Rating Rationale
October 20, 2023 | Mumbai
Paushak Limited
Rating upgraded to 'CRISIL A/Stable'
 
Rating Action
Total Bank Loan Facilities RatedRs.40 Crore
Long Term RatingCRISIL A/Stable (Upgraded from 'CRISIL A-/Positive')
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 upgraded its rating on the long-term bank facilities of Paushak Limited (Paushak) to ‘CRISIL A/Stable’ from ‘CRISIL A-/Positive’.

 

The rating upgrade factors a revision in the analytical approach, wherein the overall rating considers parental support from Nirayu Limited (Nirayu, rated ‘CRISIL AA+/Stable’), the holding company of the Alembic group. Nirayu overall holds a 53% stake in the company. This revision in analytical approach follows a clearer intent by the parent to extend the requisite financial support in terms of letter of comfort, should it be required for future capital expenditure (capex) plans.

 

Previously, the outlook was revised to ‘Positive’ from ‘Stable’ reflecting the strengthened business risk profile of the company, with scale-up in operation post completion of capital expansion for downstream capacities. While in fiscal 2023, Paushak recorded a 43% growth in revenue to Rs 212 crore along with continued strong operating profitability of over 35%, as the new downstream chloroformate capacities commissioned late fiscal 2022 completed a full year of operations, deferment of smaller capacity expansions planned earlier will lead to modest growth in revenue in the current and next fiscals. Favourable industry tailwinds in terms of pricing and demand, that continued until the third quarter of last fiscal further aided the business. With the resurgence of Chinese manufacturers, pricing pressure and lower demand due to destocking being undertaken by customers, the first quarter of fiscal 2024 saw moderation in Paushak’s operating performance to Rs 49 crore of revenue and multi-quarter low margins of 25.4%. However, with demand and pricing scenarios improving, operating performance is expected to recover, starting from the latter half of the fiscal, which would continue to be a key monitorable.

 

The company plans to undertake moderate capex plans of Rs 50-60 crore in the current fiscal, towards debottlenecking and corporate affairs. With downstream capacities running at high utilisation levels, the company is expected to invest in capacity expansions over the medium term. However, with a strong balance sheet with nil debt as on March 31, 2023, credit metrics are expected to remain comfortable with gearing below 0.2 time over the medium term. Liquidity continues to aid the overall financial risk profile of the company, with cash and investments amounting to Rs 71 crore as on March 31, 2023.

 

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.

Analytical Approach

CRISIL Ratings has applied its parent notch-up framework to factor in the expected support from Nirayu

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 find application across industries, primarily pharmaceuticals and agro-chemicals. Revenue from operations grew 43% to Rs 212 crore in fiscal 2023 from Rs 150 crore in fiscal 2022.

 

  • Strong operating efficiency: Backward integration of operations has led to robust operating margins (35% in fiscal 2023 and 36% in fiscal 2022). Return on capital employed was healthy at 19% in fiscal 2023. While most players in the specialty chemicals industry depend 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 91 and 61 days, respectively, as on March 31, 2023. 

 

  • Healthy financial risk profile: Networth has grown steadily, aided by accretion to reserve, and was healthy at Rs 354 crore as on March 31, 2023. The company’s continued debt-free status has led to comfortable debt protection metrics. Planned capex of Rs 40-50 crore per annum is expected to be funded largely through internal accrual, and surplus cash equivalents of Rs 71 crore as on March 31, 2023.

 

  • Strong parentage and expected financial support from Nirayu: Paushak benefits from the strong parentage and need-based support of Nirayu, which has healthy financial flexibility. This arises from the ability to raise additional funds mainly on account of Nirayu’s holding in equity shares of Alembic Pharmaceuticals Ltd (Alembic Pharma; rated ‘CRISIL AA+/Stable/CRISIL A1+’). As on October 10, 2023, the combined market value of Nirayu’s shares in Alembic Pharma, Alembic Ltd and Paushak was over Rs 10,000 crore against minimal debt. While Paushak’s management is largely independent, the company remains critical to Nirayu and underlying comfort support is expected to be forthcoming should it be required for capital expenditures or exigencies.

 

Weaknesses:

  • Moderate scale of operations: Despite being in existence for nearly five decades, the company operates on a moderate scale. Revenue growth has picked up in the past six 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. With downstream capacities running at optimal capacities currently, the company is expected to gradually improve its capacities over the medium term. Timely execution and commercialisation of any planned capex will be critical for a faster growth momentum.

 

  • Susceptibility to fluctuations in input prices and demand sentiments:  Paushak’s profitability, similar to other players in the specialty chemicals industry, remains susceptible to movement in the prices of key raw materials and end-user demand especially in the agrochemical and pharmaceutical industries. A dip in demand owing to destocking up the value chain, combined with some pricing corrections in the last 5-6 months owing to macroeconomic headwinds have led to margins moderating to 25% in the first quarter of fiscal 2024. However, a strong degree of backward integration and low fixed cost structure lends support. 

Liquidity: Adequate

In the absence of debt obligation, expected annual cash accrual of over Rs 55 crore is likely to be adequate for incremental working capital requirement. Liquidity is marked by cash equivalents of Rs 71 crore as on March 31, 2023, and nil bank limit utilisation. The company’s liquidity and financial risk profiles are expected to remain comfortable over the medium term.

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 and a 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 credit risk profile or a stronger support stance from Nirayu

 

Downward factors

  • Sustained decline in operating profitability to below 20%
  • Time or cost overruns in capex, or large debt-funded capex or acquisition, weakening the key credit metrics
  • Deterioration in Nirayu’s credit risk profile or an adverse change in its support stance towards Paushak

About the Company

Incorporated in 1972, Paushak is managed by Mr Chirayu Amin and his family members, promoters of Alembic Pharma. 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 September 30, 2023, the promoters and their group entities held a 66.97% stake, and the balance is with the public.

 

The company recorded Rs 49 crore of revenue and Rs 9 crore of profit after taxes in the first quarter of fiscal 2024, as against Rs 50 crore of revenue and Rs 12 crore of profit after taxes in the corresponding quarter last fiscal.

Key Financial Indicators

Particulars

Unit

2023

2022

Revenue

Rs crore

212

150

Profit after tax (PAT)

Rs crore

54

38

PAT margin

%

25.4

25.1

Adjusted debt / adjusted networth

Times

0

0

Interest coverage

Times

266.37

964.51

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 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

 

Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 40.0 CRISIL A/Stable   -- 29-07-22 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/Stable
Working Capital Facility 20 HDFC Bank Limited CRISIL A/Stable
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
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

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