| Nikhil Adhesives Limited | ||||||
| Ratings upgraded to 'CRISIL BBB/Positive/CRISIL A3+' | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has upgraded its ratings on the bank loan facilities of Nikhil Adhesives Limited (NAL) to ‘CRISIL BBB/Positive/CRISIL A3+’ from ‘CRISIL BBB-/Positive/CRISIL A3’
The rating upgrade reflects expectation of sustained improvement in the business risk profile supported by sharp growth in company’s revenue driven by higher volumes on back of increased demand and better realizations. Company recorded revenue of over Rs. 814 crores in fiscal 2022, recording an increase of almost 68% over the revenue of Rs.485 crores in fiscal 2021.Operating margin was at over 5.4% in fiscal 2022 on back of better realization and sustained operating efficiency. Consequently, firm’s financial risk profile has improved with higher networth estimated at around Rs.85 crores and better capital structure.
CRISIL Ratings continues to reflect the established position of the company in the emulsions and adhesives segment. The company continues to benefit from promoters’ experience and comfortable financial risk profile. These strengths are partially offset by moderate scale of operations amidst large and well-established players and high working capital requirements. |
Key Rating Drivers & Detailed Description Strengths: Established relations with the customers and suppliers supported by extensive experience of the promoters: NAL has a strong business profile, backed by its promoters’ extensive experience of over three decades in the emulsions and adhesive manufacturing industry. Their extensive experience in the industry has helped the company establish its name and association with large and reputed clientele like Akzo Nobel, Dow Chemicals, Kansai Nerolac and Asian Paints for paint emulsions. On the back of its established position, established customer base and diversified product portfolio, NAL has been able to grow its revenues at a healthy CAGR of 20% over the last five fiscals ended 2022. Since the company is engaged in multiple segments like paint emulsions, textile adhesives, consumer adhesives, industrial adhesives and construction chemicls, hence this mitigates the risk from concentration in any one segment and thus supports the overall margin.
Comfortable financial risk profile: The networth was healthy at Rs 85.45 crore and low gearing of 0.25 times, as on March 31, 2022. The net cash accrual to adjusted debt and interest coverage ratio were adequate at 1.39 times and 7.46 times respectively in fiscal 2022. This is however partially offset by moderately high total outside liabilities to tangible networth (TOLTNW) ratio of 2.52 times as on March 31, 2022. With moderate profitability, sustenance of the working capital cycle, and absence of any major debt-funded capital expenditure plans, the financial risk profile should remain comfortable over the medium term.
Weaknesses: Large scale of operations amidst large and well-established players: Revenue growth has been supported by healthy demand, favorable prices, and healthy offtake from new and existing plants. Despite revenue improving over the last 5 fiscals, scale remains moderate amidst the other large and well-established players. Operating margin has also been moderate between 3.5%-5% through past 5 fiscals ended 2020 which improved to 6.4% as a one-off instance because of lower travelling and conveyance and advertising and flattish employee expenses. In fiscal 2022, the same improved to 5.4% in fiscal 2022 with better costs absorption and passing on cost increase to customers.
Moderately high working capital requirements: NAL has moderately high working capital requirements, with Gross Current Asset (GCA) days ranging between 119-145 days over last five fiscals ended 2021. GCAs improved to 105 days in fiscal 2022 with faster collections at 65 days and better inventory management of 36 days. |
Liquidity: Adequate Bank limit utilisation has been at around 25% for the past ten months ended March 2022. Cash accrual are expected to be over Rs 35-45 crores which are sufficient against term debt obligation of Rs 4-6 crore over the medium term. In addition, it will be act as cushion to the liquidity of the company. Current ratio was moderate at 1.19 times as on March 31, 2022. |
Outlook: Positive CRISIL Ratings believes that NAL’s business risk profile will continue to improve driven by the healthy demand, extensive experience of its promoters and established relationships with customers and suppliers. |
Rating Sensitivity Factors Upward Factors
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About the Company Incorporated in 1982 and based in Mumbai, NAL is promoted by Mr. Umesh Sanghavi, Mr. Rajesh Sanghavi, Mr. Tarak Sanghavi and Mr. Ashok Sanghavi. The company is ISO 9001 certified and is engaged in the manufacturing of speciality adhesives and emulsion through its manufacturing facilities in Dahanu (Maharashtra), Silvassa (Dadra Nagar Haveli), Dahej (Gujarat), and Bangalore (Karnataka) while its registered office is based in Mumbai. The company also trades in chemicals used in emulsions and adhesives industry. |
Key Financial Indicators
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Status of non cooperation with previous CRA NAL has not cooperated with Infomerics Valuation and Rating Private Limited (Infomerics) which has classified it as non-cooperative vide release dated February 1, 2021. The reason provided by Infomericis is lack of adequate information and non payment of annual surveillance fees. |
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)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 22-Jun-2022 in line with the lender-wise facility details as on 22-Apr-2022 received from the rated entity.
Criteria Details
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