| Clean Science and Technology Limited | ||||||
| Long-term rating upgraded to 'CRISIL AA-/Stable'; Short-term rating reaffirmed | ||||||
| Rating Action | ||||||
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| 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 upgraded its rating on the long-term bank facilities of Clean Science and Technology Limited (CSTL) to ‘CRISIL AA-/Stable’ from ‘CRISIL A+/Positive’. Rating on short term bank facilities reaffirmed at ‘CRISIL A1+’.
The rating upgrade reflects the expectation of sustained and sharp improvement in company’s operating performance primarily driven by its dominant position in the key product categories and diversification into new products. CSTL is leading global player in key products viz; mono methyl ether of hydroquinone (MEHQ), guaiacol, butylated hydroxyanisole (BHA) and 4-MAP. It has also augmented its anisole capacity in recent year 2022 which is used for own consumption. Steady growth in demand for key products and addition of new customers backed by enhanced capacities has driven company’s revenue in the recent past. CSTL has diversified its product basket with addition to new products – Para benzoquinone (p-BQ), tert-butyl hydroquinone (TBHQ), etc last year. These products are being accepted in market and have contributed to the topline in fiscal 2023 and supported the topline growth.
The company achieved operating income of Rs 719 crore and operating margin of over 41% in 9 months of fiscal 2023 against Rs. 480 crore and over 45% in the first nine months of fiscal 2022. Revenue growth for fiscal 2023 is estimated to be strong and will be comparable to historical trend. Though steep rise in raw material prices which are linked to crude and higher power and logistics costs impacted the operating margin in H1-2023, the operating profitability still remains exceptionally healthy. Also, with gradual correction in these input costs the operating profitability margin was estimated to revive in H2-2023. Further the rate contracts with customers are revised periodically to pass on cost escalations, although the time lag prevails.
The company has developed new Hindered Amines Light Stabilizers (HALS) series products which find application in diverse end industries including polymerization inhibitor, water treatment, paint, and coatings etc. A small capacity for two of HALS series products is commissioned in Dec-22 at company’s unit 3 which has started contributing to topline currently. The company has also initiated a greenfield project in subsidiary Clean Fino-Chem Limited, to set up a large capacity for HALS series products which shall be commissioned in next 9 months. 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 medium term and drive revenue growth over a longer period.
The company plans to incur capex of around Rs.500 crore in totality in medium term towards development of new greenfield unit to set up capacities primarily for new HALS series and other new products. The capex is being funded by internal accruals and maintained surplus liquidity and no debt has been availed of. Capex incurred in the recent years had also been entirely funded from internal accruals.
The financial risk profile remains robust in the absence of any major debt, healthy cash accrual and ample liquidity.
The ratings continue to reflect the extensive industry experience of the management team, the company’s strong market position in niche products and diversifying product portfolio, 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 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:
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 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, plastic, food and animal feed, fragrances, water treatment etc. CSTL added new products, P-BQ, and TBHQ in FY-22. It has also developed new HALS series products which shall be import substitutes and have application mainly 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 its growth.
Company’s operations are integrated where in it uses phenol to produce Anisole to MEHQ and to BHA. Also company’s products like BHA are value added ones and are manufactured using own raw materials. Company’s operating margin has remained healthy at around and above 45% during the last 3 fiscal ended 2022. The operating margin, though expected to moderate in near to medium term due to ramping up stage of newly launched products and volatility in raw material price, it shall continue to remain healthy driven by its integrated operations and healthy profitability in company’s core products.
The financial risk profile is robust marked by debt-free balance sheet, strong accretions and maintenance of ample liquidity. Networth has remained strong and debt protection metrics continue to remain robust due to healthy operating profitability and negligible debt and finance cost. Further company has surplus liquid investments of around Rs.290 crore as of Feb-2023.
The company plans to incur capex of around Rs.500 crore in totality towards development of new greenfield unit to set up capacities primarily for new HALS series and other new products. The capex is expected to be funded by internal accruals and debt is not expected to be availed. With strong accretions backed by healthy operating profitability, the financial risk profile is expected to remain robust over medium term.
Weakness:
Key raw materials are crude oil derivatives and hence their prices keep fluctuating. Hence, the operating margin remains exposed to volatility in crude prices to an extent. Though there is 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 CSTL maintains its strong liquidity driven by healthy expected cash accrual of around Rs 275 crore and sizeable cash and equivalent. The company also has access to working capital bank limits which were minimally utilised over the 12 months through March-2023. It has surplus liquidity in the form of unencumbered liquid investment of around Rs 290 crore as of February-2023. Further the company is expected to maintain this surplus liquidity over 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/internal accrual. An unleveraged capital structure leads to strong financial flexibility to raise debt if needed. Current ratio remained healthy at over 3 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
Downward factors
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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-methoxy acetophenone (4-MAP) and BHA. The company was listed on stock exchanges in July 2021, the IPO was entirely an offer for sale by existing promoters and other shareholders.
CSTL formed a new wholly owned subsidiary, Clean Fino-Chem Ltd to undertake company’s greenfield project for new unit IV under this subsidiary.
For the nine months period ended December 31, 2022, CSTL reported a net profit of 214.64 crore on net sales of Rs. 719 crore, compared with net profit of Rs. 166 crore on net sales of Rs. 480 crore during corresponding period of previous fiscal. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
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 Bank Lenders & Facilities | ||||||||||||||||||||||||||||
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This Annexure has been updated on 12-May-23 in line with the lender-wise facility details as on 20-Apr-22 received from the rated entity.
Criteria Details
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