Rating Rationale
January 18, 2024 | Mumbai
Transpek Industry Limited
Rating outlook revised to 'Stable'; Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.242.26 Crore
Long Term RatingCRISIL A/Stable (Outlook revised from 'Positive'; Rating Reaffirmed)
Short Term RatingCRISIL A1 (Reaffirmed)
 
Rs.87.2 Crore Fixed DepositsCRISIL A/Stable (Outlook revised from 'Positive'; Rating Reaffirmed)
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 revised its outlook on the long-term bank facilities and fixed deposits of Transpek Industry Ltd (TIL) to ‘Stable’ from 'Positive' while reaffirming the rating at ‘CRISIL A’. The rating on the short-term bank facilities has been reaffirmed at ‘CRISIL A1’.

 

The change in outlook factors in the likely moderation in the operational performance of the company in fiscal 2024, following a decline in revenue to Rs 283 crore with operating margin to approx.12.67% in the first half of the year (Revenue of Rs 428 crore with operating margin of 15.18% in the first half of fiscal 2023) because of slower demand that led to lower volume offtake in specialty chemical. Further, revenue in the specialty chemical key products declined owing to both price corrections and lower volumes largely due to global macro-economic headwinds. Any increase in demand leading to overall improvement in the operating performance of the company will be monitorable. A further drop in revenue or a hike in raw material prices can impact the overall operating performance of the company and will remain a key monitorable over the medium term.

 

The company’s financial risk profile remains strong, marked by a healthy networth of Rs 586.6 core as on March 31, 2023, and positive net debt position. With steady improvement in cash accrual and no major debt funded capital expenditure (capex) plans, a strong capital structure is expected to sustain over the near-to-medium term.

 

The ratings continue to reflect TIL’s diversified revenue profile in terms of end-user industries, and geographic presence and comfortable financial risk profile. These strengths are partially offset by susceptibility to volatility in raw material prices and cyclicality in the chemical segment and working capital intensive operations with high product and customer concentration risk, and exposure to risks inherent in the chemical industry.

Key Rating Drivers & Detailed Description

Strengths:

  • Established market position with reputed and diversified clientele: Business risk profile is supported by the company’s established position in the domestic and international markets as it caters to various industries, such as polymers, agrochemicals, plastics, performance materials, coatings, pharmaceuticals, personal care, and flavours and fragrances, enabling it to withstand downturns in any one end-user segment. Furthermore, overseas markets, including the US, South Korea, and Europe, contribute over 80% to the revenue. Topline increased to Rs 834 crore in fiscal 2023 from Rs 609 crore in fiscal 2022. The company is also expecting to derive benefit from the capacity expansion undertaken in fiscal 2022 and revenue should grow at a healthy pace over the medium term and the same will remain a key monitorable.

 

  • Comfortable capital structure: Capital structure remained strong marked by healthy networth of Rs. 586.6 crore as on March 31, 2023, due to steady accretion to reserve over the years and minimal debt. The absence of any large, debt-funded capex and controlled working capital management will enable low reliance on bank funding. Hence, the capital structure and debt protection metrics should remain strong over the medium term with total outside liabilities to tangible networth (TOL/TNW) ratio expected at 0.30-0.50 time over the medium term. This coupled with growing scale and improving profitability should lead to further improvement in the financial risk profile over the medium term. Debt protection measures were robust, as reflected in interest coverage and net cash accrual to total debt ratios of 8.59 and 1.33 times, respectively, in fiscal 2023.

 

Weaknesses:

  • Susceptibility to volatility in raw material prices and cyclicality in the chemical segment: Most of the raw materials of TIL are subject to the risk of volatility in global crude oil prices. Therefore, its profitability remains exposed to any adverse movement in raw material prices as the same can only be passed-on to end customers with a time lag. There has been variation in the operating margins of TIL, which was reflected in the 12 quarters through the first half of fiscal 2024.

 

Moreover, the chemical industry is intensely competitive and dominated by large players. The top players account for close to 50% of the market share. Furthermore, the industry is susceptible to government regulations and cyclicality. Cyclical downturns or adverse changes in the demand-supply balance may result in lower realisations for chemical manufacturers.

 

  • Working capital-intensive operations with high product and customer concentration risk and exposure to risks inherent in the chemical industry: Operations in chemical industry are working capital intensive with expected gross current assets (GCA) of 90-120 days driven by receivables and inventory of 52 and 35 days, respectively, as on March 31, 2023. However, operations are more efficiently managed than the previous fiscal on account of better revenue contribution from various products.

 

With a key product contributing significantly to topline through sales to a single customer, TIL faces pronounced product and customer concentration risks. This is mitigated by a long-term take-or-pay supply agreement with the customer. Revenue and profitability are exposed to government policies related to pollution control, hazardous product, or import and export of raw materials.

Liquidity: Strong

Expected cash accrual of Rs 60 crore over the medium term should comfortably cover debt obligation of Rs 2-15 crore over the medium term and support liquidity. Bank limit utilisation averaged a low 9% over the 12 months through November 2023. Cash and bank balance stands at Rs 37 crore currently. Current ratio was healthy at 1.73 times on March 31, 2023. CRISIL Ratings believes that any further exposure in group companies, impinging its own cash accrual may impact the liquidity and will remain a rating sensitivity factor. Low gearing and moderate networth support the financial flexibility.

Outlook: Stable

CRISIL Ratings believes that TIL’s operating and financial performance will remain healthy, driven by the gradual recovery in demand in the specialty chemical segment. Its financial risk profile is expected to remain strong, in the absence of debt funded capex, driven by a strong capital structure and healthy cash accrual.

Rating Sensitivity Factors

Upward factors:

  • Achievement of envisaged revenue along with operating margin of 17-18%
  • Sustenance of a healthy financial risk profile and improvement in liquidity.

 

Downward factors:

  • Sustained decline in revenue with operating margin falling below 12% on a sustained basis or stretched working capital resulting in weak return on capital employed.
  • Any large capex adversely impacting the financial profile.

About the Company

Incorporated in 1965, Vadodara (Gujarat)-based TIL manufactures and exports chemicals, mainly acid and alkyl chlorides. Export contributes to over three quarters of the revenue, with the domestic market accounting for the remaining. The company is listed on the Bombay Stock Exchange. TIL is promoted by Shroff family.

Key Financial Indicators

As on/for the period ended March 31

Unit 

2023

2022

Operating income

Rs.Crore

833.82

608.87

Reported profit after tax

Rs.Crore

83.48

65.40

PAT margins

%

10.01

10.74

Adjusted Debt/Adjusted Networth

Times

0.13

0.27

Interest coverage

Times

8.20

10.44

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 Bank Guarantee NA NA NA 0.4 NA CRISIL A1
NA Cash Credit NA NA NA 85 NA CRISIL A/Stable
NA Export Packing Credit & Export
Bills Negotiation/ Foreign Bill discounting		 NA NA NA 21.5 NA CRISIL A1
NA Inland/Import Letter of Credit NA NA NA 41 NA CRISIL A1
NA Letter of Credit NA NA NA 35.56 NA CRISIL A1
NA Loan Equivalent Risk Limits NA NA NA 2.5 NA CRISIL A/Stable
NA Proposed Fund-Based Bank Limits NA NA NA 8.9 NA CRISIL A/Stable
NA Proposed Long Term Bank Loan Facility NA NA NA 40 NA CRISIL A/Stable
NA Credit Limit Under Gold Card NA NA NA 2 NA CRISIL A/Stable
NA Term Loan NA NA Jun-24 5.4 NA CRISIL A/Stable
NA Fixed Deposit NA NA NA 87.2 Simple CRISIL A/Stable
Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT/ST 165.3 CRISIL A1 / CRISIL A/Stable   -- 20-01-23 CRISIL A/Positive / CRISIL A1 23-06-22 CRISIL A/Stable 04-02-21 CRISIL A/Stable CRISIL A1 / CRISIL A/Stable
      --   --   -- 27-01-22 CRISIL A/Stable   -- --
Non-Fund Based Facilities ST 76.96 CRISIL A1   -- 20-01-23 CRISIL A/Positive / CRISIL A1 23-06-22 CRISIL A1 / CRISIL A/Stable 04-02-21 CRISIL A1 / CRISIL A/Stable CRISIL A1 / CRISIL A/Stable
      --   --   -- 27-01-22 CRISIL A1 / CRISIL A/Stable   -- --
Fixed Deposits LT 87.2 CRISIL A/Stable   -- 20-01-23 CRISIL A/Positive 23-06-22 CRISIL A/Stable 04-02-21 F A+/Stable F A+/Stable
      --   --   -- 27-01-22 F A+/Stable   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 0.24 State Bank of India CRISIL A1
Bank Guarantee 0.16 Bank of Baroda CRISIL A1
Cash Credit 5 IDBI Bank Limited CRISIL A/Stable
Cash Credit 40 State Bank of India CRISIL A/Stable
Cash Credit 19.75 Axis Bank Limited CRISIL A/Stable
Cash Credit 20.25 Bank of Baroda CRISIL A/Stable
Credit Limit Under Gold Card 2 Bank of Baroda CRISIL A/Stable
Export Packing Credit & Export Bills Negotiation/Foreign Bill discounting 21.5 Axis Bank Limited CRISIL A1
Inland/Import Letter of Credit 41 State Bank of India CRISIL A1
Letter of Credit 12 Bank of Baroda CRISIL A1
Letter of Credit 13 IDBI Bank Limited CRISIL A1
Letter of Credit 10.56 Axis Bank Limited CRISIL A1
Loan Equivalent Risk Limits 2.5 State Bank of India CRISIL A/Stable
Proposed Fund-Based Bank Limits 8.9 Not Applicable CRISIL A/Stable
Proposed Long Term Bank Loan Facility 40 Not Applicable CRISIL A/Stable
Term Loan 5.4 Axis Bank Limited CRISIL A/Stable
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
Rating Criteria for Chemical Industry
CRISILs criteria for rating fixed deposit programmes
CRISILs Criteria for rating short term debt

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