K.L.J. Polymers Private Limited Cash credit and non-fund based limits ratings removed from ‘Watch Developing’; Ratings Reaffirmed
Rating Action
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 removed its ratings on the bank facilities of K.L.J. Polymers Private Limited (KPPL) from ‘Rating Watch with Developing Implications’ and has reaffirmed the ratings at ‘CRISIL AA-(CE)/CRISIL A1+(CE)’ while assigning a ‘Stable’ outlook to the long term rating. Rating on the guarantee backed term-loan bank facilities of KPPL reaffirmed at ‘CRISIL AA-(CE)/Stable'. The ratings are based on the strength of unconditional and irrevocable corporate guarantee by KLJ Polymers & Chemicals Ltd (KPCL; rated ‘CRISIL AA-/Stable/CRISIL A1+’).
The ratings were placed on ‘Rating watch with developing implication’ following revision in CRISIL Ratings’ approach towards credit enhancement provided by the guarantee. The revised approach is based on the guidance from the Reserve Bank of India (RBI) on factoring credit enhancement in the ratings of bank loan facilities.
CRISIL Ratings have resolved the Rating Watch, upon receipt of the final amended corporate guarantee deed evaluating the strength of the guarantee as per CRISIL Ratings criteria. For more details on the revised approach, kindly refer to the CRISIL Ratings criteria document, ‘Criteria for rating instruments backed by guarantees’.
The Stable outlook on this rating reflects CRISIL’s outlook on the rating of the guarantor, KPCL.
CRISIL Ratings had assessed the guarantee as legally enforceable, irrevocable, unconditional, covering the entire amount, defined invocation and payment mechanism and tenure of the rated facilities and given it due consideration while assigning the rating with a ‘CE’ suffix.
The unsupported rating (without any credit enhancement) of 'CRISIL A-/CRISIL A2+' on the bank facility of KPPL reflect stated support from parent company KPCL, coupled with operational benefits derived KPPL’s association with KLJ group. The rating also reflects extensive experience of the promoter group in the industry. These strengths are partially offset by risk related to initial phase of operations and standalone weak financial risk profile and liquidity. |
Analytical Approach The ratings are based on CRISIL Ratings’ criteria for rating instruments backed by guarantees. The (CE) suffix in the rating reflects the payment structure that is designed to ensure full and time-bound payment to lenders owing to corporate guarantee by KLJ Polymers & Chemicals Ltd.
To arrive at its unsupported rating, CRISIL Ratings has applied its parent notch-up framework to factor in the support from the parent.
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:
KPPL's ratings are based upon unconditional, continuing and irrevocable guarantee from KPCL, and an unconditional undertaking by the latter for securing principal and interest obligation on the company's entire debt. The Group has a strong credit profile, driven by its dominant market position and strong business and financial risk profiles and, the group’s strong liquidity driven by its healthy cash accruals and cash and equivalents of Rs 180-200 crore and access to unutilised bank lines of over Rs 180 crore as of February 2023.
The payment structure is designed to ensure full and timely payment to the lender. The guarantor, KPCL, will pay any amount due and payable by KPPL, in relation to these instruments no later than three calendar days from the stipulated due date, irrespective of the lender bank invoking the guarantee. Also, the central treasury team of KPCL will closely monitor the debt repayment and provide timely support. The guarantee and the undertaking together cover the principal, interest and other monies payable under the guaranteed bank loans.
The KLJ group is a leading manufacturer of plasticisers in south Asia with an installed capacity of 5 lakh TPA; it offers a large variety of plasticisers, including phthalate, maleate, specialty and flame-retardant. The group’s strong market position is underpinned by its large scale of operations (~Rs 9,000 crore in fiscal 2023) and diverse clientele. Plasticisers are generally used by compounding units and varied end-user industries, including footwear, cables, flexible polyvinyl chloride (PVC) films, leather, vinyl flooring, medical equipment, adhesives, perfumes, automobile parts, rubber belts, tube compounds etc.
Furthermore, with the enhanced capacity through KLJ Petroplast, the group is focusing on selling high-margin non-phtalate plasticisers (currently around 25% of plasticiser sales). Also, backward integration through captive PAN capacity will help to strengthen operating efficiency and competitiveness in the plasticisers segment, which should result in improvement in profitability.
In addition to its dominant market position, the group’s strong business profile is supported by proximity of its production facilities to ports and long-term relationships with their suppliers for ease of raw material procurement. The group also has strong in-house research and development division that focuses on improving the throughput and proportion of value-added specialty products.
The financial risk profile is expected to remain strong over the medium term supported by healthy accruals resulting in comfortable gearing and comfortable debt protection metrics. The networth is sizeable and the gearing is comfortable. The networth is estimated at around Rs 3,200 crore as on March 31, 2023 and is expected to increase over Rs 4,000 crore in the medium term, led by expected healthy accruals driven by increasing scale and decent profitability. Credit metrics are expected to remain comfortable with interest coverage ratio of 6-9 times, debt to Ebitda of 0.9-1.4 times and TOLTNW ratio of less than 1 time over the medium term owing to healthy accrual, moderate repayments on term debt and moderate utilisation of short-term debt. Liquidity is strong, as reflected in healthy cash accruals, modest debt obligation, moderate utilisation of the working capital limit, and high current ratio.
Weaknesses
Commercial operations of both the Agra and Silvassa plants have started in late FY2022. This project of capex of Rs 74 crore involves manufacturing of engineering polymer compounds and elastomer compounds to cater to industries such as automobile, appliances, electronics and footwear. Though commercial operation of the plant have started, the plant is susceptible to stabilization issues with capacity utilizations remaining a key monitorable.
KPPL has commenced its full operations in both the plants in in late FY2022. However, the operations of the plant are yet to stabilize which has resulted in weak financial risk profile and debt protection metrics on a standalone basis. Overall financial performance is expected to improve gradually with stabilization and increase in scale of its operations. |
Liquidity: Strong Liquidity remains strong, derived from credit enhancement available in the form of an unconditional and irrevocable corporate guarantee by KPPL's parent, KPCL. KPCL is likely to provide financial support in the event of an exigency in a timely manner. With commercialization of its plants, KPPL is also expected to take working capital limits to fund their operations.
The KLJ group has strong liquidity driven by its healthy cash accruals against scheduled term loan repayments. The group had cash and equivalents of Rs 180-200 crore and access to unutilised bank lines of over Rs 180 crore as of February 2023. Working capital bank limit was utilised 64% on average over the 12 months through February 2023. With the group expected to chart a satisfactory growth trajectory with healthy cash accruals, decent profitability metrics, modest term debt obligation and moderate utilisation of working capital limit over the medium term, liquidity is estimated to remain strong over the medium term. |
Outlook: Stable The outlook is based on the 'Stable' outlook on the guarantor's debt instruments. The ratings will remain sensitive to any change in CRISIL's rating on KPCL. CRISIL Ratings believes the credit profile of KPPL will benefit with increasing scale of KLJ Group through expansion in plasticiser and polymer compound capacities and improving operating efficiency through backward integration over the medium term. The group is also expected to sustain its healthy financial risk profile, supported by healthy cash accrual. |
Rating Sensitivity factors Upward factors
Downward factors
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Adequacy of credit enhancement structure The rating on the guaranteed bank facility of KPPL reflects the unconditional and irrevocable guarantee from KPCL on the bank loan facilities, which is in-line with the revised CRISIL Ratings’ approach towards credit enhancement provided by the guarantee. The revised approach is based on guidance from the Reserve Bank of India (RBI) on factoring credit enhancement in the ratings of bank loan facilities. The guarantor, KPCL, will pay any amount due and payable by KPPL, in relation to these instruments no later than three calendar days from the stipulated due date, irrespective of the lender bank invoking the guarantee. Also, the central treasury team of KPCL will closely monitor the debt repayment and provide timely support. The guarantee and the undertaking together cover the principal, interest and other monies payable under the guaranteed bank loans. The suffix CE (credit enhancement) reflects the payment structure, which is designed to ensure full and time-bound payment to lenders.
Stress Scenario: The financials of the borrower, including the entire guaranteed debt, are loaded on the guarantor. CRISIL Ratings believes that guarantor will be able to fully service guaranteed debt obligation in timely manner even under a stress scenario, where the cash flows of the company may not be suffice to meet the debt obligation. |
Unsupported ratings CRISIL A- CRISIL Ratings has introduced 'CE' suffix for instruments having an explicit Credit Enhancement feature in compliance with SEBI's circular dated June 13, 2019. |
Key drivers for unsupported ratings For arriving at the unsupported rating, CRISIL Ratings has considered the standalone business and financial risk profiles of KPPL and has applied its parent notch-up framework to factor in the extent of support available to the company from KPCL. The ratings factor in the contribution of revenues to the group, growth trend and financial risk profile of KPPL with respect to the KLJ Group.
The ratings factor in revenue visibility on account of commencement of operations from FY22 onwards and overall expansion of polymer capacity for the group. The ratings also take into consideration strong need-based support from the KLJ group. |
About the Company KPPL was incorporated on January 21, 2020, with manufacturing facilities in Silvassa and Agra. It was established for manufacturing of Engineering Polymers Compounds & Elastomer Compounds (TPR/TPE/EVA). The company is a wholly owned subsidiary of KPCL, which is a part of the KLJ group. |
About the Guarantor KLJ Polymers and Chemicals Limited was set up in Daman during 1989-90 to manufacture Di-Octyl Phthalate (DOP). Later on during 2010-11 the same plant was closed with the aim to centralize manufacturing of Plasticizers under one roof. Till 2003, the Company was solely in the business of manufacturing of Plasticizers. However, during 2003, the promoters diversified and established a plant at Silvassa for manufacturing of PVC, TPR, EVA PP, Anti-Fab & XLPE Compounds. The manufacturing capacity of these compounds has increased over the years to over 1,00,000 TPA coupled with diversification into new products.
For the fiscal 2022 (KLJ-group chemical business), gross turnover was Rs 7631 crore and profit after tax Rs 641 crore, against Rs 5296 crore and Rs 655 crore, respectively, during the corresponding period in the previous fiscal. |
Key Financial Indicators KLJ Group
Key Financial Indicators: KPPL
*CRISIL Ratings adjusted numbers
List of covenants
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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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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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