Key Rating Drivers & Detailed Description

Strengths:

• Diversified revenue across end-user industries, customer segments, and geographies: The Company started as an agrochemical intermediate manufacturer and has extended its product portfolio over the years by leveraging its process chemistry capabilities in other segments, such as performance and speciality chemicals, polymer additives, and pharma inputs. Performance and speciality chemicals cater to diverse segments, such as soaps and detergents, water treatment, and paints and coating. The company has also entered the polymer additives and pharmaceutical inputs segments to diversify revenue and reduce dependence on agrochemicals.

• Strong financial risk profile: Capital structure remain strong marked by healthy networth of Rs 698 crore as on March 31, 2020, due to steady accretion to reserves over the years and minimal debt. Absence of any large, debt-funded capex and prudent working capital management will enable low reliance on bank funding. Hence, the capital structure and debt protection metrics should remain strong over the medium term. This coupled with growing scale and improving profitability should lead to further improvement in financial risk profile over the medium term.

Weaknesses:

•       High product concentration in revenue: DETC had about 35% share in overall revenue in fiscal 2020, which exposes the company to the inherent risk associated with price volatility determined by the supply situation in China. Also DETC as well as the new product NaTCP find application in making chlorpyrifos, an agrochemical technical. End use of chlorpyrifos technical as a pesticide is under review by the Central Insecticides Board. Any adverse regulatory decision or significant decline in prices of DETC may have a material impact on the performance of the company and will be a key monitorable.

• Exposure to risks inherent in the agrochemicals business: Revenue and profitability are susceptible to any unfavourable impact of government policies with respect to pollution control, product toxicity, or import and export of raw materials. The agrochemicals revenue is also susceptible to vagaries of the monsoon. Though increasing focus on other segments should result in a more diversified revenue profile, and provide some cushion, revenue and profitability will be linked to these risks as a large part of income is derived from agrochemical intermediaries.

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