| Dorf-Ketal Chemicals India Private Limited | ||||||
| Ratings reaffirmed at 'CRISIL AA- / Positive / CRISIL A1+ '; rated amount enhanced for Bank Debt | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its rating on the long-term bank facilities of Dorf-Ketal Chemicals India Pvt Ltd (Dorf Ketal; a part of the Dorf Ketal group) at ‘CRISIL AA-/Positive/CRISIL A1+’. The rated amount has been enhanced to Rs 793.6 crore from Rs 583.6 crore earlier.
The rating is supported by healthy operating performance in fiscal 2022, with revenue growth of about 33%, led by higher volume and realisations for key products in the process and specialty chemicals segment. The operating margin remained healthy at 16-17% in fiscal 2022, compared with 15.7% in fiscal 2021, despite higher raw material prices and freight rates. Besides, the operating performance should continue to be supported by steady demand for products and recent acquisition of Khyati Chemicals Pvt Ltd (Khyati Chemicals), which will result in additional 8-10% to the revenue. Subsequently, the revenue profile may improve with entry into higher-margin, optical-brightening product segment. Operating profitability is expected to sustain at 15-16% over the medium term, supported by healthy revenue growth and diversified product portfolio.
Financial risk profile should remain comfortable, with the acquisition being funded largely from cash accrual and liquid surplus. Debt protection metrics are expected to be strong, with interest coverage ratio estimated at over 17 times in fiscal 2022. Gearing was 0.3-0.4 time as on March 31, 2022. Cash accrual is projected at more than Rs 325 crore per annum, which will continue to support the large working capital requirement and sustain healthy financial risk profile in the absence of material capital spending or inorganic growth plans.
The ratings continue to reflect the established market position of the Dorf Ketal group, strong research and development (R&D) capability and healthy financial risk profile. These strengths are partially offset by exposure to volatility in raw material prices and large working capital requirement. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of Dorf Ketal and its subsidiaries, Dorf Ketal Chemicals LLC, USA; Dorf Ketal Chemicals, Brazil; Dorf Ketal BV; Dorf Ketal Chemicals FZE; Dorf Ketal Chemicals Pte Ltd; Dorf Ketal Chemicals Shanghai Ltd; Dorf Ketal Chemicals SDN BHD and Khyati Chemicals. All the entities, collectively referred to as the Dorf Ketal group, have significant business and financial synergies.
CRISIL Ratings has also amortised goodwill over five years beginning from the year of acquisition and has adjusted profit after tax (PAT) and networth accordingly.
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 market position is supported by expertise in the specialty chemicals segment, strong brand and clientele and diverse geographic presence. With track record of over two decades in process and specialty chemicals, the group is among the leading players in the domestic market and serves large clients, such as ExxonMobil Corporation, Reliance Industries Ltd and Indian Oil Corporation Ltd. The group is a preferred supplier of various chemicals in the US, the Middle East, Brazil and Southeast Asia. Dorf Ketal has also acquired new businesses in the fuel additive and oilfield segments over the past two years. Strong product portfolio, diverse end-user industries and longstanding relationships with customers will continue to boost the business. With the recently concluded acquisition of Khyati Chemicals, the company has established its presence in the optical brightening product segment, which will further improve the revenue profile with enhanced product and customer diversity. Khyati Chemicals is among the top five players in the optical brightening product segment in India.
Strong R&D capability The group’s success is underpinned by its ability to meet customer requirements and focus on offering customised solutions. It has established itself as a strong competitive player because of focus on technology and R&D. It has over 600 process and product patents, including those acquired from UOP Inc, DuPont and Johnson Mathey. The strong market position is supported by customised solutions and support services. Onsite services offered include product applications, field trials, checks on chemical dosage rates and troubleshooting of environmental, health and safety-related issues. The group has developed its unit at Taloja, Maharashtra, as an R&D hub for its product pipeline. Strong process chemistry skills, specialised products and customised solutions provided will continue to benefit the group.
Healthy financial risk profile The financial risk profile is supported by healthy cash accrual and moderate capital expenditure (capex) and external debt. While the overall debt increased for funding the organic capex, gearing improved to an estimated 0.3-0.4 time as on March 31, 2022, backed by healthy cash generation. The group plans to undertake annual organic capex of Rs 75-100 crore and has no other acquisition plan over the medium term. Gearing is expected to remain comfortable at less than 0.5 time, while the interest coverage ratio should remain healthy at more than 15 times over the medium term. Any large, debt-funded capex or acquisition will remain a key monitorable.
Weaknesses Exposure to volatility in raw material prices The margin has been volatile on account of fluctuations in raw material cost and high salaries and incentives. Crude oil derivatives comprise a significant portion of raw material. Hence, profitability is susceptible to volatility in crude oil prices. While the group has the ability to pass on price increases, certain contractual businesses are based on longer tenure (over one year), rendering the margin susceptible to any steep variation in input costs in the interim. Also, the operating margin will likely moderate after accounting for promoter remuneration. This is partially offset by the flexibility to limit incentives to the senior management.
Large working capital requirement Gross current assets were sizeable at 190-230 days as on March 31, 2021, driven by huge inventory at overseas stocking points to ensure timely supply to customers given the product criticality, along with an extended receivables cycle. Inventory and receivables stood at 98 days and 78 days, respectively, as on March 31, 2021. Nevertheless, given the expectation of steady revenue growth over the medium term, incremental working capital requirement will remain large, and its prudent management will be critical. |
Liquidity: Strong Cash accrual, which remained healthy at over Rs 300 crore in fiscal 2022 and is expected at above Rs 325 crore in fiscal 2023, will sufficiently cover yearly debt obligation of Rs 30-40 crore and annual capex of Rs 75-100 crore. Utilisation of the fund-based limit was 22% on average over the 12 months through December 2021. Cash and equivalents stood at Rs 363 crore as on December 31, 2021, a large portion of which has been utilised to fund the acquisition of Khyati Chemicals in April 2022. With gearing comfortable at 0.3-0.4 time as on March 31, 2022, there is sufficient headroom to raise debt to meet any incremental working capital and additional capex. |
Outlook : Positive The Dorf Ketal group’s business risk profile will continue to benefit from steady demand, healthy market position, established clientele and strong R&D and operating capabilities. The financial risk profile should improve, supported by healthy annual cash generation and absence of any other large, debt-funded capex or acquisition. |
Rating Sensitivity factors Upward factors
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About the Group Dorf Ketal, incorporated in 1992, manufactures process chemicals, specialty catalysts and additives in the niche product segment of hydrocarbons used in refineries and petrochemical plants. The domestic manufacturing facilities are at Mundra and Dahej in Gujarat, at Dadra and at Lote in Maharashtra. The group also has manufacturing facilities at Nova Santa Rita City near Porto Allegre in Brazil and in Louisiana, USA. Mr Subodh Menon and Mr Sudhir Menon are the promoters.
Dorf Ketal Chemicals LLC (USA), Dorf Ketal Chemicals (Brazil) and Dorf Ketal BV (the Netherlands) market and supply process chemicals and provide technical support to clients in their respective regions. Dorf Ketal Chemicals LLC exclusively markets specialty catalysts in the US.
With effect from April 1, 2016, wholly owned subsidiaries -- Dorf Ketal Speciality Catalyst Pvt Ltd, Filtra Catalysts and Chemicals Ltd, Perfect Scales Pvt Ltd and Sudha Organics Pvt Ltd -- were merged with Dorf Ketal. |
Key Financial Indicators
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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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)
*Interchangeable between fund-based & non-fund-based limits |
Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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