Rating Rationale
January 17, 2025 | Mumbai
 
Chemspec Chemicals Private Limited
Ratings migrated to 'Crisil A/Positive/Crisil A1'
 
Rating Action
Total Bank Loan Facilities Rated Rs.225 Crore
Long Term Rating Crisil A/Positive (Migrated from 'Crisil BB+/Stable ISSUER NOT COOPERATING*')
Short Term Rating Crisil A1 (Migrated from 'Crisil A4+ ISSUER NOT COOPERATING*')
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
*Issuer did not cooperate; based on best-available information

 

Detailed Rationale

Due to inadequate information, Crisil Ratings, in line with SEBI guidelines, had migrated the rating of Chemspec Chemicals Private Limited (CCPL) to ‘Crisil BB+/Stable/Crisil A4+ Issuer Not Cooperating'. However, the management has subsequently started sharing requisite information, necessary for carrying out comprehensive review of the rating. Consequently, Crisil Ratings is migrating the rating on bank facilities of CCPL to 'Crisil A/Positive/Crisil A1' from ‘Crisil BB+/Stable/Crisil A4+ Issuer Not Cooperating'.

 

Positive outlook reflects sustained improvement in business risk profile of the company while maintaining its strong financial risk profile. Consequently, company’s accruals are expected to remain above Rs 170 crore fiscal 2025 onwards. Company continues to have significant market share in domestic market in suncare ingredients which will continue to support the business risk profile over medium term.

 

Growth in volume sales has supported the company’s operating performance and is expected to grow in range of 10-15% over the medium term. Further, export sales contributed 77% of the operating revenue in fiscal 2024 and is expected to increase gradually. Company’s operating income has grown at compounded annual growth rate of over 9% for past 5 years through fiscal 2024 and was at Rs.959 crore in fiscal 2024.

 

The financial risk profile is supported by healthy capital structure, strong debt protection metrics and comfortable liquidity. The company has nil long-term debt and short-term debt arising out of working capital requirements. Gearing is expected to remain comfortable below 0.10 times over the medium term.

 

The ratings continue to reflect CCPL's e Extensive experience of the promoters in the chemical business, backed by healthy customer relationships and robust financial risk profile. These rating strengths are partially offset by vulnerability to volatility in raw material prices, and moderately intensive working capital requirements.

Analytical Approach

For arriving at its rating of CCPl, Crisil Ratings has taken standalone approach.

Key Rating Drivers & Detailed Description

Strengths:

  • Extensive experience of the promoters in the chemical business, backed by healthy customer relationships: The company has been in the chemical intermediates business for over four decades. Also, most of its clients have been associated with the company for over two decades because of the high product quality. This has resulted in an established market position as reflected in significant increase in revenue to Rs 959 crore in Fiscal 2024 from Rs 846 crore in Fiscal 2023. The company is a preferred supplier to global players in the fast-moving consumer goods (FMCG) and pharmaceutical formulations industries on the back of promoters' extensive experience in the industry.

 

  • Robust financial risk profile: With healthy accretion to reserves CCPL’s net worth is Rs. 457 crores as on March 31, 2024. The total outside liabilities and adjusted net worth (TOLANW) is at 0.31 time, respectively, as on March 31, 2024. With the nil term loan repayment of debt and steady accretion to reserves, the capital structure is expected to remain Strong over the medium term. Debt protection metrics is adequate with interest coverage of nil times estimated for fiscal 2024. The debt protection metrics are expected to remain at similar levels over the medium term in absence of any debt funded capex.

 

Weaknesses:

  • Vulnerability to volatility in raw material prices: While the company entering into long term contracts, profitability is highly correlated to raw material prices. Moreover, the chemicals industry is fragmented and competitive, thereby restricting the players’ pricing power and ability to fully pass on any increase in input cost or retain any benefit of lower input cost. This risk is partly mitigated by the ability of the company to partly pass on sharp volatility and large variations in raw material prices to the customers, which thus helps in protecting the operating margin. Operating margin is at 28.3% in fiscal 2024 and moderated marginally to 23.8% as estimated on fiscal H1 2025.

 

  • Moderately intensive working capital requirements: The company’s operations remain moderately working capital-intensive, as reflected in gross current assets of 131 days as on March 31, 2024, and expected to be at 124 days as on Mar 31, 2025, driven by debtors and inventory of 45 and 63 days respectively. Working capital cycle has moderated in fiscal 2024 due to the company has controlled the credit period offered to its customers which has consequently helped it in controlling its receivables

Liquidity: Strong

The fund-based bank limit utilization is nil for the past nine months ended September 2024. Cash accruals are expected to be over Rs 170 crore over the medium term. In addition, it will act as cushion to the liquidity of the company.

 

The current ratio is healthy at 3.42 times on March 31, 2024. High cash and bank balance of around Rs.134 crore as on March 31, 2024. Company has no significant debt funded capex plans.

 

Low gearing and moderate net worth support its financial flexibility and provides the financial cushion available in case of any adverse conditions or downturn in the business.

Outlook: Positive

Crisil Ratings believes CCPL is expected to benefit from the extensive experience of its promoters, its long-standing relations with its customers and suppliers and its healthy financial risk profile, over the medium term.

Rating sensitivity factors

Upward factors

  • Increase in revenue driven by higher volume growth, leading to cash accrual of over Rs 180 crore
  • Sustained financial risk profile backed by healthy capital structure and strong debt protection metrics

 

Downward factors

  • Steep decline in revenue or operating margin dropping below 20%, resulting in lower-than-expected cash accrual
  • Large, debt-funded capex or acquisition or sizeable stretch in working capital cycle deteriorates the financial risk profile.

About the Company

CCPL was incorporated in 1975 by Mr. Jayant C Vora. The company manufactures chemicals, used in personal care products such as bathing soaps, hand-wash, and skin care products. The FMCG industry accounts for over 80% of its revenue. The company also manufactures bulk drug intermediates, catering to the anti-hypertension therapeutic segment. It has an ISO 9001:2000-certified manufacturing facility at Taloja in Maharashtra.

Key Financial Indicators

As on / for the period ended March 31

 

2024

2023

Operating income

Rs crore

959.38

846.73

Reported profit after tax

Rs crore

132.85

108.27

PAT margins

%

13.85

12.79

Adjusted Debt/Adjusted Net worth

Times

0.01

0.00

Interest coverage

Times

196

66.98

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 95.60 NA Crisil A/Positive
NA Letter of Credit NA NA NA 60.00 NA Crisil A1
NA Post Shipment Credit NA NA NA 10.00 NA Crisil A1
NA Proposed Fund-Based Bank Limits NA NA NA 59.40 NA Crisil A/Positive

 

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/ST 165.0 Crisil A1 / Crisil A/Positive   -- 08-11-24 Crisil A4+ / Crisil BB+ /Stable(Issuer Not Cooperating)* 14-08-23 Crisil A1 / Crisil A/Stable 16-05-22 Crisil A-/Stable / Crisil A2+ Crisil BBB+/Positive / Crisil A2
      --   --   -- 30-03-23 Crisil A-/Stable / Crisil A2+   -- --
Non-Fund Based Facilities ST 60.0 Crisil A1   -- 08-11-24 Crisil A4+ (Issuer Not Cooperating)* 14-08-23 Crisil A1 16-05-22 Crisil A2+ Crisil A2
      --   --   -- 30-03-23 Crisil A2+   -- --
All amounts are in Rs.Cr.
* - Issuer did not cooperate; based on best-available information
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 95.6 HDFC Bank Limited Crisil A/Positive
Letter of Credit 60 HDFC Bank Limited Crisil A1
Post Shipment Credit 10 HDFC Bank Limited Crisil A1
Proposed Fund-Based Bank Limits 59.4 Not Applicable Crisil A/Positive
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Assessing Information Adequacy Risk
Rating Criteria for Chemical Industry
CRISILs Criteria for rating short term debt

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