Rating Rationale
March 31, 2023 | Mumbai
Sunshield Chemicals Limited
Rating reaffirmed at 'CRISIL BBB / Stable'; CCR withdrawn
 
Rating Action
Total Bank Loan Facilities RatedRs.65 Crore
Long Term RatingCRISIL BBB/Stable (Reaffirmed)
 
Corporate Credit RatingCRISIL BBB/Stable (Withdrawn)
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 reaffirmed its CRISIL BBB/Stable rating on the bank facilities of Sunshield Chemicals Ltd (SCL). CRISIL Ratings has also withdrawn the corporate credit rating of SCL, in line with its withdrawal policy. 

 

The rating reflects the established market position of SCL in the chemical industry, its strong and diversified customer base, efficient working capital cycle, and comfortable financial risk profile. These strengths are partially offset by the moderate scale of operations and exposure to intense competition and fluctuations in raw material prices.

Analytical approach

Unsecured loans extended by the parent company (Rs 68.54 crore as on March 31, 2022) have been treated as debt as the loans are likely to be repaid.

Key rating drivers & detailed description

Strengths:

  • Established market position in the chemical industry: The promoter, Mr Jeet Malhotra has been engaged in the chemical industry, his strong understanding of market dynamics and healthy relationships with customers and suppliers will continue to support the business risk profile. Over the years, the company has developed a strong market position and a wide range of product offerings such as ethylene oxide (EO)-based specialty surfactants, anti-oxidants, and THEIC-based products, which are used in various industries including homecare, petrochemicals, automobile, rubber etc. Revenue is expected to range between Rs 240 crore and Rs 250 crore in fiscal 2023 vis-à-vis Rs 198.7 crore in fiscal 2021.

 

  • Strong and diversified customer base: Clientele includes large players such as Asian Paints, Lubrizol, MRF, Pidilite among others. SCL also caters to the overseas market (mainly Europe and the USA) and derives 35-40% of total revenue via exports. The top 10 customers contributed to 61% of revenue in fiscal 2022. The vast customer base and geographic reach has led to diversified revenue streams and offers a buffer against volatility in demand from a single customer.

 

  • Moderate working capital cycle: Gross current assets (GCAs) are expected to be in the range of 150-160 days as on March 31, 2023, driven by receivables and inventory each of 60-70 days. The company extends moderate credit period to its customers and does not hold large inventory, given the lower lead time to procure raw materials. The working capital cycle is expected to remain stable over the medium term.

 

  • Comfortable financial risk profile: Networth is expected to be comfortable at Rs 65-70 crore, with total outside liabilities to adjusted networth (TOLANW) ratio estimated at 1.8-1.85 times, as on March 31, 2023. Financial risk profile is likely to improve over the medium term, despite planned debt-funded capital expenditure, and will be aided by steady accretion to reserves, moderate reliance on external debt and support from creditors, which eases pressure on the working capital cycle. Debt protection metrics were comfortable, with interest coverage and net cash accrual to adjusted debt ratios projected at 5.5-6 times and 0.2-0.3 time, respectively, for fiscal 2023. This is due to high operating profit and moderate leverage.

 

Weaknesses:

  • Moderate scale of operations amid intense competition: Revenue has been moderate around Rs 244 crore in fiscal 2022 and is likely to be in the range of Rs 240-250 crore in fiscal 2023, given the large size of the industry that SCL operates in. The moderate scale, coupled with intense competition in the chemical industry, reduces the bargaining power against suppliers and customers.

 

  • Susceptibility to fluctuations in raw material prices: The raw material, ethylene oxide (which accounts for about 65% of operating income) is a downstream petrochemical product, and therefore, vulnerable to volatility in crude oil prices. Hence any volatility in raw material prices can affect the operating margins of the company. Operating margin has thus fluctuated sharply between 9.5% and 15.5% over the four fiscals through March 2023. Sustenance of operating margin is a key monitorable over the medium term.

Liquidity: Adequate

Expected cash accrual of Rs 20-25 crore per fiscal in 2024 and 2025 should comfortably cover the yearly term debt of Rs 3-5 crore. The company has been sanctioned a working capital limit of Rs 40 crore in April 2022 and utilisation to the same averaged 71% for the seven months through November 2022. Current ratio was moderate at 1.14 times as on March 31, 2022, while cash and bank balance stood at Rs 5.8 crore.

Outlook: Stable

SCL will continue to benefit from its healthy market position and established customer base.

Rating sensitivity factors

Upward factors:

  • Sustained growth in revenue and steady operating margin leading to cash accrual of more than Rs 25 crore
  • Stable financial risk profile

 

Downward factors:

  • Decline in revenue or profitability leading to cash accrual of less than Rs 15 crore
  • Stretch in working capital cycle with gross current assets exceeding 200 days

About the company

SCL was incorporated in 1986 as a private limited company. It was reconstituted as a public limited company and listed on the Bombay Stock Exchange in 1995.

 

The company manufactures organic and other speciality chemicals such as surfactants, ethoxylation and antioxidants at its plant in Raigad (Maharashtra); these chemicals are used in the home and personal care, industrial formulations, paints and coatings, and agrochemicals segments.

 

In 2013, 62.36% stake in SCL was acquired by Solvay SA (Solvay), Belgium, through its stepdown subsidiary, Rhodia Amines. In November 2021, the entire stake of Rhodia Amines was taken over by Indus Petrochem Ltd. Currently the company is managed by Mr Jeet Malhotra

Key financial indicators

As on / for the period ended March 31

 

9M2023

2022

2021

Operating income

Rs crore

178.3

244.00

198.71

Reported profit after tax (PAT)

Rs crore

10.3

27.48

14.18

PAT margin

%

5.78

11.26

7.1

Adjusted debt/adjusted networth

Times

-

1.46

3.36

Interest coverage

Times

-

6.60

4.02

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 the
instrument
Date of
Allotment
Coupon
Rate (%)
Maturity
Date
Issue size
(Rs. Crore)
Complexity
Level
Rating assigned
with outlook
NA Cash credit NA NA NA 40 NA CRISIL BBB/Stable
NA Term loan NA NA Mar-28 25 NA CRISIL BBB/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 65.0 CRISIL BBB/Stable   -- 12-12-22 CRISIL BBB/Stable   --   -- Withdrawn
      --   -- 30-04-22 CRISIL BBB/Stable   --   -- --
Non-Fund Based Facilities ST   --   --   --   --   -- Withdrawn
Corporate Credit Rating LT 0.0 Withdrawn   -- 12-12-22 CRISIL BBB/Stable   --   -- --
      --   -- 30-04-22 CCR BBB/Stable   --   -- --
      --   -- 07-04-22 CCR BBB/Stable   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 40 HDFC Bank Limited CRISIL BBB/Stable
Term Loan 25 HDFC Bank Limited CRISIL BBB/Stable

This Annexure has been updated on 31-Mar-2023 in line with the lender-wise facility details as on 30-Apr-2022 received from the rated entity

Criteria Details
Links to related criteria
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings
Rating Criteria for Chemical Industry
CRISILs Criteria for rating short term debt
Understanding CRISILs Ratings and Rating Scales

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