Rating Rationale
May 27, 2024 | Mumbai
Mangalam Organics Limited
Rating outlook revised to 'Positive'; Rating Reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.397 Crore
Long Term RatingCRISIL BBB+/Positive (Outlook revised from 'Stable'; Rating Reaffirmed)
Short Term RatingCRISIL A2 (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 revised its outlook on the long-term bank facilities of Mangalam Organics Limited (MOL) to ‘Positive’ from ‘Stable’ while reaffirming the rating at ‘CRISIL BBB+’ and has reaffirmed the ‘CRISIL A2’ rating on the short-term facilities.

 

The revision in outlook reflects the expected improvement in the business risk profile of MOL over the medium term while maintaining its above average financial risk profile. The group’s operating margin has been improving backed by better absorption of fixed assets and stabilisation in the prices of key raw material after a significant fall in the previous fiscal. In the first nine months of fiscal 2024, the group reported operating profit of 7.33% as against a loss of 3.4% in the corresponding period of the previous fiscal.  Operating margin is estimated to remain above 9% for the full fiscal 2024. Aided by higher volume sales leading to increased capacity utilisation along with stable raw material prices, operating margin is expected to improve further over the medium term and will remain a key rating sensitivity factor.

 

In the case of a further increase in raw material prices, MOL will revise its prices to safeguard its operating margin, on account of its strong position in the domestic market. While revenue remained flat for the first nine months of fiscal 2024, it is expected to improve backed by higher volumes supported by higher sales in generic trade segment coupled with new product launches.

 

The ratings continue to reflect the extensive experience of the promoters of MOL in the camphor industry, its established market position, diversifying product portfolio and above average financial risk profile. These strengths are partially offset by susceptibility to volatility in raw material prices, large working capital requirement and exposure to intense competition from domestic and foreign manufacturers

Analytical Approach

For arriving at its ratings, CRISIL Rating has consolidated the business and financial risk profiles of MOL and its three subsidiaries which are strategically important to, and have a significant degree of operational integration with MOL. These companies are Mangalam Brands Private Limited (Formerly Campure Private Limited (CPL) ,Mangalam Pooja Stores Private Limited (MPSPL) and angalam Speciality Chemicals Private Limited

 

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:

  • Strong business risk profile, supported by market position in the camphor industry and diverse product portfolio: MOL is one of the largest players in the domestic camphor manufacturing business with highest capacity among peers. It has a track record of over four decades and demonstrated technical capability and healthy ramp up of operations. Apart from well-known brands Mangalam and Campure, MOL has diverse product offerings with presence in terpene and rosin derivatives segments. Furthermore, limited competition due to large capital requirement, and necessity to have a good mix of product offerings, bolsters the business risk profile of the company. Future performance will be supported by additional revenue from enhanced capacities, improving realisations offering healthy revenue visibility.

 

However, the ramping up of these enhanced capacities leading to significant contribution to overall revenue will remain a key monitorable.

 

  • Above average financial risk profile: Networth, sizeable at Rs 276 crore as on September 30, 2023, supports the financial flexibility of the group. Backed by a robust networth, capital structure is moderate with total outside liabilities to adjusted networth (TOLANW) ratio of 0.66 time as on September 30, 2023. This is expected to remain comfortable going forward. Capital structure should improve over the medium term on the back of healthy accruals, absence of large debt funded capital expenditure (capex) and scheduled repayments. Overall, financial risk profile is likely to further improve over the medium term.

 

Weaknesses:

  • Exposure to intense competition and susceptibility to volatile commodity prices: Operating margin is susceptible to fluctuations in raw material prices and camphor prices. Alpha pine and gum turpentine, which account for 60-70% of total raw material, are largely imported from Indonesia, Brazil, Russia, and Europe, and their availability and prices are subject to demand and supply scenario. Camphor prices are also volatile and impact realisation and profitability. Business risk profile will continue to be susceptible to changes in input and camphor prices and will remain a major rating sensitivity factor. Operating margin has ranged between 38% to negative 0.5% in the five fiscals through 2023. Intense competition continues to constrain scalability. The scale is expected to improve over the medium term backed by increased utilisation of enhanced capacities. Intense competition coupled with moderate bargaining power with suppliers and clients should continue to exert pressure on profitability.

 

  • Large working capital requirements: Moderately sizeable working capital requirements are reflected in gross current assets (GCAs) of 179 days as on March 31, 2023, driven by debtors and inventory of 35 days and 140 days, respectively. Working capital requirements are supported by creditors (33 days as on March 31, 2023) and bank limits. GCAs are expected to be 150-160 days over the medium term.

Liquidity: Adequate

Bank limit utilisation is lower around 22% over the 12 months ended December 2023. Cash accruals are expected to be over Rs 30 crore, which are sufficient against term debt obligation of Rs 12-15 crore per annum over the medium term. In addition, it will act as cushion to the liquidity of the group. Current ratio is moderate at 1.3 times on March 31, 2023

Outlook: Positive

CRISIL Ratings believes the group will continue to benefit from its established market position, enhanced capacities and extensive industry experience of its promoters.

Rating Sensitivity factors

Upward Factors:

  • Improvement in revenue driven by volume growth and operating margin above 10% resulting in healthy cash accruals
  • Enhancement in working capital management and capital structure with healthy financial flexibility and no major debt funded capex plans

 

Downward factors:

  • Sustained decline in revenue or operating margin remaining below 7%, leading to significantly lower net cash accrual
  • Stretch in working capital cycle or higher-than-expected debt funded capex or large dividend payouts weakens the financial risk profile

About the Group

Incorporated in 1981, MOL (formerly, Allied Collides Pvt Ltd), is based in Mumbai, and manufactures and trades in fine specialty chemicals, including camphor, resins, and dipentene. The company also has retail operations which includes homecare and personal care products under the brand name of CamPure and Mangalam. Operations are managed by Mr Kamal Kumar Dujodwala and Mr. Pannkaj Dujodwala MOL is listed on the Bombay Stock Exchange as well as National Stock Exchange

Key Financial Indicators

As on / for the period ended March 31

Unit

2023

2022

Operating income

Rs crore

492.86

492.09

Reported profit after tax

Rs crore

-27.22

53.74

PAT margins

%

-5.52

10.92

Adjusted Debt/Adjusted Net worth

Times

0.69

0.70

Interest coverage

Times

-0.18

22.02

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 the
instrument		 Date of
Allotment		 Coupon
Rate (%)		 Maturity
Date		 Issue size
(Rs. Crore)		 Complexity
Level		 Rating assigned
with outlook
NA Cash Credit NA NA NA 147 NA CRISIL BBB+/Positive
NA Letter of Credit NA NA NA 205 NA CRISIL A2
NA Term Loan NA NA Mar-2026 45 NA CRISIL BBB+/Positive

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Mangalam Organics Limited

Full consolidation

Significant business and financial linkages and common management along with parent-wholly owned subsidiary relationship

Mangalam Pooja Stores Private Limited

Full consolidation

Significant business and financial linkages and common management along with parent-wholly owned subsidiary relationship

Mangalam Brands Private Limited

Full consolidation

Significant business and financial linkages and common management along with parent-wholly owned subsidiary relationship

Mangalam Speciality Chemicals Private Limited

 

Full consolidation

Significant business and financial linkages and common management along with parent-wholly owned subsidiary relationship
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 192.0 CRISIL BBB+/Positive   -- 08-03-23 CRISIL BBB+/Stable 30-07-22 CRISIL A-/Stable 31-05-21 CRISIL A-/Positive CRISIL A2+ / CRISIL A-/Stable
Non-Fund Based Facilities ST 205.0 CRISIL A2   -- 08-03-23 CRISIL A2 30-07-22 CRISIL A2+ 31-05-21 CRISIL A2+ CRISIL A2+
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 34 Axis Bank Limited CRISIL BBB+/Positive
Cash Credit 41 Axis Bank Limited CRISIL BBB+/Positive
Cash Credit 22 The Saraswat Co-Operative Bank Limited CRISIL BBB+/Positive
Cash Credit 50 HDFC Bank Limited CRISIL BBB+/Positive
Letter of Credit 55 The Saraswat Co-Operative Bank Limited CRISIL A2
Letter of Credit 100 HDFC Bank Limited CRISIL A2
Letter of Credit 50 Axis Bank Limited CRISIL A2
Term Loan 45 HDFC Bank Limited CRISIL BBB+/Positive
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
Understanding CRISILs Ratings and Rating Scales
CRISILs Criteria for Consolidation

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