Rating Rationale
November 25, 2024 | Mumbai
J.G.Chemicals Limited
Ratings upgraded to 'CRISIL A/Stable/CRISIL A1'
 
Rating Action
Total Bank Loan Facilities RatedRs.60 Crore
Long Term RatingCRISIL A/Stable (Upgraded from 'CRISIL A-/Stable')
Short Term RatingCRISIL A1 (Upgraded from 'CRISIL A2+')
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 ratings on the bank facilities of J.G.Chemicals Ltd (JGCL) to ‘CRISIL A/Stable/CRISIL A1’ from ‘CRISIL A-/Stable/CRISIL A2+’.

 

The rating upgrade reflects the improved credit risk profile of the company driven by strengthening of the financial risk profile and a resilient business risk profile. The equity raised by JGCL through its initial public offering (IPO) in March 2024, has increased the adjusted networth to Rs 405.49 crore as on March 31, 2024 (Rs 213.5 crore as on March 31, 2023), against negligible external debt of Rs 13.77 crore (~Rs 70 crore as on March 31, 2023). With no major external debt expected over the medium term, the capital structure is likely to remain strong.

 

The rating action also factors in the improved working capital cycle of the company, resulting in a stable business risk profile. With inventory holding period coming down to 35-40 days in the current fiscal from ~50-60 days during the last few fiscals, the value-at-risk has reduced significantly in case of any sharp changes in raw material prices. The company’s ability to maintain its operating profitability, with an efficiently managed working capital cycle, will remain monitorable.

 

The ratings continue to reflect the extensive experience of the promoters in the zinc oxide industry, and a healthy financial risk profile. These strengths are partially offset by the company’s product concentration in revenue and exposure to cyclicality in end-user industries, and a susceptibility of profitability to inherent volatility in commodity prices.

Analytical approach

CRISIL Ratings has combined the business and financial risk profiles of JGCL, with its 94%-owned subsidiary, BDJ Oxides Pvt Ltd (BDJOPL).

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key rating drivers and detailed description

Strengths:

  • Extensive experience of the promoters: The presence of over three decades in zinc oxide industry has enabled the promoters to develop a strong understanding of the market dynamics and establish healthy relationships with suppliers and customers. JGCL has about 30% market share in the zinc oxide industry in India and is the largest producer of zinc oxide in the country. Its reputed clientele includes Apollo Tyres Ltd, MRF Ltd, Bridgestone India Pvt Ltd and Ceat Ltd; and longstanding relationships with them will strengthen the market position of the company. The promoters are also able to anticipate price trends and calibrate purchasing and stocking decisions. Along with a strong market position in the zinc oxide industry, the promoters also strategically invested in setting up a zinc sulphate plant in Nellore (Andhra Pradesh) to cater to the large fertiliser industry in south India, which is gradually enhancing its contribution towards the company’s increasing scale of operations. The revenue, despite declining almost 15% in fiscal 2024 to ~Rs 667 crore due to steep drop in realisations, is likely to grow by more than 20% on-year in fiscal 2025, indicated by the half yearly topline of ~Rs 415 crore. A strong market position and repeat orders from the clients should continue to drive the revenue growth over the medium term.

 

  • Healthy financial risk profile: The gearing and total outside liabilities to tangible networth ratio were strong at 0.03 time and 0.11 time, respectively, as on March 31, 2024, due to a strong networth of Rs 405.49 crore. The capital structure is expected to remain stable over the medium term with no major debt-funded capital expenditure (capex) and backed by steady accretion to reserve aided by strong revenue and profitability. The debt protection metrics were comfortable, with interest coverage and net cash accrual to adjusted debt ratios of 14.14 times and 2.66 times, respectively, for fiscal 2024. The debt protection metrics are expected to improve over the medium term, driven by low reliance on external debt and steady accretion to reserve.

 

Weaknesses:

  • Product concentration in revenue and exposure to cyclicality in end-user industries: Despite a strong market position, product concentration persists as the company currently derives ~95% of its revenue from zinc oxide variations. JGCL is also exposed to cyclicality in end-user segments, especially the tyre industry which accounts for almost 90% of the company’s revenue. Though the company is adding new products such as zinc sulphate to its product portfolio and is gradually diversifying its end-user base, speedy ramp-up in the operations while maintaining steady profitability will remain monitorable over the medium term.

 

  • Susceptibility of profitability to inherent volatility in commodity prices: JGCL is the largest manufacturer of zinc oxide in India and the largest recycler of zinc in the country, making it susceptible to volatility in zinc prices. Even with a passthrough mechanism, the company witnessed a ~280 basis points (bps) drop in operating margin during fiscal 2024, due to sharp decline in zinc prices during the first quarter of the fiscal. Though the earnings before interest, taxes, depreciation and amortisation (Ebitda) margin increased to around 10.67% during the first half of fiscal 2025, aided by a lean inventory holding period and stable market, sustainability of the margin will remain monitorable over the medium term.

Liquidity: Strong

The liquidity remains strong with very low reliance on external debt. Bank limit utilisation was 9% on average for the 12 months through September 2024. Annual cash accrual of Rs 70-80 crore should remain sufficient to meet negligible debt obligations. The company also maintains surplus investments in mutual funds and fixed deposits, which should continue to aid the liquidity position over the medium term.

Outlook: Stable

CRISIL Ratings believes that JGCL will continue to benefit from its healthy market position, backed by established customer relationships and extensive experience of the promoters.

Rating sensitivity factors

Upward factors

  • Diversification in revenue base with growth rate more than 20% along with sustainable margin around 10%
  • Strong financial risk profile

 

Downward factors

  • Decline in profitability or operating income resulting in cash accrual less than Rs 35 crore
  • Large, debt-funded capex weakening the financial risk profile and liquidity
  • Sizeable stretch in the working capital cycle

About the company

Incorporated in 1975, JGCL manufactures zinc oxide, which is used in the automobile tyres, tubes, beltings, glassware, ceramics, lubricants, paints and pharmaceuticals industries. JGCL has two units in West Bengal—one in Belur and one in Howrah, with combined capacity of 16,200 tonne. Mr Suresh Jhunjunwala and his son, Mr Anirudh Jhunjunwala, manage the operations.

 

The promoters established BDJOPL in fiscal 2016. Its unit in Andhra Pradesh has manufacturing capacity of 43,704 tonne of zinc oxide and 10,080 tonne of zinc sulphate.

Key financial indicators

As on/for the period ended March 31

 

2024

2023

Operating income

Rs crore

668.13

785.21

Reported profit after tax (PAT)

Rs crore

32.11

56.79

PAT margin

%

4.81

7.23

Adjusted debt/adjusted networth

Times

0.03

0.33

Interest coverage

Times

13.89

206.90

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 Bank Guarantee NA NA NA 0.75 NA CRISIL A1
NA Cash Credit NA NA NA 24.80 NA CRISIL A/Stable
NA Proposed Working Capital Facility NA NA NA 34.45 NA CRISIL A/Stable

Annexure – List of entities consolidated

Names of entities consolidated

Extent of consolidation

Rationale for consolidation

BDJ Oxides Pvt Ltd

Full

Majority owned subsidiary

J.G.Chemicals Ltd

Full

Holding company
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 59.25 CRISIL A/Stable   -- 28-08-23 CRISIL A-/Stable 22-06-22 CRISIL A-/Stable 16-03-21 CRISIL BBB+/Stable CRISIL BBB/Positive
      --   --   -- 13-06-22 CRISIL A-/Stable   -- --
Non-Fund Based Facilities ST 0.75 CRISIL A1   -- 28-08-23 CRISIL A2+ 22-06-22 CRISIL A2+ / CRISIL A-/Stable 16-03-21 CRISIL BBB+/Stable / CRISIL A2 CRISIL A3+ / CRISIL BBB/Positive
      --   --   -- 13-06-22 CRISIL A2+ / CRISIL A-/Stable   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 0.75 Bank of Baroda CRISIL A1
Cash Credit 5 Bank of Baroda CRISIL A/Stable
Cash Credit 19.8 Citibank N. A. CRISIL A/Stable
Proposed Working Capital Facility 34.45 Not Applicable CRISIL A/Stable
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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