Rating Rationale
May 27, 2021 | Mumbai
Paushak Limited
Rating Reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.40 Crore
Long Term RatingCRISIL A-/Stable (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL A-/Stable’ rating on the long-term bank facilities of Paushak Limited (Paushak).

 

Revenue from operations was Rs 141 crore in fiscal 2021, a year-on-year growth of 2%, supported by price increase across products, which offset lower volume growth. Production and revenue will be impacted for a few weeks in fiscal 2022, given the non-availability of industrial oxygen amid the second wave of the Covid-19 pandemic. However, overall growth is expected at 8-10% over the medium term, supported by healthy volume growth and commercialisation of ongoing capacity expansion. Operating margin is expected to sustain at 27%-30% over the medium term (37.1% in fiscal 2021), supported by better pricing and product mix.

 

Capacity expansion of around Rs 120 crore has been delayed owing to pandemic led delay in delivery of equipment and unavailability of skilled manpower.  Capital expenditure (capex) of Rs 80 crore had been incurred as on March 31, 2021. The remaining cost is expected to be incurred in fiscal 2022, with commencement of commercial operations in the second half of the fiscal. Furthermore, the company has planned capex of Rs 65 crore for downstream asset expansion over the next two-three fiscals. Timely execution of capex and successful ramp up will be a key monitorable. 

 

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 operations and exposure to implementation and stabilisation risks, associated with the large capital expenditure (capex).

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 by 2% to Rs 138 crore in fiscal 2021 from Rs 136 crore in fiscal 2020. With large capex plan expected to commercialise by September 2021 and healthy demand, revenue growth is expected to gather momentum over the medium term.

 

  • Strong operating efficiency: Paushak’s strong operating efficiency is aided by its backward integrated operations, which have led to strong operating margins (37.1% in fiscal 2021 and 31.2% in fiscal 2020). Return on capital employed (RoCE) was healthy at 18.7% in fiscal 2021. While most of the specialty chemicals industry depends heavily on import 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 involves government restrictions. Furthermore, the working capital cycle is moderate, reflected in receivables and inventory of 85 and 56 days, respectively, as on March 31, 2021. 

 

  • Healthy financial risk profile: Networth has grown steadily, aided by accretion to reserves, and is expected to be healthy at Rs. 271 Crore as on March 31, 2021. The company’s continued debt-free status has led to comfortable debt protection metrics. Planned and ongoing capex aggregating to Rs. 105 crores over the next three fiscals is expected to be funded largely through internal accruals, and surplus cash equivalents of Rs 44 crore as on March 31, 2021.

 

Weaknesses

  • Exposure to risks related to the large capex plans: Paushak’s ongoing capacity expansion (capex) of about Rs 120 crores has been delayed owing to pandemic led delay in delivery of equipment and unavailability of skilled manpower. Capital expenditure (capex) of Rs 80 crore had been incurred as on March 31, 2021. The remaining cost is expected to be incurred in fiscal 2022, with commencement of commercial operations in the second half of the fiscal. Furthermore, the company has planned capex of Rs 65 crore for downstream asset expansion over the next two-three fiscals. Any significant cost or time overrun and delay in commercialisation of ongoing capex remains the key rating sensitivity factor. However, CRISIL Ratings derives significant comfort from its healthy liquidity position and promoters’ experience in successfully executing large capex in group companies.

 

  • Moderate scale of operations: 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 the pharmaceutical sector, 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

Liquidity is marked by a cash equivalents surplus of Rs 44 crore as on March 31, 2021, and low bank limit utilisation. Expected cash accrual of over Rs 35 crore, per fiscal, is expected to be adequate for incremental working capital requirement. Capex of Rs 105 crore, to be incurred over the next three fiscals, will be funded largely through internal accruals and liquid surplus.

Outlook: Stable

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

  • Improvement in product mix
  • Sustained healthy revenue growth and operating profitability, resulting in net cash accruals above Rs. 55-60 crores
  • Sustenance of healthy financial risk profile, with no external debt

 

Downward factors

  • Decline in operating profitability to below 20% on a sustained basis
  • Time or cost overruns in capex, or debt-funded capex or acquisition, weakening 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, 2021, the promoters and their group entities held a 66.71% stake, and the balance is with the public.

Key Financial Indicators

Particulars

Unit

2021

2020

Revenue

Rs.Crore

143

138

Profit After Tax (PAT)

Rs.Crore

37

35

PAT Margin

%

26.1

25.3

Adjusted debt /adjusted networth

Times

0

0

Interest coverage

Times

1143

650

 

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-/Stable

NA

Proposed Long-Term Bank Loan Facility

NA

NA

NA

20.0

NA

CRISIL A-/Stable

*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 2021 (History) 2020  2019  2018  Start of 2018
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 40.0 CRISIL A-/Stable   -- 17-02-20 CRISIL A-/Stable   -- 17-12-18 CRISIL A-/Stable --
All amounts are in Rs.Cr.
 
 
Annexure - Details of Bank Lenders & Facilities
Facility Name of Lender Amount (Rs.Crore) Rating
Proposed Long Term Bank Loan Facility Not Applicable 20 CRISIL A-/Stable
Working Capital Facility* HDFC Bank Limited 20 CRISIL A-/Stable

This Annexure has been updated on 2-Sep-2021 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, letter of credit and bank guarantee 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
CRISILs Bank Loan Ratings

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