Rating Rationale
January 25, 2021 | Mumbai
Suparna Chemicals Limited
 
Rating Action
Total Bank Loan Facilities RatedRs.26.5 Crore
Long Term RatingCRISIL BBB/Stable
Short Term RatingCRISIL A3+
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings on the bank facilities of Suparna Chemicals Limited (SCL) reflect the extensive experience of the promoter in the specialty chemicals business, an established customer relationship, increasing product diversity and a healthy financial risk profile especially liquidity. These strengths are partially offset by an average scale of operations and susceptibility of the operating margin to volatility in raw material prices.

 

On January 13, 2021, CRISIL had assigned its 'CRISIL BBB/Stable/CRISIL A3+' ratings to the bank facilities of SCL.

Key Rating Drivers & Detailed Description

Strengths:

  • Extensive industry experience of the promoter and an established customer relationship: The Company has developed strong technical capabilities, backed by an experienced promoter group, and in-house product innovation. Dr Suparna Mandal (PhD Chemical Engineering), has an experience of 12 years in managing operations and now heads the company since demise of Mr Ramnath Mandal.  The technical team has extensive experience in the specialty chemical business and new product development. This has enabled the company to establish a niche business. Further, operations are managed by professionals at critical positions.

 

  • The company manufactures sodium- and potassium-based compounds. It has established itself as a supplier of these products in India and abroad. Customers include pharmaceutical majors, such as Dishman Pharmaceuticals Ltd, Glenmark Pharmaceuticals Ltd, and Sun Pharmaceutical Industries Ltd, and entities in the agrochemicals segment. The company also supplies its proprietary breathing apparatus to mining major, Coal India Ltd, and the Indian defence sector.

 

  • The company derives 20-25 percent of its revenue overseas markets, over the years, SCL has maintained steady relations with key customer, which acts as a strategic partner to the company.  CRISIL believes SCL will continue to benefit from the promoter’s extensive experience and maintain healthy growth in revenue and add new products to its portfolio.

 

  • Increasing product diversity: The company has been enhancing its product basket over the past 40 years. The continuing research and development for modifying existing offerings along with introduction of new products should support the scale-up of operations over the medium term.

 

  • Healthy financial risk profile: The capital structure has been healthy due to low reliance on external funds. The gearing was 0.03 time and the total outside liabilities to adjusted tangible networth (TOLANW) ratio 0.21 time, as on March 31, 2020. Debt protection metrics are robust due to low leverage and healthy profitability.  The interest coverage and net cash accrual to total debt ratios were at 27.1 times and 3.92 times, respectively, for fiscal 2020. The company also maintains surplus liquidity, which continues to bolster the overall financial risk profile. Further, with a steady operating performance and no large capital expenditure (capex) or investments, the financial risk profile is expected to remain comfortable over the medium term.

 

Weaknesses:

  • Average scale of operation: The company operates in the niche specialty chemicals business and its scale has remained average despite revenue growth. Revenue increased to Rs. 73 crore in fiscal 2020 from Rs 60 crore in fiscal 2018. The growth was muted in the next two fiscals and a marginal de-growth is likely in fiscal 2021 primarily because of loss of revenue during the first quarter on account of the Covid-19 pandemic and the lockdown imposed to contain it. Sustained revenue growth remains critical and will be monitored.

 

  • Vulnerability of the operating margin to volatility in raw material prices: The primary raw materials required are potassium chloride, sodium metal and tertiary butanol. The prices of these have been volatile over the past few years. Any adverse fluctuation in prices that cannot be immediately passed on to customers can impact the operating margin. The company has natural hedging for the import of raw material as 40-50% of sales comprise exports.

Liquidity: Adequate

Bank limit utilisation was moderate at around 18% during the 12 months through November 2020. Cash accrual is expected at Rs 8-10 crore per fiscal against no term debt obligation over the medium term, and thus will as a cushion to liquidity. The current ratio was healthy at 4.42 times on March 31, 2020. An unencumbered cash and bank balance of around Rs 20 crore as on March 31, 2020, provides financial flexibility.   

Outlook: Stable

SCL should continue to benefit from the extensive experience of the promoter and established relationship with clients.

Rating Sensitivity factors

Upward factors

  • Sustained improvement in revenue by around 20% per fiscal with an operating margin of over 20%, leading to higher cash accrual
  • Maintenance of the healthy financial risk profile, especially liquidity

Downward factors

  • A steep decline in sales or a fall in the operating margin to less than 12%
  • Weakening of the financial risk profile because of large capex/investments or a significant stretch in the working capital cycle

About the Company

SCL was incorporated in 1980, promoted by Mr R N Mandal. It manufactures potassium- and sodium-based specialty chemicals such as sodium and potassium alkoxides including sodium potassium alloy, potassium metal, potassium superoxide, ketonic resins and specialty plasticisers.  It also sells a breathing apparatus under the Raksha Kavach brand. The chemicals find application in the pharmaceutical, agrochemical, coating and defence industries. The company has two manufacturing units, one each at Ambernath in Maharashtra and Vapi in Gujarat

Key Financial Indicators

As on / for the period ended March 31

 

2020

2019

Operating income

Rs crore

73.24

74.11

Reported profit after tax (PAT)

Rs crore

7.58

9.34

PAT margin

%

10.4

12.6

Adjusted debt/adjusted networth

Times

0.03

0.11

Interest coverage

Times

22.79

21.33

 

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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

levels

Rating assigned

with outlook

NA

Cash Credit*

NA

NA

NA

12

NA

CRISIL BBB/Stable

NA

Proposed Short Term

Bank Loan Facility

NA

NA

NA

0.5

NA

CRISIL A3+

NA

Bank Guarantee

NA

NA

NA

14

NA

CRISIL A3+

*Fully Interchangeable with Letter of Credit/ Export Packing Credit/ Foreign Bill Purchase

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/ST 12.5 CRISIL A3+ / CRISIL BBB/Stable 13-01-21 CRISIL A3+ / CRISIL BBB/Stable   -- 11-11-19 Withdrawn 15-11-18 CRISIL BBB/Stable CRISIL BBB-/Stable
      --   --   -- 22-10-19 CRISIL BBB/Stable 05-11-18 CRISIL BBB/Stable --
Non-Fund Based Facilities ST 14.0 CRISIL A3+ 13-01-21 CRISIL A3+   -- 11-11-19 Withdrawn 15-11-18 CRISIL A3+ CRISIL A3+
      --   --   -- 22-10-19 CRISIL A3+ 05-11-18 CRISIL A3+ --
All amounts are in Rs.Cr.
 
 
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee 14 CRISIL A3+ Bank Guarantee 14 CRISIL A3+
Cash Credit& 12 CRISIL BBB/Stable Cash Credit 12 CRISIL BBB/Stable
Proposed Short Term Bank Loan Facility 0.5 CRISIL A3+ Proposed Short Term Bank Loan Facility 0.5 CRISIL A3+
Total 26.5 - Total 26.5 -
& Fully Interchangeable with Letter of Credit/ Export Packing Credit/ Foreign Bill Purchase
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Criteria for rating short term debt

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