rating continues to reflect the extensive experience of the promoters in the speciality chemicals industry and the strong financial risk profile of the company. These strengths are partially offset by working capital-intensive operations and susceptibility to volatility in raw material prices and cyclicality in the chemicals industry.

Analytical Approach

Crisil Ratings has evaluated the standalone business and financial risk profiles of CSCL.

Key Rating Drivers & Detailed Description

Strengths:

  • Established market position with extensive experience of promoters: The company has been manufacturing speciality chemicals for more than three decades. Its products find application in pharmaceutical, oil exploration and refining industries. The company has strong market position in bromides, hexamethyldisiliazane (HMDS) and chloromethyl isopropyl carbonate (CMIC). Around 37% of revenue came from exports in the first nine months of fiscal 2025. It is expected to achieve revenue of Rs 210-220 crore in fiscal 2025. Ability to achieve revenue growth along with healthy profitability will be a key monitorable.

 

  • Strong financial risk profile: Networth was strong at Rs 488 crore as on September 30, 2024. Adjusted gearing was healthy at 0.09 time as on September 30, 2024, as debt comprises fixed deposit-backed overdraft and negligible term loan. This, along with above-average profitability, led to robust debt protection metrics, as reflected in interest coverage and net cash accrual to total debt ratios of 11.93 times and 0.39 time, respectively, as of September 2024. The debt protection metrics will likely remain comfortable over the medium term owing to low reliance on bank debt.

 

Weaknesses:

  • Working capital-intensive operations: Gross current assets (net of cash) were at more than 270 days as on September 30, 2024, owing to stretched receivables of around 130 days and large inventory of around 172 days. The company maintains inventory of 120-150 days for uninterrupted production as key raw materials are exposed to availability risk. It offers credit of 60-90 days to customers, though depending on creditworthiness, it extends credit for up to 120 days. Against these, the company receives credit of 30-60 days from suppliers. Further stretch in the working capital cycle will remain a key rating sensitivity factor.

 

  • Susceptibility to volatility in raw material prices and cyclicality in the chemicals industry: Most of the raw materials of CSCL are exposed to volatility in global crude oil prices. Therefore, profitability remains exposed to adverse movements in raw material prices as price increases can only be passed on to customers with lag. As a result, the operating margin fluctuated in the eight quarters through the third quarter of fiscal 2025, leading to moderation in return on capital employed (RoCE). The operating margin was 10.22% in fiscal 2024 and 17.65% in the first nine months of fiscal 2025; with product diversification and entry into new markets, the operating margin is expected over 15% over the medium term. The chemicals industry is intensely competitive and dominated by large players. The top players account for 50% of market share. Furthermore, the industry is susceptible to regulatory changes and cyclicality. Industry downturns or adverse changes in demand and supply may result in lower realisation.

Liquidity: Adequate

Annual cash accrual is expected to be Rs 28-35 crore over the medium term, backed by healthy profitability and steady revenue. Despite the large working capital requirement, bank limit of Rs 53 crore was rarely utilised in the 12 months through February 2025. However, fixed deposit backed overdraft limit of Rs 125 crore was utilised ~26% in the 12 months through February 2025. CSCL had healthy cash balance of around Rs 181 crore as on September 30, 2024 (fixed deposits of ~Rs 55 crore). Current ratio was strong at 5.55 times as on March 31, 2024. Low gearing and comfortable networth support financial flexibility.

Outlook: Stable

Crisil Ratings believes CSCL will continue to benefit from the experience of the promoters and a robust financial risk profile.

Rating sensitivity factors

Upward factors

  • Double-digit revenue growth and operating margin of 16-17% leading to higher cash accrual
  • Sustenance of comfortable financial risk profile and improvement in the working capital cycle

 

Downward factors

  • Revenue below Rs 170 crore and fall in profitability leading to lower cash accrual
  • Further stretch in the working capital cycle resulting in modest RoCE
  • Any large capital expenditure adversely impacting the financial risk profile

About the Company

CSCL was incorporated in 1988 in Vadodara, Gujarat. The company manufactures pharmaceutical intermediates and oilfield chemicals. Its manufacturing facility is in Savli district, Vadodara.

Key financial indicators (Crisil Ratings-adjusted numbers)

Particulars

Unit

2024

2023

Revenue

Rs crore

267.09

302.88

Profit after tax (PAT)

Rs crore

19.19

55.11

PAT margin

%

7.19

18.20

Adjusted debt/adjusted networth

Times

0.09

0.14

Interest coverage

Times

7.81

51.59

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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

Crisil Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the Crisil Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name Of Instrument Date Of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs.Crore) Complexity Levels Rating Outstanding with Outlook
NA Cash Credit NA NA NA 53.00 NA Crisil BBB+/Stable
Annexure - Rating History for last 3 Years
  Current 2025 (History) 2024  2023  2022  Start of 2022
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 53.0 Crisil BBB+/Stable   -- 19-06-24 Crisil BBB+/Negative 06-09-23 Crisil BBB+/Negative 10-06-22 Crisil BBB+/Stable Crisil BBB+/Watch Negative
      --   --   --   -- 17-03-22 Crisil BBB+/Watch Negative --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 53 HDFC Bank Limited Crisil BBB+/Stable
Criteria Details
Links to related criteria
Basics of Ratings (including default recognition, assessing information adequacy)
Criteria for manufacturing, trading and corporate services sector (including approach for financial ratios)

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