Rating Rationale
June 13, 2024 | Mumbai
Clean Science and Technology Limited
Ratings reaffirmed at 'CRISIL AA-/Stable/CRISIL A1+'
 
Rating Action
Total Bank Loan Facilities RatedRs.45.45 Crore
Long Term RatingCRISIL AA-/Stable (Reaffirmed)
Short Term RatingCRISIL A1+ (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 reaffirmed its ‘CRISIL AA-/Stable/CRISIL A1+’ ratings on the bank facilities of Clean Science and Technology Ltd (CSTL).

 

The ratings continue to reflect the extensive experience of the management and healthy operating performance of the company, driven by its dominant position in the key product categories and diversification into new products. CSTL is a leading global player in key products -- monomethyl ether of hydroquinone (MEHQ), guaiacol, butylated hydroxyanisole (BHA) and 4-methoxy acetophenone (4-MAP). Operating income stood at Rs 791 crore and operating margin at around 42% in fiscal 2024, against Rs 936 crore and 43% respectively in fiscal 2023. Lower revenue in fiscal 2024 despite volume growth, was primarily led by realisation. Operating profitability remains exceptionally healthy despite sharp fluctuations in prices of raw materials which are linked to crude. Further, the rate contracts with customers are revised periodically to pass on cost escalations, although the time lag prevails. The financial risk profile remains robust in the absence of any major debt, healthy cash accrual and ample liquidity.

 

The company has developed new hindered amines light stabilisers (HALS) series products which find application in diverse polymer based end industries including masterbatch, automobile, water treatment, paint, and coatings etc. The company’s subsidiary -- Clean Fino-Chem Ltd, with larger HALS series production capacity, got commissioned in March 2024. These products are entirely on a different raw material chain i.e. acetone. This would help CSTL diversify the product basket, target new customers over the medium term and drive revenue growth over a longer period.

 

These strengths are partially offset by susceptibility to volatility in raw material prices.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of CSTL and its four wholly owned subsidiaries.

 

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 and half decades of the promoters, their technical knowledge and focus on inventing cost-efficient processes and clean technology has helped establish a strong market position. The company has built a dominant presence in key products through capacity expansion, efficient processes and a reputed clientele under the expertise of the management. Its products find application in diverse industries such as stabiliser (acrylic acids), pharmaceuticals, agricultural chemicals, polymer, plastic, food and animal feed, fragrances, water treatment etc. It has also developed new HALS series products, which are import substitute and have application in master batches, automobile and other industries. While the company is leveraging its strong market position in key products by continuously enhancing capacities and gaining market share, the additional new product categories help it in diversifying the product basket and tap new customers and markets and sustain growth.

 

  • Healthy operating efficiency, supported by integration: Operations are integrated, wherein it uses phenol to produce anisole to MEHQ and to BHA. Also, products like BHA are value added ones and manufactured using own raw materials. The operating margin remained healthy at over 41% during the three fiscals through 2024. Although the margin may moderate in the near to medium term due to ramping up stage of the newly launched products and volatility in input cost, it shall remain healthy owing to its integrated operations and adequate profitability in core products.

 

  • Robust financial risk profile: The financial risk profile should remain strong, marked by debt-free balance sheet, steady accretion and maintenance of ample liquidity. Networth and debt protection metrics continue to be robust due to healthy operating profitability and negligible debt and finance cost. Further, the company has surplus liquid investments of around Rs 339 crore as of March 2024.

 

The company incurred capital expenditure (capex) of Rs 235 crore during fiscal 2024, including investment in subsidiary of Rs 215 crore. The capex is being funded by cash accrual and surplus liquidity and no debt has been availed. The company plans capex of around Rs 180 crore in the near term, which is also expected to be funded via cash accrual; thus, the company is likely to remain debt free.

 

Weakness:

  • Exposure to volatility in raw material prices: Key raw materials are crude oil derivatives and hence their prices keep fluctuating. Though there is a pass-through mechanism for price fluctuations, the same happens with a time lag and hence any sharp fluctuations in raw material prices can adversely impact the margin.

Liquidity: Strong

Liquidity will continue to be robust, led by healthy expected cash accrual of over Rs 237 crore and sizeable cash and equivalent. The company also has access to working capital bank limit, which was minimally utilised during the 12 months through March 2024. It has surplus liquidity in the form of unencumbered liquid investment of around Rs 339 crore as of March 2024. Further, the company is expected to maintain surplus liquidity over the medium term despite its planned capex and exigencies, supported by healthy operating profitability. The company has no long-term debt and can fund capex entirely through surplus liquidity/cash accrual. An unleveraged capital structure leads to strong financial flexibility. Current ratio remained healthy at over 4 times.

Outlook: Stable

CSTL will continue to benefit from its strong market position in niche key products, healthy operating efficiency and diversifying product basket.

Rating Sensitivity Factors

Upward factors

  • Sustained revenue growth of over 25% year-on-year, primarily driven by ramp-up in sales from new products, and continued healthy operating profitability margin
  • Maintenance of strong financial and liquidity risk profiles

 

Downward factors

  • Steep decline in revenue or operating profitability margin dropping below 30%, resulting in lower-than-expected cash accrual
  • Stretch in the working capital cycle or sizeable, debt-funded capex or acquisition weakening the financial risk profile and liquidity.

About the Company

CSTL 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-MAP and BHA. The company was listed on stock exchanges in July 2021; the initial public offering was entirely an offer for sale by the promoters and shareholders.

 

CSTL formed a wholly owned subsidiary, Clean Fino-Chem Ltd, which got commercialised in March 2024.

Key Financial Indicators

As on/for the period ended March 31

Unit 

2024

2023

Operating income

Rs.Crore

791.4

935.7

Reported profit after tax (PAT)

Rs.Crore

244.02

295.18

PAT margin

%

30.83

31.54

Adjusted debt/adjusted networth

Times

0.00

0.00

Interest coverage

Times

358.33

743.15

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 assigned with outlook
NA Cash credit NA NA NA 11 NA CRISIL AA-/Stable
NA Letter of credit & bank guarantee NA NA NA 34 NA CRISIL A1+
NA Proposed letter of credit & bank guarantee NA NA NA 0.45 NA CRISIL A1+

Annexure – List of Entities Consolidated

Names of entities consolidated

Extent of consolidation

Rationale for consolidation

Clean Fino-Chem Ltd

Full

Wholly-owned subsidiary

Clean Science Pvt Ltd

Full

Wholly-owned subsidiary

Clean Aromatics Pvt Ltd

Full

Wholly-owned subsidiary

Clean Organics Pvt Ltd

Full

Wholly-owned subsidiary[
Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 11.0 CRISIL AA-/Stable   -- 12-05-23 CRISIL AA-/Stable 20-04-22 CRISIL A+/Positive 27-04-21 CRISIL A1+ / CRISIL A+/Stable CRISIL A/Positive / CRISIL A1
Non-Fund Based Facilities ST 34.45 CRISIL A1+   -- 12-05-23 CRISIL A1+ 20-04-22 CRISIL A1+ 27-04-21 CRISIL A1+ CRISIL A1
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 1 Axis Bank Limited CRISIL AA-/Stable
Cash Credit 2 Kotak Mahindra Bank Limited CRISIL AA-/Stable
Cash Credit 8 HDFC Bank Limited CRISIL AA-/Stable
Letter of credit & Bank Guarantee 6 Axis Bank Limited CRISIL A1+
Letter of credit & Bank Guarantee 10 Kotak Mahindra Bank Limited CRISIL A1+
Letter of credit & Bank Guarantee 18 HDFC Bank Limited CRISIL A1+
Proposed Letter of Credit & Bank Guarantee 0.45 Not Applicable CRISIL A1+
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
Rating Criteria for Chemical Industry
CRISILs Criteria for rating short term debt
CRISILs Criteria for Consolidation

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