Rating Rationale
June 29, 2021 | Mumbai
Tatva Chintan Pharma Chem Limited
Ratings upgraded to 'CRISIL A- / Stable / CRISIL A2+ '; rated amount enhanced for Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.137.43 Crore (Enhanced from Rs.92.82 Crore)
Long Term RatingCRISIL A-/Stable (Upgraded from 'CRISIL BBB+ / Stable')
Short Term RatingCRISIL A2+ (Upgraded from 'CRISIL A2 ')
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed rationale

CRISIL Ratings has upgraded its rating on the bank loan facilities of Tatva Chintan Pharma Chem Ltd (TCPCL) to ‘CRISIL A-/Stable/CRISIL A2+’ from ‘CRISIL BBB+/Stable/CRISIL A2’.

 

The rating upgrade reflect improved business risk profile on the back of healthy revenue growth and profitability. Revenue grew by around 12.9% in fiscal 2021 despite pandemic related disruption and likely to grow by around 30-40% over the current fiscal backed by healthy demand for its ‘Structure Directing Agent’ product portfolio, largely deriving its demand from automotive segment for compliance with latest emission standards. Operating margins are expected to remain healthy at 23-24% over the medium term. Rating upgrade also reflects healthy financial risk profile with comfortable capital structure and robust debt protection metrics. The company is also in the process of raising capital by way of an initial public offering (IPO), which should enhance the financial risk profile, once completed.

 

The ratings continue to reflect the company’s established market presence supported by the extensive experience of its promoters, sound operating efficiencies and healthy financial risk profile. These strengths are partially offset by TCPCL's large working-capital requirements, and susceptibility to volatility in raw material prices.

Analytical approach:

CRISIL Ratings has combined the business and financial risk profiles of TCPCL and its wholly-owned subsidiaries, which are its marketing arms, Tatva Chintan (USA) Inc and Tatva Chintan Europe B.V., herein after together referred to as TCPCL group, as there are operational and financial linkages between these entities.

 

Please refer Annexure - Details of Consolidation, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

  • Established market presence backed by the experience of the promoters

The company is the largest manufacturer of Structure Directing Agents for Zeolites in India and leading manufacturer of some of the other products it has in its portfolio. Growth in demand for SDAs, especially for applications in automotive segment for complying with latest emission control standard, should drive revenue over the medium term.  Further, promoters’ experience of nearly 25 years and healthy relations with customers and suppliers should continue to support the business.

 

  • Sound operating efficiencies

Operating efficiencies are sound as reflected in operating margin and return on capital employed of 23.3% and 27.7%, respectively, in fiscal 2021, likely to be sustained over the medium term. This is driven by niche products having higher margin; integrated operations and experienced management.

 

  • Healthy financial risk profile

Healthy financial risk profile, characterized by low leverage levels and healthy debt protection metrics. Networth was healthy at Rs 166 crore as on March 31, 2021, with comfortable TOLANW ratio of 0.9 times. Also, interest coverage and net cash accrual to adjusted debt ratios were healthy at 17 times and 0.6 time, respectively, in fiscal 2021. Any large capital expenditure over the medium term are subject to successful completion of IPO process and should be funded through IPO proceeds, The financial risk profile is expected to remain healthy over the medium term and should further strengthen post completion of IPO process.

 

Weaknesses:

  • Large working capital requirement

Operations have been working capital intensive, with gross current assets (GCAs) 219 days as on March 2021, drive by inventory, and receivables at 112, and 111 days, respectively. Debtor days in March 2021 is higher than normal due to higher revenue in the last quarter of the fiscal, this is likely to moderate to around 90 days and inventory is expected to remain at around 110-120 days over the medium term. Operations are expected to remain working capital intensive with GCAs of 200-220 days over the medium term.

 

  • Susceptibility to volatility in raw material prices

The raw materials consumed are primarily crude oil derivatives. With few of the company’s contracts being yearly and at fixed prices, operating margin remains susceptible to volatility in raw material prices.

Liquidity: Strong

Cash accrual, expected at Rs 70-90 crore per annum should comfortably cover repayment obligation of Rs 13.5 -14.2 crore per fiscal. Bank limit (Cash credit) of Rs 45 crore was utilised 87% on average over the 12 months through March 2021; however the limits has been enhanced to Rs 85 crore currently and the current utilization is around 60%. Any large capital expenditure over the medium term is subject to successful completion of IPO. CRISIL Ratings expects internal accruals and unutilized existing bank lines to be sufficient to meet its incremental working capital, other operational and financial requirements

Outlook: Stable

CRISIL Ratings believes that TCPCL will continue to benefit from its strong and diverse product profile, established relations with customers and enhanced manufacturing capacities.

Rating sensitivity factors

Upward Factors:

  • Sustained improvement in scale of operations & sustenance of operating profitability strengthening net cash accruals to above Rs 80 crore
  • Successful completion of IPO and absence of any large debt funded capex improves the financial risk profile

 

Downward Factors:

  • Significant decline in the scale of operations or weaker operating profitability, resulting in net cash accruals falling below Rs 50 crore
  • Increase in working capital requirement, larger-than-expected debt-funded capex or acquisition, or more-than-expected dividend pay-out, weakening the financial risk profile

About the Company

Incorporated in 1996, TCPCL is promoted by Mr Chintan Shah, Mr Ajay Patel, and Mr Shekhar Somani. The company manufactures Structure Directing Agents, Phase Transfer Catalysts, Electrolyte Salts for Super Capacitor Batteries and Pharma & Agro Intermediates and Specialty Chemicals. Its units in Ankleshwar and Dahej (both in Gujarat) together have 280 KL Reactor Capacity and 17 Assembly Lines.

 

TCPCL has set up two marketing arms Tatva Chintan (USA) Inc and Tatva Chintan Europe B.V. (in Netherlands) with warehouse facilities.

Key Financial Indicators

Particulars

Unit

2021

2020

Reported revenue

Rs crore

306.3

264.6

Reported profit after tax (PAT)

Rs crore

52.3

37.8

PAT margin

%

17.1

14.3

Adjusted debt/adjusted networth

Times

0.5

0.8

Interest coverage

Times

17.0

6.1

 

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

Bank Guarantee

NA

NA

NA

1

NA

CRISIL A2+

NA

Cash Credit

NA

NA

NA

40

NA

CRISIL A-/Stable

NA

Foreign Exchange Forward

NA

NA

NA

2

NA

CRISIL A2+

NA

Letter of Credit

NA

NA

NA

4.5

NA

CRISIL A2+

NA

Term Loan

NA

NA

Jun-23

39.5

NA

CRISIL A-/Stable

NA

Working Capital Facility

NA

NA

NA

50.43

NA

CRISIL A-/Stable

 

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Tatva Chintan Pharma Chem Limited

Full consolidation

Parent company; strong operational synergies

Tatva Chintan Europe BV

Full consolidation

Marketing arm of TCPCL; strong operational synergies and wholly-owned subsidiary

Tatva Chintan USA Inc

Full consolidation

Marketing arm of TCPCL; strong operational synergies and wholly-owned subsidiary

 

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 ST/LT 131.93 CRISIL A2+ / CRISIL A-/Stable   -- 23-12-20 CRISIL BBB+/Stable 26-12-19 CRISIL BBB+/Stable 20-12-18 CRISIL BBB/Positive CRISIL BBB/Positive
      --   --   --   -- 07-12-18 CRISIL BBB/Positive CRISIL A3+
Non-Fund Based Facilities ST 5.5 CRISIL A2+   -- 23-12-20 CRISIL A2 26-12-19 CRISIL A2 20-12-18 CRISIL A3+ CRISIL A3+
      --   --   --   -- 07-12-18 CRISIL A3+ --
All amounts are in Rs.Cr.
 
 
Annexure - Details of various bank facilities
Facility Name of Lender Amount (Rs.Crore) Rating
Bank Guarantee ICICI Bank Limited 1 CRISIL A2+
Cash Credit ICICI Bank Limited 40 CRISIL A-/Stable
Foreign Exchange Forward ICICI Bank Limited 2 CRISIL A2+
Letter of Credit ICICI Bank Limited 4.5 CRISIL A2+
Term Loan Citibank N. A. 32 CRISIL A-/Stable
Term Loan ICICI Bank Limited 7.5 CRISIL A-/Stable
Working Capital Facility Citibank N. A. 44.61 CRISIL A-/Stable
Working Capital Facility Citibank N. A. 5.82 CRISIL A-/Stable
Total - 137.43 -

This Annexure has been updated on 17-Aug-2021 in line with the lender-wise facility details as on 2-Aug-2021 received from the rated entity.

Criteria Details
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
CRISILs Criteria for Consolidation

Media Relations
Analytical Contacts
Customer Service Helpdesk
Saman Khan
Media Relations
CRISIL Limited
D: +91 22 3342 3895
B: +91 22 3342 3000
saman.khan@crisil.com

Naireen Ahmed
Media Relations
CRISIL Limited
D: +91 22 3342 1818
B: +91 22 3342 3000
 naireen.ahmed@crisil.com
Rahul Subrato Kumar Guha
Director
CRISIL Ratings Limited
D:+91 22 4097 8320
rahul.guha@crisil.com

Jumana Badshah
Associate Director
CRISIL Ratings Limited
D:+91 22 3342 8324
Jumana.Badshah@crisil.com

Athul Unnikrishnan Sreelatha
Manager
CRISIL Ratings Limited
D:+91 33 4011 8222
Athul.Sreelatha@crisil.com		Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
CRISILratingdesk@crisil.com
 
For Analytical queries:
ratingsinvestordesk@crisil.com

 

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper / magazine / agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL Ratings. However, CRISIL Ratings alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites, portals etc.


About CRISIL Ratings Limited (A subsidiary of CRISIL Limited)

CRISIL Ratings pioneered the concept of credit rating in India in 1987. With a tradition of independence, analytical rigour and innovation, we set the standards in the credit rating business. We rate the entire range of debt instruments, such as, bank loans, certificates of deposit, commercial paper, non-convertible / convertible / partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 33,000 large and mid-scale corporates and financial institutions. We have also instituted several innovations in India in the rating business, including rating municipal bonds, partially guaranteed instruments and infrastructure investment trusts (InvITs).
 
CRISIL Ratings Limited ("CRISIL Ratings") is a wholly-owned subsidiary of CRISIL Limited ("CRISIL"). CRISIL Ratings Limited is registered in India as a credit rating agency with the Securities and Exchange Board of India ("SEBI").
 
For more information, visit www.crisilratings.com 



About CRISIL Limited

CRISIL is a global analytical company providing ratings, research, and risk and policy advisory services. We are India's leading ratings agency. We are also the foremost provider of high-end research to the world's largest banks and leading corporations.

CRISIL is majority owned by S&P Global Inc., a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide

For more information, visit www.crisil.com

Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK

CRISIL PRIVACY NOTICE
 
CRISIL respects your privacy. We may use your contact information, such as your name, address, and email id to fulfil your request and service your account and to provide you with additional information from CRISIL.For further information on CRISIL’s privacy policy please visit www.crisil.com.

DISCLAIMER

This disclaimer forms part of and applies to each credit rating report and/or credit rating rationale (each a "Report") that is provided by CRISIL Ratings Limited  (hereinafter referred to as "CRISIL Ratings") . For the avoidance of doubt, the term "Report" includes the information, ratings and other content forming part of the Report. The Report is intended for the jurisdiction of India only. This Report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the Report is to be construed as CRISIL Ratings providing or intending to provide any services in jurisdictions where CRISIL Ratings does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this Report does not create a client relationship between CRISIL Ratings and the user.

We are not aware that any user intends to rely on the Report or of the manner in which a user intends to use the Report. In preparing our Report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the Report is not intended to and does not constitute an investment advice. The Report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind or otherwise enter into any deal or transaction with the entity to which the Report pertains. The Report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Ratings are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities / instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL Ratings assumes no obligation to update its opinions following publication in any form or format although CRISIL Ratings may disseminate its opinions and analysis. Rating by CRISIL Ratings contained in the Report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the Report should rely on their own judgment and take their own professional advice before acting on the Report in any way. CRISIL Ratings or its associates may have other commercial transactions with the company/entity.

Neither CRISIL Ratings nor its affiliates, third party providers, as well as their directors, officers, shareholders, employees or agents (collectively, "CRISIL Ratings Parties") guarantee the accuracy, completeness or adequacy of the Report, and no CRISIL Ratings Party shall have any liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the Report. EACH CRISIL RATINGS' PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Ratings Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the Report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. CRISIL Rating's public ratings and analysis as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any) are made available on its web sites, www.crisil.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee - more details about ratings by CRISIL Ratings are available here: www.crisilratings.com.

CRISIL Ratings and its affiliates do not act as a fiduciary. While CRISIL Ratings has obtained information from sources it believes to be reliable, CRISIL Ratings does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and / or relies in its Reports. CRISIL Ratings has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL Ratings has in place a ratings code of conduct and policies for analytical firewalls and for managing conflict of interest. For details please refer to: http://www.crisil.com/ratings/highlightedpolicy.html

Rating criteria by CRISIL Ratings are generally available without charge to the public on the CRISIL Ratings public web site, www.crisil.com. For latest rating information on any instrument of any company rated by CRISIL Ratings you may contact CRISIL RATING DESK at CRISILratingdesk@crisil.com, or at (0091) 1800 267 1301.

This Report should not be reproduced or redistributed to any other person or in any form without a prior written consent of CRISIL Ratings.

All rights reserved @ CRISIL Ratings Limited. CRISIL Ratings Limited is a wholly owned subsidiary of CRISIL Limited.

CRISIL Ratings uses the prefix ‘PP-MLD’ for the ratings of principal-protected market-linked debentures (PPMLD) with effect from November 1, 2011 to comply with the SEBI circular, "Guidelines for Issue and Listing of Structured Products/Market Linked Debentures". The revision in rating symbols for PPMLDs should not be construed as a change in the rating of the subject instrument. For details on CRISIL Ratiings' use of 'PP-MLD' please refer to the notes to Rating scale for Debt Instruments and Structured Finance Instruments at the following link: www.crisil.com/ratings/credit-rating-scale.html