| Chemcon Speciality Chemicals Limited | ||||
| Rating placed on 'Watch Negative' | ||||
| Rating Action | ||||
| ||||
| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has placed its ratings on the long term bank facilities of Chemcon Speciality Chemicals Limited (CSCL) on 'Rating Watch with Negative Implications'.
The rating action follows September 11, 2021 disclosure by CSCL of the receipt of closure notice from Gujarat Pollution control board (GPCB). Following the notice, company has shut down the production at its plants, which are located within a single premise. CSCL has already made a representation before GPCB and expects the withdrawal of notice shortly. Any significantly prolonged production shut down may adversely affect CSCL’s credit profile. CRISIL Ratings will continue to engage with CSCL’s management, monitor the developments and will take appropriate rating action basis the progress in same.
Further, the rating take into account the extensive experience of promoters in the industrial chemical industry, and robust financial risk profile. These strengths are partially offset by working capital intensive operations and exposure to foreign exchange volatility and to changes in government regulations. |
Key Rating Drivers & Detailed Description Strengths: Established market position with large clientele, and track record of over three decades CSCL has been manufacturing specialty chemical for more than three decades and has established itself as a reliable supplier of specialty chemicals, these products are used in end user industries such as Pharmaceutical, oil exploration and refining. The business risk profile is supported by strong market position in Bromides, HMDS and CMIC in world. CSCL derives around 30% of its revenues from exports commanding healthy operating margin over 25% in last couple of fiscals through 2021.
Robust financial risk profile Financial risk profile is healthy marked by networth of over Rs 354 crore and gearing of 0.01 times as on March 31, 2021. CSCL has healthy debt protection measures with interest coverage and net cash accrual to total debt ratios of 22.88 times and 10 times, respectively, in fiscal 2021. The raising of capital through initial public offering (IPO) gave a significant fillip to company’s financial profile in fiscal 2021 and lowered the reliance on external funding.
Weaknesses Working capital intensive operations CSCL’s operations are working capital intensive reflected in the high debtors and inventory of around 5 months and 4 months respectively as on March 31, 2021.
Exposure to foreign exchange volatility and to changes in government regulations CSCL derives around 30% of its revenue from exports to multiple geographies and hence exposed volatility in foreign exchange rates. However, the risk is partially mitigated by imports of around 45-50% providing a natural hedge and monthly price reset arrangements with its customers to pass though foreign exchange movements. Bromine, being a corrosive and hazardous material, is subject to environmental and other government regulations, any adverse change in these regulations, in any of the markets it operates, could impact the business risk profile of the company. |
Liquidity: Adequate Liquidity backed by healthy cash accruals, absence of any term debt, healthy financial flexibility and bank balance. CSCL is expected to generate annual cash accruals of Rs. 50-60 cr backed by healthy profitability and steady scale. Despite the high working capital requirements, company has rarely utilized its Rs. 53 cr bank limits over the last 12 months to July 31, 2021. This has been backed by fund infusion from IPO and healthy accruals. CSCL had healthy cash bank balance of around Rs. 161 cr as on March 31, 2021. It also had a healthy current ratio of 6.36 times on the same day. Absence of any major capex plan, apart from ongoing expansion and backward integration, and healthy cash accruals shall ensure that the liquidity remains healthy. |
Rating Sensitivity Factors Upward factor * Steady growth in cash accrual of over 20-25% * Sustained financial risk profile
Downward factor * Elongation of gross current assets (excluding unencumbered cash and bank balance) over 280-300 days * Large debt funded capex weakening capital structure |
About the Company Chemcon Speciality Chemicals Limited, is a Vadodara, Gujarat based company incorporated in 1988, involved in manufacture of Pharmaceutical intermediates and Oilfield Chemicals. The company has manufacturing facility based in Savli District. Vadodara. |
Key Financial Indicators
|
Status of noncooperation with previous CRA CSCL has not cooperated with Acuite Ratings and Research Limited, which has published its ratings as an issuer not cooperating vide a release dated March 31, 2021. The reason provided by Acuite Ratings and Research Limited was non-furnishing of information by CSCL for monitoring the ratings. |
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 - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | |||
| Facility | Amount (Rs.Crore) | Name of Lender | Rating |
| Cash Credit | 18 | HDFC Bank Limited | CRISIL BBB+/Watch Negative |
| Cash Credit | 35 | HDFC Bank Limited | CRISIL BBB+/Watch Negative |
This Annexure has been updated on 16-Dec-2021 in line with the lender-wise facility details as on 06-Dec-2021 received from the rated entity.
Criteria Details
|