Rating Rationale
July 29, 2022 | Mumbai
Paushak Limited
Rating outlook revised to ‘Positive’; Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.40 Crore
Long Term RatingCRISIL A-/Positive (Outlook revised from ‘Stable’; Rating Reaffirmed)
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 facilities of Paushak Ltd (Paushak) to ‘Positive’ from ‘Stable’ while reaffirming the rating at ‘CRISIL A-’.

 

The revision in outlook reflects the strengthened business risk profile with scale-up in operation post completion of capital expansion for upstream and downstream capacities. Paushak registered a healthy operating performance in fiscal 2022, despite a five-week halt in production due to oxygen shortage in the first quarter owing to its diversion to hospitals to treat Covid-19 patients. Revenue grew 6% to Rs 150 crore in fiscal 2022, following the completion of its capital expenditure (capex), which boosted downstream production from the fourth quarter. Furthermore, operating profitability remained strong at 36%, owing to a high degree of backward integration in the form of phosgene gas manufacturing capacity, even as the rest of the industry reeled from increasing input prices. The full year benefit of enhanced capacity amidst steady product prices should lead to about 30% revenue growth in fiscal 2023, while operating profitability is expected to sustain at about 30% over the medium term.

 

The company continues to have moderate capex plans averaging Rs 40-50 crore per annum over the medium term, which will be funded largely through internal accruals, thus building up its downstream capacities. 

 

The rating continues to reflect the company’s established market position in the phosgene-based specialty chemicals market, its strong operating efficiency, and healthy financial risk profile. These strengths are partially offset by the moderate scale of operation.

Key Rating Drivers & Detailed Description

Strengths:

  • Established market position in the speciality chemicals industry: Paushak has an established market position, backed by its presence of over four decades in the phosgene-based intermediates segment. The company derives revenue from chloroformates, isocyanates, specialty chemicals, carbonates and phosgene gas. These products have a wide range of applications across industries, primarily pharmaceuticals and agro-chemicals. Revenue from operations grew 6% to Rs 150 crore in fiscal 2022 from Rs 141 crore in fiscal 2021.

 

  • Strong operating efficiency: Backward integration of operations has led to robust operating margin (36% in fiscal 2022 and 35.8% in fiscal 2021). Return on capital employed was healthy at 15.7% in fiscal 2022. While most of the specialty chemicals industry depends heavily on imports for their raw material supplies, the company has a low import bill. The company is one of the few players licenced to manufacture phosgene gas, which is highly restricted by the government. Furthermore, the working capital cycle is moderate, as reflected in receivables and inventory of 98 and 72 days, respectively, as on March 31, 2022. 

 

  • Healthy financial risk profile: Networth has grown steadily, aided by accretion to reserve, and was healthy at Rs 305 crore as on March 31, 2022. The company’s continued debt-free status has led to comfortable debt protection metrics. Planned capex averaging Rs 40-50 crore per annum is expected to be funded largely through internal accrual, and surplus cash equivalents of Rs 43 crore as on March 31, 2022.

 

Weakness

  • Moderate scale of operation: Despite being in existence for over four decades, the company operates on a moderate scale. Revenue growth has picked up in the past four years, driven by diversification of customer base and product portfolio. Apart from pharmaceuticals, the company now caters to other sectors such as agro-chemicals and performance-based materials. Timely execution and commercialisation of ongoing capex will be critical for a faster growth momentum.

Liquidity: Adequate

In the absence of debt obligation, expected cash accrual of over Rs 50 crore, per fiscal, is expected to be adequate for incremental working capital requirement. Liquidity is marked by cash equivalents of Rs 43 crore as on March 31, 2022, and low bank limit utilisation. The aforementioned capex to be incurred over the medium term, will be funded largely through internal accruals and liquid surplus.

Outlook Positive

CRISIL Ratings believes Paushak will continue to benefit from its established market position, diverse product profile and strong operating efficiency.

Rating Sensitivity factors

Upward factors

  • Strong revenue growth and operating profitability of 30%, resulting in higher cash accrual
  • Sustenance of robust financial risk profile and debt metrics, supported by prudent capex spend and working capital management
  • Improvement in product mix

 

Downward factors

  • A sustained fall in operating profitability to less than 20%
  • Time or cost overruns in capex, or large debt-funded capex or acquisition, weakening the key credit metrics

About the Company

Incorporated in 1972, Paushak is managed by Mr Chirayu Amin and his family members, promoters of Alembic Pharmaceuticals Ltd (rated ‘CRISIL AA+/Stable/CRISIL A1+’). Paushak manufactures phosgene-based specialty chemicals, used in the pharmaceuticals, agro-chemicals and performance-enhancement industries.

 

Paushak is listed on the Bombay Stock Exchange. As on March 31, 2022, the promoters and their group entities held a 66.97%  stake, and the balance is with the public.

Key Financial Indicators

Particulars

Unit

2022

2021

Revenue

Rs crore

150

141

Profit after tax (PAT)

Rs crore

38

37

PAT margin

%

25.1

26.5

Adjusted debt / adjusted networth

Times

0

0

Interest coverage

Times

965

1143

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)

ISIN

Name of instrument

Date of allotment

Coupon rate (%)

Maturity date

Issue size

(Rs crore)

Complexity level

Rating assigned

with outlook

NA

Working capital facility*

NA

NA

NA

20.0

NA

CRISIL A-/Positive

NA

Proposed long-term bank loan facility

NA

NA

NA

20.0

NA

CRISIL A-/Positive

*for the sub-limits of demand loan, letter of credit and bank guarantee as per the sanction letter

Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 40.0 CRISIL A-/Positive   -- 27-05-21 CRISIL A-/Stable 17-02-20 CRISIL A-/Stable   -- CRISIL A-/Stable
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Proposed Long Term Bank Loan Facility 20 Not Applicable CRISIL A-/Positive
Working Capital Facility& 20 HDFC Bank Limited CRISIL A-/Positive

This Annexure has been updated on 29-Jul-2022 in line with the lender-wise facility details as on 20-Aug-2021 received from the rated entity.

& - for the sub-limits of demand loan, LC and BG as per the sanction letter.
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Chemical Industry

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