Rating Rationale
July 28, 2023 | Mumbai
20 Microns Limited
Ratings upgraded to 'CRISIL A-/Stable/CRISIL A2+'; Rating Withdrawn
 
Rating Action
Total Bank Loan Facilities RatedRs.113.58 Crore
Long Term RatingCRISIL A-/Stable (Upgraded from 'CRISIL BBB+/Stable'; Rating Withdrawn)
Short Term RatingCRISIL A2+ (Upgraded from 'CRISIL A2'; Rating Withdrawn)
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 upgraded its ratings on the bank facilities of 20 Microns Ltd (ML, part of the 20ML group) to ‘CRISIL A-/Stable/CRISIL A2+’ from ‘CRISIL BBB+/Stable/CRISIL A2’.

 

The ratings have been subsequently withdrawn, on request from the company and on receipt of a no objection certificate from the bankers. This is in line with CRISIL Ratings’ policy on withdrawal of ratings.

 

The upgrade reflects sustained improvement in operating performance over the three fiscals ended March 31, 2023. Operating income has recorded a compounded annual growth rate of about 9.09% during this period, supported by a ramp up in scale of operations. Operating margin is estimated at 12.4% in fiscal 2023. Operations are working capital intensive, marked by gross current assets (GCAs) of 122 days as on March 31, 2023. Better accretion to reserves and lower debt levels have strengthened the financial risk profile, as evidenced by net worth and total outside liabilities to adjusted net worth ratio of Rs 272 crore and around 0.62 time, respectively, as on March 31, 2023.

  

The ratings continue to reflect the group's established market position in the micronized minerals segment and its sound operating efficiency. These strengths are partially offset by the capital-intensive operations and susceptibility to adverse changes in government regulations and concentration in end-user industries.

Analytical Approach

To arrive at its ratings, CRISIL Ratings has combined the business and financial risk profiles of 20ML and its subsidiaries, 20 Microns Nano Minerals Ltd (NANO), 20 Microns FZE (20MFZE), 20 Microns SDN BHD (20MSDN), 20 MCC Pvt Ltd (20 MCC) and 20 Microns Vietnam Company Ltd. All these companies, collectively referred to as the 20ML group, have operational and financial linkages and are under a common management team. ML has 97.21% stake in NANO and 100% stake in all the other entities. Moreover, 20ML had extended a corporate guarantee to the bank facilities of 20 Microns Nano Minerals Pvt Ltd.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

  • Established market position in the micronised minerals segment: The group has an established presence in the micronised minerals segment. It caters to customers such as Berger Paints Ltd, Akzo Nobel India Ltd. and Asian Paints Ltd., among others, which contribute almost 40% of the total revenue. Longstanding relationships with these players have helped the group become one of their key suppliers. The group is among the leading producers of ultrafine industrial minerals and specialty chemicals, which find application as functional fillers, additives, and extenders. It generates around 15% of its turnover through exports.

 

  • Strong financial risk profile: Capital structure of the group is marked by a large net worth of Rs 272.16 crore as on March 31, 2023, and low total outside liabilities to tangible net worth ratio and gearing of around 0.62 times and 0.19 times, respectively, as on March 31, 2023. Over the last few years, the group has primarily relied on internal accrual to fund its operating expenses and capital expenditure (capex), thus reducing reliance on debt. Interest coverage and net cash accrual to total debt ratios stood at 6.18 times and 1.01 times, respectively, as on March 31, 2023. Moderation in debt levels, lower interest rate and recovery in operating margin should help the interest coverage ratio to improve further in the coming fiscal years. The exit from CDR (corporate debt restructuring) and release of pledged shares, coupled with improving market capitalization, should also enhance financial flexibility for the group.

 

  • Sound operating efficiency: Return on capital employed is expected to be healthy in the range of 18-20% over the medium term, backed by a moderate operating margin of 12-14%. The group benefits from a wide geographic reach (nine plants across India), which helps save on time and logistic cost. The group will also continue to benefit from better scalability, translating into continued revenue growth.

 

Weaknesses:

  • Working capital-intensive operations: Gross current assets stood at 122 days as on March 31, 2023, driven by receivables of around 75 days and inventory of around 90 days. The buildup of inventory prior to monsoon pushes up working capital expenses during the period. However, credit of around 120 days, provided by suppliers, partially eases pressure on the working capital cycle. Continued support from payables is critical for the group to meet its working capital requirement.

 

  • High fixed asset replacement requirements: The mineral micronisation industry operates at a low asset turnover ratio of 1-1.5 times, indicating high fixed asset requirement. Moreover, the inherent nature of work, involving micronisation of minerals, causes high wear-and-tear of the plant. Consequently, to sustain its production capacity, the group needs to incur significant annual maintenance capex, which consumes a large portion of its cash accrual.

 

  • Susceptibility to adverse changes in government regulations and concentration in revenue profile: The industry is susceptible to government regulations, and any unfavorable changes in policies (viz. ban on mining, stringent environment norms, changes in royalties, among others) may adversely impact performance. Further, the group faces high concentration risk, as the paint and plastic industry contributes around 75% of revenue and the top five customers form nearly half the turnover. The group also remains vulnerable to economic cycles, with demand taking a beating amidst a slowing economy.

Liquidity: Adequate

Bank limit utilization was moderate averaging around 63.26% for the 12 months ended May 31, 2023. Expected cash accrual of over Rs 53 crore should more than suffice to cover the term debt obligation of Rs 4.3 crore over the medium term. Current ratio was moderate at 1.53 times on March 31, 2023. The promoters are likely to extend support via equity and unsecured loans to cover the working capital expenses and debt obligation. Cash and bank balance was moderate around Rs 20 crore as on March 31, 2023. Low gearing and moderate net worth provide financial cushion in case of any adverse conditions or downturn in the business.

Outlook: Stable

CRISIL Ratings believes the 20ML group will continue to benefit from the extensive experience of its promoter in the micronised minerals segment and the established relationships with clients. Financial risk profile should also improve in the absence of any significant capex.

Rating Sensitivity factors

Upward factors:

  • Sustained improvement in the financial risk profile
  • Diversification in end-user industry and customer profiles, with revenue growth of around 15% on steady basis

 

Downward factors:

  • Significant stretch in working capital cycle or sharp decline in cash accrual
  • Pressure on topline or moderation in margin to below 10%, weakening the business profile

About the Group

20ML was incorporated in 1987. The company has been promoted by the late Mr Chandresh Parikh and is being managed by his sons, Mr Rajesh Parikh and Mr Atil Parikh. It is listed on BSE Ltd and National Stock Exchange Ltd. The company manufactures micronised minerals such as calcium carbonate, calcined clay and other specialty minerals.

 

20 Microns Nano Minerals Limited was incorporated in 1993 and is engaged in processing and sale of specialty chemicals such as calcite, wax, SCD.

Key Financial Indicators Consolidated

As on / for the period ended March 31

 

2022

(Audited)

2021

(Audited)

Operating income

Rs crore

613.22

483.55

Reported profit after tax

Rs crore

34.58

22.99

PAT margin

%

5.64

4.75

Adjusted debt/Adjusted networth

Times

0.48

0.48

Interest coverage

Times

3.95

2.33

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 Cash credit NA NA NA 49 NA CRISIL A-/Stable (Rating Upgraded and Withdrawn)
NA Cash credit NA NA NA 12 NA CRISIL A-/Stable (Rating Upgraded and Withdrawn)
NA Long-term loan NA NA Mar-24 0.82 NA CRISIL A-/Stable (Rating Upgraded and Withdrawn)
NA Proposed long-term bank loan facility NA NA NA 25.68 NA CRISIL A-/Stable (Rating Upgraded and Withdrawn)
NA Short-term bank facility NA NA NA 26.08 NA CRISIL A2+ (Rating Upgraded and Withdrawn)

Annexure – List of entities consolidated

Names of entities consolidated

Extent of consolidation

Rationale for consolidation

20 Microns Ltd

Full Consolidation

Common management team, operational and financial linkages. ML has 97.21% stake in NANO and 100% stake in all the other entities. Moreover, 20ML has extended a corporate guarantee to the bank facilities of NANO.

20 Microns Nano Minerals Ltd

20 Microns FZE

20 MCC Pvt Ltd

20 Microns Vietnam Company Ltd

20 Microns SDN BHD
Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT/ST 113.58 Crisil A-/Stable (Rating Upgraded and Withdrawn)   -- 04-05-22 CRISIL BBB+/Stable / CRISIL A2 08-01-21 CRISIL A3+ / CRISIL BBB/Stable 31-12-20 CRISIL BBB/Stable Withdrawn
      --   -- 24-03-22 CRISIL BBB+/Stable / CRISIL A2   --   -- --
Non-Fund Based Facilities ST   CRISIL A2+ (Rating Upgraded and Withdrawn)   --   --   --   -- Withdrawn
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 49 State Bank of India Withdrawn
Cash Credit 12 IDBI Bank Limited Withdrawn
Long Term Loan 0.82 State Bank of India Withdrawn
Proposed Long Term Bank Loan Facility 25.68 Not Applicable Withdrawn
Short Term Bank Facility 26.08 State Bank of India Withdrawn
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Approach to Recognising Default
CRISILs Criteria for rating short term debt
CRISILs Criteria for Consolidation
Understanding CRISILs Ratings and Rating Scales

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