| 20 Microns Limited | ||||
| 'CRISIL BBB/Stable' assigned to bank debt | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to annexure for Details of Instruments & Bank Facilities | ||||
| Detailed Rationale |
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CRISIL has assigned its 'CRISIL BBB/Stable' rating to the long term bank facilities of 20 Microns Limited (ML, part of the 20ML group). |
| Analytical Approach |
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For arriving at its ratings, CRISIL has combined the business and financial risk profiles of ML and its subsidiaries, 20 Microns Nano Minerals Ltd (NANO), 20 Microns FZE (20MFZE), 20 Microns SDN BHD (20MSDN), 20 MCC Private Limited (20 MCC) and 20 Microns Vietnam Company Limited. This is because all these companies, collectively referred to as the 20ML group, have a common management team, and 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. |
| Key Rating Drivers & Detailed Description |
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Strengths * Established market position: The group has an established presence in micronized minerals segment catering to customers like Berger Paint, Akzo Nobel, Asian paints among others. With relationship developed over years, the group is among the dominant supplier, in its product segments, to these players. 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 a sixth of its turnover through export. * Moderate financial profile: The group has a strong net worth of Rs. 182 cr as on March 31, 2020. The indebtedness (total outside liabilities to tangible networth ratio) has moderated to 1.40 times as on March 31, 2020 from highs of 2.87 times as on March 31, 2016 through steady accretions and debt repayments. Over the last couple of years, the group has primarily relied on internal accruals to fund the incremental opex and capex requirements, restraining the reliance on debt. The group had a gearing of 0.66 times as on March 31, 2020. The group had interest coverage and net cash accruals to total debt ratios of 3.15 times and 0.29 times respectively in 2019-20. The group is expected to maintain its financial profile supported by moderate profitability, lowering debt levels and absence of any large capex. However, the group's financial flexibility is restrained by the modest market capitalization, past restructuring of debt and pledge of promoters' 53.74% (off 44.83% stake). * Sound Operating efficiency: The group enjoys a healthy return on capital employed around 17-18% and maintains a moderate operating margin around 13-14%. The group benefits from its geographically widespread locations (9 plants spread in India) controlling logistics and saving time. Further, group also enjoys economies of scale supported by continued revenue growth. Weaknesses * Working capital intensive operations: Gross current assets were at 143 days as on March 31, 2020. This is driven by around 2 months of debtors and inventory of around 2.5 months. The buildup of inventory prior to monsoon pushes up working capital requirements during the period. The working capital requirements are partially offset by average creditors of over 3 months bridging the requirements significantly. Continued support from creditor shall remain critical in meeting the working capital requirements. * High fixed asset replacement requirements: The mineral micronization industry operates at low asset turnover ratio of 1-1.5 times indicating high fixed assets requirement. Moreover, the inherent nature of work, involving micronization of minerals, results in high wear and tear in plant. Consequently, the group needs to incur significant annual maintenance capex to sustain its production capacity, consuming a hefty share of its accruals. * Susceptibility to adverse changes in government regulations, and concentration in revenue profile: The industry is highly susceptible to government regulations, and any unfavourable changes in policies (viz. ban on mining, stringent environment norms, changes in royalties among other) may adversely impact the performance. Further, the company is exposed to high concentration in its revenue profile with paint and plastic industry contributing around 80% of its revenues in FY20. This exposes the group to economic cycles with demand taking a beating in slowing economy. Also, the group faces high customer concentration risk with the top five customers contributing almost half of its turnover. |
| Liquidity Adequate |
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Liquidity profile is marked by adequate accruals to cover repayment obligations, steady working capital cycle and moderate bank limit utilization. |
| Outlook: Stable |
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CRISIL believe the group will continue to benefit from the extensive experience of its promoter, and established relationships with clients. |
| Rating Sensitivity factors |
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Upward factor * Improved debt to EBIDTA ratio below 1 times on sustained basis, supported by steady working capital cycle and absence of any large capex * Significant and sustainable improvement in accruals backed by improved scale Downward factor * Significant stretch in working capital cycle or sharp decline in the accruals * Payout of recompense significantly higher than the expected Rs. 7 cr or large debt-funded capital expenditure weakens liquidity profile * Significant delay/failure to exit CDR and continued pledge of shares |
| About the Group |
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ML was incorporated in 1987. ML is promoted and managed by Mr. Chandresh Parikh and his sons- Mr. Rajesh Parikh and Mr. Atil Parikh. The company is listed on BSE Ltd and National Stock Exchange Ltd. ML is engaged in manufacturing micronized minerals such as calcium carbonate, calcined clay and other specialty minerals. |
| Key Financial Indicators | ||||||||||||||||||||||||
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL 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. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels. |
| Annexure - Details of Instrument(s) | |||||||||||||||||||||||||||
Annexure - List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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