CRISIL has revised its rating outlook on the long-term bank facilities of Meghmani Organics Ltd (Meghmani) to ‘Positive’ from ‘Stable’, and has reaffirmed the rating at ‘A’. The rating on the company’s outstanding short-term bank facilities has also been reaffirmed at ‘P1’. CRISIL has withdrawn its ‘P1’ rating on Meghmani’s short-term debt programme at the company’s request; there is no outstanding under this programme. The ‘A/Stable’ on the company’s term loan facility has also been withdrawn as the company has fully repaid this loan.

The outlook revision has been mainly driven by expectations of improvement in offtake across Meghmani’s business divisions, especially the pigments and caustic soda divisions. Also, the company’s debt-funded capital expenditure (capex) in 2009-10 (refers to financial year, April 1 to March 31) was less than expected, which resulted in lower debt levels and moderately improved gearing and debt protection metrics. The outlook revision also reflects CRISIL’s belief that, with continued healthy demand prospects and prudent capex, Meghmani will sustain the improvement in its financial risk profile over the medium term.

The ratings continue to be supported by Meghmani’s established market position in the pigments and agrochemicals segments, diversified customer base, and the significant cost advantage the company derives from its backward integration of operations into the manufacture of copper phthalocyanine blue (the key raw material for pigments), and cypermethric acid chloride, metaphenoxy benzaldehyde, and metaphenoxy benzyl alcohol (key intermediates in crop protection production). These rating strengths are partially offset by Meghmani’s large working capital requirements arising out of seasonality in its business.

For arriving at its ratings, CRISIL has combined the business and financial risk profiles of Meghmani and its subsidiaries, because all these entities are under a common management and have close operational and financial linkages.

Outlook: Positive
CRISIL believes that Meghmani’s credit risk profile will improve gradually over the medium term, supported by steady accruals and a progressive reduction in debt levels. The rating may be upgraded if Meghmani is able to maintain healthy utilisation levels at its caustic soda division, or the company improves its gearing and debt protection levels, supported by higher-than-expected profitability. Conversely, the outlook may be revised to ‘Stable’ if Meghmani undertakes a larger-than-expected debt-funded capex programme, or its profitability declines, because of lower realisations from its key products.

About the Company
Meghmani was established in 1986 by Mr. Jayanti Patel, Mr. Ashish Soparkar, Mr. Natwarlal Patel, Mr. Ramesh Patel, and Mr. Anand Patel. The company specialises in the manufacture of green and blue pigment products. These products are used in the manufacture of printing ink, plastics, paints, textiles, leather, and rubber. Meghmani also produces a wide variety of commonly used pesticides for crop and non-crop applications; the latter include public health, and insect control in wood preservation and food grain storage. In July 2009, the company commissioned its caustic soda plant, with an installed capacity of 113,000 tonnes per annum and powered by a 40-megawatt captive thermal power generation unit. The company is listed on the Singapore Stock Exchange, National Stock Exchange, and Bombay Stock Exchange.

For 2009-10, Meghmani (consolidated) reported a net profit of Rs.396 million on net sales of Rs.8.18 billion, against a net profit of Rs.372 million on net sales of Rs.7.91 billion for the preceding year.