Rating Rationale
October 15, 2024 | Mumbai
Dai-Ichi Karkaria Limited
Ratings reaffirmed at 'CRISIL BB+/Stable/CRISIL A4+'
 
Rating Action
Total Bank Loan Facilities RatedRs.51 Crore
Long Term RatingCRISIL BB+/Stable (Reaffirmed)
Short Term RatingCRISIL A4+ (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 ratings on the bank facilities of Dai-Ichi Karkaria Ltd (DKL; a part of the DK group) at 'CRISIL BB+/Stable/CRISIL A4+'.

 

The ratings continue to reflect the company’s established market position and moderate financial risk profile. These strengths are partially offset by vulnerability of operating margins due to sharp volatility in foreign exchange (forex) rates and commodity prices and working capital-intensive operations

Analytical Approach

CRISIL Ratings has consolidated the business and financial risk profiles of DKL with Dai-ichi Gosei Chemicals (India) Ltd (DGCL) and ChampionX Dai-ichi India Pvt Ltd (formerly, Nalco Champion Dai-ichi India Pvt Ltd) because DGCL is a 97% subsidiary and ChampionX Dai-ichi India Pvt Ltd is a 50% joint venture of DKL. Collectively, these entities are referred to as the DK group.

 

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:

  • Established market position: The DK group has an established market position in specialty chemicals, catering to a variety of industries such as oil field, pigment, paint, textile, polymers, paper, construction chemical and agro industry. Diversified business segments with entrenched position in the oil field segment is backed by technical collaborations and expertise of the promoters.

 

  • Moderate risk profile: Networth was healthy at Rs. 180.76 crores as on March 31, 2024  , with gearing of 0.10 times as on March 31, 2024.The total outside liabilities to adjusted networth (TOL/ANW) ratio though had decreased to 0.22 time as on March 31, 2024 from 0.22 times as on March 31, 2023, and it is expected to improve over the medium term driven by steady accretion to reserves, absence of long term loans and moderate reliance on external debt for working capital and capex.

 

Weaknesses:

  • Working capital intensive operations: Operations are working capital intensive, as reflected in gross current assets of 112 days as on March 31, 2024, mainly driven by debtor’s days of over 63 days. While the working capital cycle is expected to improve with better collection, overall working capital cycle will remain intensive over the medium term.

 

  • Exposure to volatility in raw material prices: The operating margin is likely to remain susceptible to volatility in the cost of raw materials, which are crude oil derivatives. However, the risk is partially mitigated by the company's focus on value-added products that command better pricing

Liquidity: Stretched

Bank utilization is high at around 90.26 percent for the past thirteen months ended August 24. Cash accruals are expected to be over Rs 9 crore which are sufficient against term debt obligation of Rs 1 crore over the medium term. In addition, it will act as a cushion to the liquidity of the company.

 

Current ratio is moderate at 1.37 times on March 31, 2024. The promoters are likely to extend support in the form of equity and unsecured loans to meet its working capital requirements and repayment obligations. Moderate cash and bank balance of around Rs.12 crore as on March 31, 2024. 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: Stable

The DK group will continue to benefit from the extensive experience of its promoters and its moderate financial risk profile

Rating sensitivity factors

Upward factors

  • Improvement in scale of operations and sustenance of operating profitability  leading to net cash accruals above Rs.15 Crores.
  • Sustenance of financial risk profile

 

Downward Factors:

  • Significantly lower-than-expected revenue, with operating margin remaining below expectation leading to cash accruals below Rs.8 Crores  
  • weakening the financial risk profile, larger-than-expected, debt-funded capex or acquisition, or more-than-expected dividend pay-out

About the Group

DKL was incorporated on May 13, 1960, and commenced commercial production in 1963, in technical collaboration with Dai-ichi Kogyo Seiyaku Company Ltd, Japan. DKL has its registered office in Mumbai and is certified with ISO 9001. The company manufactures specialty chemicals at its plant in Dahej and Kurkumbh. Mr Dhunjishaw Neterwala is the founder of DKL; his daughter, Ms S F Vakil, is the chairperson and whole-time  director; Ms Meher Taff, daughter of Ms Vakil, is the managing director.

 

ChampionX Dai-ichi India Pvt Ltd is a joint venture of DKL and CTI Chemicals Asia Pacific Pte Ltd, Singapore. DGCL is a 97% subsidiary of DKL.

Key Financial Indicators

As on / for the period ended March 31

 

2024

2023

Operating income

Rs crore

132

184

Reported profit after tax

Rs crore

14

20

PAT margins

%

10.61

10.87

Adjusted Debt/Adjusted Net worth

Times

0.10

0.22

Interest coverage

Times

2.73

5.67

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 15.00 NA CRISIL BB+/Stable
NA Letter of credit & Bank Guarantee NA NA NA 10.00 NA CRISIL A4+
NA Non-Fund Based Limit NA NA NA 1.00 NA CRISIL A4+
NA Long Term Loan NA NA 31-Mar-27 22.20 NA CRISIL BB+/Stable
NA Working Capital Term Loan NA NA 31-Mar-26 2.80 NA CRISIL BB+/Stable

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Dai-Ichi Karkaria Limited

Full

Financial, operational and managerial linkages

Dai-Ichi Gosei Chemicals India Limited

Full 

Financial, operational and managerial linkages

Nalco Champion Dai-Ichi India Private Limited

Share of profit

Financial, operational and managerial linkages
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 40.0 CRISIL BB+/Stable   -- 20-07-23 CRISIL BB+/Stable 25-04-22 CRISIL BB/Stable 09-09-21 CRISIL BB/Stable CRISIL BB/Watch Developing
      --   --   --   -- 25-02-21 CRISIL BB/Stable --
Non-Fund Based Facilities ST 11.0 CRISIL A4+   -- 20-07-23 CRISIL A4+ 25-04-22 CRISIL A4+ 09-09-21 CRISIL A4+ CRISIL A4+/Watch Developing
      --   --   --   -- 25-02-21 CRISIL A4+ --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 15 Axis Bank Limited CRISIL BB+/Stable
Letter of credit & Bank Guarantee 10 Axis Bank Limited CRISIL A4+
Long Term Loan 22.2 Axis Bank Limited CRISIL BB+/Stable
Non-Fund Based Limit 1 Axis Bank Limited CRISIL A4+
Working Capital Term Loan 2.8 Axis Bank Limited CRISIL BB+/Stable
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 Consolidation

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