| Neogen Chemicals Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
| ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed rationale CRISIL Ratings has reaffirmed its ‘CRISIL A-/Stable/CRISIL A2+’ ratings on the bank facilities of Neogen Chemicals Limited (NCL)
The ratings continue to reflect an established market position in the specialty chemical segment, healthy operating efficiency, and a healthy financial risk profile. These strengths are partially offset by large working capital requirement, exposure to foreign exchange volatility and to changes in government regulations |
Key rating drivers and detailed description Strengths:
The extensive experience of the promoter and the proven track record in developing bromine and lithium derivatives continues to support the business risk profile. Research and development initiatives have enabled the shift in focus to more niche, high value-added products, from bulk bromine-based compounds in the 1990s. Constant efforts to control the cost of production per unit have helped maintain a healthy operating margin, despite the competition. Company has commenced operations of its enhanced organic facilities in September and October 2021; incremental reactor capacity of 127000 litres should support revenue growth over the medium term. The company is also in the process of setting up an electrolyte manufacturing units with a capital outlay of Rs 35 crore over the medium term. Company has also roped in new customers in the custom synthesis segment and new products are also being introduced, driving revenue over medium term strengthening business risk profile
The networth and total outside liabilities to adjusted networth (TOLANW) ratios were Rs 182.8 crores and 1.8 times respectively as on March 31st 2021 (Rs 156.4 crore and 1.3 times, respectively, as on March 31, 2020). Higher than expected debt levels as on March 31, 2021 due to increased working capital utilisation and higher term debt since the company had to maintain higher inventory levels to tackle supply disruptions and accelerated capital expenditure. The board of Directors had recommended raising Rs 225 crore of capital through issuance of shares on preferential basis and the same was approved by shareholders during the extra ordinary general meeting held on 31st December 2021. The company is expected to receive the funds in Q4 2022 and the same is expected to strengthen balance sheet, reduce debt levels and to meet capital expenditure and working capital requirements over the medium term.
Debt protection metrics were above average, with interest coverage and net cash accrual to total debt ratios of 4.7 times and 0.2 times in fiscal 2021. With reduction in debt expected over near term, lower reliance on external debt in meeting incremental working capital requirements over the medium term and sustained profitability, debt protection metrics is expected to improve over medium term.
Weaknesses:
GCAs were 259 days as on March 31, 2021 (274 days as on March 31, 2020), driven by debtors and inventory of 86 days and 185 days, respectively. Receivables cycle is driven by credit of up to 90 days and 120 days is provided to domestic and global customers, respectively. Inventory level as on March 31 2021 were higher than normal due to increase in raw material prices and higher inventory maintained to tackle delay in shipments and supply disruptions. Inventory cycle is expected to sustain at current levels in fiscal 2022 and expected to moderate over medium term. However shall remain large at around 4-4.5 months due to a large product portfolio and lead time involved in import of raw materials driving the inventory cycle. Receivable cycle is expected to remain stable. The overall working capital cycle is expected to remain large with GCAs of around 240-250 days over the medium term
NCL derives around 45-50% of its revenue from exports to multiple geographies and hence exposed volatility in foreign exchange rates. However, the risk is partially mitigated by imports of around 45-50% providing a natural hedge and monthly price reset arrangements with its customers to pass though foreign exchange movements. Bromine, being a corrosive and hazardous material, is subject to environmental and other government regulations, any adverse change in these regulations, in any of the markets it operates, could impact the business risk profile of the company. |
Liquidity: Strong Net cash accruals (NCA) were Rs.33.7 crore in fiscal 2021, adequate to meet debt obligations of Rs 4.8 crores. NCA is expected to improve to Rs.45-60 crore over the medium term against debt obligation in the range of 19-27 crore per fiscal over the medium term. Average utilisation of bank lines has been moderate at 80.1% over the past 12 months ended in August 2021. Capex of Rs 45 crore in fiscal 2021 is adequately funded by term debt of Rs 30-32 crores and internal cash accruals. The company is also in the process of raising equity of Rs 225 crore through issue of shares on preferential basis. This should materially improve liquidity profile once completed and enhance overall financial flexibility of the company |
Outlook: Stable CRISIL Ratings believes the business risk profile is expected to benefit from its established market position, enhanced capacities and new products & customers being introduced. |
Key rating sensitivity factors: Upwards factors:
Downward factors:
|
About the company NCL was incorporated in 1991, promoted by Mr Haridas Kanani. The company manufactures bromine and lithium-based organic and organo-metallic compounds, used in the pharmaceutical, agricultural chemicals, and engineering industries. The manufacturing units are at Mahape in Navi Mumbai, Maharashtra, and Vadodara in Gujarat. The company made an IPO in May 2019 and is currently listed on the Bombay Stock Exchange and the National Stock Exchange |
Key Financial Indicators
|
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)
|
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | |||
| Facility | Amount (Rs.Crore) | Name of Lender | Rating |
| Cash Credit | 30 | DBS Bank India Limited | CRISIL A-/Stable |
| Working Capital Demand Loan | 3 | State Bank of India | CRISIL A-/Stable |
| Cash Credit | 75 | Citibank N. A. | CRISIL A-/Stable |
| Long Term Bank Facility | 32 | State Bank of India | CRISIL A-/Stable |
| Letter of Credit | 5.5 | State Bank of India | CRISIL A2+ |
| Term Loan | 13 | Citibank N. A. | CRISIL A-/Stable |
| Term Loan | 40 | HDFC Bank Limited | CRISIL A-/Stable |
| Long Term Loan | 5 | Citibank N. A. | CRISIL A-/Stable |
| Proposed Long Term Bank Loan Facility | 21.5 | Not Applicable | CRISIL A-/Stable |
This Annexure has been updated on 05-May-22 in line with the lender-wise facility details as on 25-Sep-21 received from the rated entity.
Criteria Details
|