| Clean Science and Technology Limited | ||||||
| Ratings upgraded to 'CRISIL A+/Stable/CRISIL A1+' | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed rationale CRISIL Ratings has upgraded its ratings on the bank facilities of Clean Science and Technology Limited (CSTPL) to ‘CRISIL A+/Stable/CRISIL A1+’ from ‘CRISIL A/Positive/CRISIL A1’.
The upgrade reflects the sustained improvement in the operating performance of the company, as indicated by steady revenue growth and improved and healthy operating profitability over the three fiscals through 2021. The company has an established market position and dominant presence in key specialty chemical products, and a diversified clientele. As its products are used largely in manufacturing essential goods, it has seen limited impact of the Covid-19 pandemic. The company achieved operating income of Rs 378.5 crore in the first nine months of fiscal 2021 against Rs 312.3 crore in the corresponding period of the previous fiscal. Revenue growth is estimated at over 20% for fiscal 2021. Enhanced capacities of key products such as mono methyl ether of hydroquinone (MEHQ), guaiacol and butylated hydroxyanisole (BHA) and steady demand for these products supported revenue growth amid the pandemic in fiscal 2021. Operating profitability remained strong (45% in fiscal 2020 and above 50% in the first nine months of fiscal 2021) because of backward integration and increased revenues from high margin product, BHA, through forward integration. With moderate capacity utilisation and steady demand for its speciality chemical products, the company is likely to register moderate revenue growth over medium term.
The financial risk profile remains robust with negligible debt, healthy cash accrual and ample liquidity.
The ratings continue to reflect the experience of the management team, the company’s strong market position in niche products, healthy operating efficiency and robust financial risk profile. These strengths are partially offset by susceptibility to volatility in raw material prices. |
Analytical Approach CRISIL Ratings has revised its analytical approach and combined the business and financial risk profiles of the three wholly owned subsidiaries of CSTPL. The subsidiaries do not have any operations but hold industrial land.
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 * Experienced management and strong market position in niche product segment: The experience of over two decades of the promoters, their technical know-how and focus on inventing cost-efficient processes and technology has helped the company establish a strong market position. It has built a dominant presence in key products through capacity expansion, efficient processes and reputed clientele under the able guidance and domain expertise of its management team. Its products find application in diverse industries such as pharmaceuticals, agro-chemicals, polymer, cosmetics and animal feed. Revenue rose at an estimated compound annual growth rate of around 30% in the three fiscals through 2021.
* Healthy operating efficiencies supported by integration Company’s operations are integrated where in it uses phenol to produce Anisole to MEHQ and to BHA. Also company’s new products like BHA are value added ones and are manufactured using own raw materials. Company’s operating margin has remained healthy around 40% during the last 3 fiscal ended 2020 and further estimated to remain over 45% for fiscal 2021 while RoCE also continuous to remain healthy
* Robust financial risk profile The financial risk profile is robust marked by almost debt-free balance sheet, strong accretions and maintenance of surplus liquidity. Networth has remained strong and debt protection metrics continue to remain robust due to negligible debt and healthy profitability. Further company has surplus liquid investments of over Rs.220 crore.
The company plans to incur capex of around Rs.70 crore annually towards development of new unit which will be funded by internal accruals. With no debt funded capex plans and healthy internal accruals, financial risk profile will continue to remain robust over medium term.
Weaknesses * Exposure to volatility in raw material prices Key raw materials are crude oil derivatives and hence their cost keeps fluctuating. Hence, the operating margin remains exposed to volatility in crude prices to an extent. Though there is pass through mechanism, the same happens with a time lag and hence any sharp fluctuations in raw material prices can adversely impact the margin. |
Liquidity: Strong CSTPL will maintain its strong liquidity driven by healthy expected cash accrual of over Rs 170-200 crore and sizeable cash and equivalent. The company also has access to fund-based limits which were largely unutilised over the 12 months through February 2021. It has surplus liquidity in the form of unencumbered liquid investment of over Rs 220 crore. Further the company is expected to maintain surplus liquidity equal to profit for the year to support its capex and exigencies. The company has no long-term debt and can fund capex entirely through surplus liquidity/internal accrual. An unleveraged capital structure provides financial flexibility to raise debt if needed. |
Outlook: Stable CSTPL will continue to benefit from its strong market position and healthy operating efficiency. |
Rating Sensitivity Factors Upward factors
Downward factors
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About the Company CSTPL was established in 2006 by Mr Ashok R Boob and his family members. The company has its plants in Kurkumbh, Maharashtra, and manufactures specialty chemicals such as MEHQ, guaiacol, 4-methoxy acetophenone (4-MAP) and BHA.
CSTPL has applied for an initial public offering (IPO) of Rs 1,400 crore. The IPO is entirely an offer for sale by existing promoters and other shareholders. |
Key Financial Indicators (Consolidated)
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| 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)
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Annexure – List of Entities Consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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