| The Dharamsi Morarji Chemical Company Limited | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
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| This Rating Rationale is published solely to update the bank-wise facility details as provided by the rated entity; other sections are same as the previous Rating Rationale dated December 07, 2021. |
Detailed Rationale CRISIL Ratings’ ratings on the bank loan facilities and fixed deposit programme of The Dharamsi Morarji Chemical Company Limited (TDMCC) continues to reflect established market position in the chemical industry and an above-average financial risk profile. These strengths are partially offset by exposure to volatile end products and raw material prices and regulatory risks.
CRISIL Ratings had, on 7th December 2021, upgraded its rating on the bank loan facilities of TDMCC’s to ‘CRISIL BBB+/Stable’ from ‘CRISIL BBB/Stable’ and assigned ‘FA-/Stable’ rating on TDMCC’s fixed deposit programme.
The rating upgrade action reflected improved business risk profile driven by increased contribution from speciality segment, growth in revenue and healthy profitability levels. Revenue improved by 52.8% during the first half of the fiscal 2022 to Rs 145.8 crore; while the growth in first half has been largely driven by improved realisations; revenue growth is expected to be sustained with higher volumes over medium supported by enhanced capacities getting operational during the current fiscal. Operating margins is expected to remain healthy over the medium term despite of increase in proportion of bulk chemicals in the product mix for the short term post capacity augmentation. |
Key Rating Drivers & Detailed Description Strengths Established market position in the chemicals industry: Established market position in the chemical business is backed by a diversified product portfolio, strong clientele, and experienced management. TDMCC is a pioneer in manufacturing sulphuric acid and sulphur chemistry products. Its current product portfolio includes specialty and commodity chemicals, primarily based on sulphuric acid, ethanol, and boric acid chemistries. DMCC has presence in domestic and overseas market and has forged strong relations with reputed clients across geographies. Furthermore, the products find applications in many end-user industries, thus allaying any sectoral concentration risk. TDMCC’s business risk profile is also bolstered by the promoters’ extensive experience and longstanding presence in the chemical industry.
The company has been carrying out various capacity enhancement capital expenditures; such as debottlenecking at its Roha plant, Multipurpose, Bulk Chemicals and intermediates plants at Dahej. Debottlenecking and multipurpose plants have been completed and commenced operations in Q2 and Q3 of current fiscal. Bulk chemical plant is expected to be operational in current quarter, followed by Speciality chemical and intermediates plant in last quarter of fiscal 2022. These enhanced capacities are expected to drive revenue growth and should support business risk profile over the medium term
Above-average financial risk profile: Networth is healthy at 158.1 crore and strong capital structure as reflected in total outside liabilities to adjusted networth ratio of 0.6 time as on March 31, 2021. Debt protection metrics are strong, as reflected in interest coverage of 17.6 times and net cash accrual to adjusted debt ratio of 1 times in fiscal 2021. Planned capital expenditure (capex) of Rs 110 crore is in final stages of completion. There is no further capex expected until the existing expansion is completed and the operations are stabilised. The financial risk profile is expected to remain healthy, supported by healthy accruals and absence of any further large capex over the medium term. Nevertheless, timely completion and ramp-up of enhanced capacities will remain a key monitorable. WeaknessesSusceptibility to fluctuations in commodity chemicals and raw material prices: Profitability is susceptible to price fluctuations in raw material as well as end products. Major raw materials are sulphur, benzene, ethanol, and boron, etc. and raw material cost account for about 50-60% of total sales. Any adverse fluctuation in raw material prices can impact profitability. Further, commodity chemicals account for about 35% of sales, where competition is high and the ability to pass on price fluctuations is limited. This is reflected in volatile operating margin of 12.8-23.6 (17.7% in fiscal 2021) over the five years through fiscal 2021.
Exposure to regulatory risks: Company is into manufacturing of chemicals from sulphur and ethanol chemistry; due to its hazardous nature, it is exposed to regulatory risks.
Moderate project risk: Company is in the process of completing its capex of around Rs 110 crore during current fiscal across various projects. Technology and completion risks are low to medium, as the company has expertise in the technology and has a track record of successfully setting up similar plants in the past. Funding risk is low, as the company has already tied up funding for phase one. The capex is in its final stages of completion; however, ramp up in scale of operations at these units is a key rating sensitivity. |
Liquidity: Adequate Net cash accrual, expected at Rs 30-40 crore per fiscal over the medium term, should sufficiently cover yearly debt obligation of Rs 13-16 crore per annum over the medium term. Planned capex of around Rs 110 crore over the medium term is adequately funded by term loans of 60-70%. Bank limit utilisation was low, averaged at 53% over the 6 months through July 2021. Low gearing and moderate networth also support financial flexibility |
Outlook: StableCRISIL Ratings believes that TDMCC will continue to benefit from its established market position, enhanced capacities and comfortable financial risk profile |
Rating Sensitivity Factors Upward factors
Downward factors
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About the CompanyIncorporated in 1919, TDMCC primarily manufactures commodity and specialty chemicals, with plants in Roha (Maharashtra) and Dahej (Gujarat). Borax Morarji Ltd, a group company, was amalgamated with DMCC with effect from April 01, 2016. TDMCC is listed on the Bombay Stock Exchange.
TDMCC was earlier engaged into manufacturing of phosphate fertilisers, such as single super phosphate, under its well-known ‘Ship’ brand. The company has discontinued fertiliser manufacturing since 2007. |
Key Financial Indicators
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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)
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | |||
| Facility | Amount (Rs.Crore) | Name of Lender | Rating |
| Long Term Loan | 23.75 | Janakalyan Sahakari Bank Limited | CRISIL BBB+/Stable |
| Proposed Long Term Bank Loan Facility | 6.25 | Not Applicable | CRISIL BBB+/Stable |
| Term Loan | 26.25 | The Saraswat Co-Operative Bank Limited | CRISIL BBB+/Stable |
| Term Loan | 33.75 | The Saraswat Co-Operative Bank Limited | CRISIL BBB+/Stable |
| Working Capital Facility | 15 | RBL Bank Limited | CRISIL BBB+/Stable |
This Annexure has been updated on 08-Dec-2021 in line with the lender-wise facility details as on 07-Dec-2021 received from the rated entity.
Criteria Details
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