Rating Rationale
October 09, 2023 | Mumbai
Aether Industries Limited
Rating outlook revised to 'Positive'; Ratings Reaffirmed and Withdrawn
 
Rating Action
Total Bank Loan Facilities RatedRs.275 Crore
Long Term RatingCRISIL A/Positive (Outlook revised from 'Stable'; Rating Reaffirmed and Withdrawn)
Short Term RatingCRISIL A1 (Rating Reaffirmed and Withdrawn)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 revised its outlook on the long-term bank loan facilities of Aether Industries Limited (AIL) to ‘Positive’ from ‘Stable’ and has reaffirmed the rating at ‘CRISIL A’. The short-term rating has been reaffirmed at ‘CRISIL A1' and has subsequently withdrawn the ratings at the company's request and on receipt of no objection certificate from the banker. The withdrawal is in-line with CRISIL's policy on withdrawal of bank loan ratings.

 

The change in outlook reflects the expected improvement in business profile of the company, which is expected to be sustained over medium term while maintaining comfortable financial risk profile.

 

Company has capex plans which are funded by QIP pf Rs 750 crores and remaining through internal accruals. The capex is for agreement/Letter of intent (LOI) with various marquee customers which is expected to support the revenue profile and ramp up in enhanced capacity over medium term. Q1 FY24, the company achieved revenue of Rs 161 crores with EBITDA of 28%. Consequently, cash accruals have also improved and are expected to remain above Rs 160 crore over medium term. Company’s revenue has grown at compounded annual growth rate (CAGR) of over 26% during past 5 years ending fiscal 2023. While for fiscal 2023, scale of operations has improved from Rs 590 crores for fiscal 2022 to Rs 651 crores for fiscal 2023. While with the growing scale, EBITDA margins have sustained above 29% for fiscal 2023. Despite large capex, company’s financial risk profile has continued to remain comfortable with no major debt being availed. Implementation of capex without major teething issue will be monitorable.

 

The ratings continue to reflect an established market position in the specialty chemicals business, strong relationship with reputed global and domestic customers, presence across diverse end-user segments and a comfortable financial risk profile. These strengths are partially offset by sizeable working capital requirements and susceptibility to project implementation and stabilization risks.

Key Rating Drivers & Detailed Description

Strengths:

  • Established market position and strong relationship with reputed global and domestic customers: Company has established market position in the specialty chemical business is backed by presence in a niche product portfolio, reputed clientele, and strong relations with customers. Continuous research and development have helped company to manufacture products using multiple chemistries and multiple technologies and thus widen the product portfolio and diversify the end-user industry which has contributed materially to the revenue growth. Company has a presence across diverse end-user segments like pharmaceutical, material science, agrochemical, electronic chemical, and fine/specialty chemical industries. The promoters have developed a strong understanding of the industry dynamics, which has helped them successfully navigate several business cycles as well as build longstanding relationships with customers. Business risk profile is expected to improve over medium term supported by above average growth in revenue and sustained operating margins. The Company achieved revenue of Rs. 654 crores for fiscal 2023, further for Q1 FY24, company has achieved sales of Rs 160 crores. With orders in hand, scale of operations is expected to improve further and will remain key monitorable.

 

  • Healthy financial risk profile: Capital structure was strong, as reflected in networth and total outside liabilities to tangible networth ratio of Rs 1244 crore and 0.11 times, respectively, as on March 31, 2023. Debt protection metrics were comfortable, as indicated by interest coverage and net cash accrual to adjusted debt ratios of 37.9 times and 1147 times, respectively, in fiscal 2023. With capital expenditure (capex) planned over medium term that will be funded through QIP raised of Rs 750 crores and internal accruals. Financial risk profile is expected to remain healthy over medium term.

 

Weaknesses:

  • Susceptibility to project implementation and stabilization risks: Company is undertaking capex for setting up of a new facility. Planned capex is expected to be completed within next 2-3 year respectively. Timely completion of the capex within budgeted costs, timely commencement of commercial operations and offtake from the same will remain key monitorable. With promoters’ experience and signed agreement/LOIs, the risk is mitigated but will be monitorable.

 

  • Sizeable working capital requirements: Company’s sizeable working capital requirement is indicated by high gross current asset (GCA) of 375 days as on March 31, 2023 (240 days a year earlier), driven by inventory and debtors of 197 days and 145 days, respectively. Inventory was higher at the year-end owing to inventory comprising of newer products and existing products to ensure timely and smooth supply to its customers. However, the same is expected to further improve with inventory days expected to improve.

Liquidity: Strong

Liquidity is strong marked by net cash accruals are expected to be over Rs 170 crores against minimal repayment obligations. Bank Limit Utilization is 17.03% utilized for the last 12 months ending March 2023. Company has cash and cash equivalent of Rs 99 crores as on March 31,2023. Company has raised Rs 750 crores through QIP which will help fund the capex, working capital requirements and general corporate purpose. Company has capex plans which will be funded through QIP and internal accruals. No major debt funded capex plans over medium term.

Outlook: Positive

CRISIL Ratings believes AIL’s business risk profile will continue to benefit from its established market presence, reputed and diversified customer base and healthy profitability.

Rating Sensitivity factors

Upward factors:

  • Sustained revenue growth of over 20% and sustenance of operating margin leading to higher cash accruals.
  • Improved working capital cycle.

 

Downward factors:

  • Significantly lower than expected revenue or lower profitability constrains ROCE to below 9% over the medium term.
  • Any time or cost over-runs in completing the capex or lower than expected ramp up due to lower offtake.
  • Stretch in working capital cycle or larger than any expected debt funded capex leading to higher-than-expected debt

About the Company

AIL was incorporated on 23rd January 2013. It is promoted Mr. Ashvin Desai, Ms. Purnima Desai, Mr. Rohan Desai and Mr. Aman Desai. AIL is based in Surat (Gujarat) and is a leading manufacturer of advanced intermediates and active ingredients for the pharmaceutical, material science, agrochemical, electronic chemical, and fine / speciality chemical industries. Company commenced its manufacturing operations in 2016. Company got listed on bourses in June 2022.

Key Financial Indicators

As on/for the period ended March 31

 

2023

2022

Operating income

Rs crore

654.46

592.99

Reported profit after tax

Rs crore

130.29

108.9

PAT margins

%

19.9

18.4

Adjusted Debt/Adjusted Networth

Times

0.00

0.74

Interest coverage

Times

37.95

13.16

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 47 NA CRISIL A/Positive (Outlook Revised, Rating Reaffirmed and Withdrawn)
NA Foreign Exchange Forward NA NA NA 1.8 NA CRISIL A1 (Rating Reaffirmed and Withdrawn)
NA Fund & Non Fund Based Limits NA NA NA 55 NA CRISIL A/Positive (Outlook Revised, Rating Reaffirmed and Withdrawn)
NA Proposed Fund-Based Bank Limits NA NA NA 142.2 NA CRISIL A/Positive (Outlook Revised, Rating Reaffirmed and Withdrawn)
NA Standby Letter of Credit NA NA NA 1 NA CRISIL A/Positive (Outlook Revised, Rating Reaffirmed and Withdrawn)
NA Standby Line of Credit NA NA NA 1 NA CRISIL A1 (Rating Reaffirmed and Withdrawn)
NA Letter of Credit NA NA NA 27 NA CRISIL A1 (Rating Reaffirmed and Withdrawn)
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 ST/LT 192.0 CRISIL A/Positive (Outlook Revised, Rating Reaffirmed and Withdrawn) 05-05-23 CRISIL A1 / CRISIL A/Stable 07-09-22 CRISIL A/Stable 08-10-21 CRISIL A-/Stable 18-03-20 Withdrawn (Issuer Not Cooperating)* CRISIL BB /Stable / CRISIL A4+ (Issuer Not Cooperating)*
      --   -- 07-01-22 CRISIL A-/Stable 21-09-21 CRISIL A-/Stable   -- --
Non-Fund Based Facilities LT/ST 83.0 CRISIL A1 (Rating Reaffirmed and Withdrawn) 05-05-23 CRISIL A1 / CRISIL A/Stable 07-09-22 CRISIL A1 08-10-21 CRISIL A2+ 18-03-20 Withdrawn (Issuer Not Cooperating)* CRISIL A4+ (Issuer Not Cooperating)*
      --   -- 07-01-22 CRISIL A2+ 21-09-21 CRISIL A2+   -- --
All amounts are in Rs.Cr.
* - Issuer did not cooperate; based on best-available information
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 27 HDFC Bank Limited CRISIL A/Positive (Outlook Revised, Rating Reaffirmed and Withdrawn)
Cash Credit 20 State Bank of India CRISIL A/Positive (Outlook Revised, Rating Reaffirmed and Withdrawn)
Foreign Exchange Forward 1.8 State Bank of India CRISIL A1 (Rating Reaffirmed and Withdrawn)
Fund & Non Fund Based Limits 55 ICICI Bank Limited CRISIL A/Positive (Outlook Revised, Rating Reaffirmed and Withdrawn)
Letter of Credit 19 HDFC Bank Limited CRISIL A1 (Rating Reaffirmed and Withdrawn)
Letter of Credit 8 State Bank of India CRISIL A1 (Rating Reaffirmed and Withdrawn)
Proposed Fund-Based Bank Limits 142.2 Not Applicable CRISIL A/Positive (Outlook Revised, Rating Reaffirmed and Withdrawn)
Standby Letter of Credit 1 State Bank of India CRISIL A/Positive (Outlook Revised, Rating Reaffirmed and Withdrawn)
Standby Line of Credit 1 State Bank of India CRISIL A1 (Rating Reaffirmed and Withdrawn)
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 short term debt
Understanding CRISILs Ratings and Rating Scales

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