Rating Rationale
February 13, 2024 | Mumbai
Agarwal Industrial Corporation Limited
Rating reaffirmed at 'CRISIL A-/Stable'
 
Rating Action
Total Bank Loan Facilities RatedRs.140 Crore
Long Term RatingCRISIL A-/Stable (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 reaffirmed its rating on the long term Bank facilities of Agarwal Industrial Corporation Limited (AICL, part of AICL group) at 'CRISIL A-/Stable'.

 

The rating continues to reflect extensive experience of AICL’s promoters and established market position in the bitumen products business, diversified revenue profile with established clientele, prudent risk management strategies and strong financial risk profile. These strengths are partially offset by exposure to cyclicality in end user industry, susceptibility of operating margin to volatility in raw material prices and forex rates and exposure to supplier concentration risk.

Analytical Approach

For arriving at its ratings, CRISIL Ratings has consolidated the business and financial risk profiles of AICL, and its 2 subsidiaries, which are strategically important to, and have a significant degree of operational integration with AICL. These companies are - Bituminex Cochin Private Limited and AICL Overseas FZ LLC. CRISIL Ratings considers these entities as being strategic to AICL in view of their strong integration with AICL’s operations.

 

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 bitumen industry: AICL group benefits from the extensive business experience of the promoters of over four decades, their understanding of the dynamics of the local and global bitumen market, and established relationships with suppliers and customers. The group’s strategically located manufacturing facilities and storage units has helped in reduction of transportation cost. A combination of steady demand and strong realizations has led to significant increase in scale with a CAGR of 36% for the past three years ending fiscal 2023. CRISIL Ratings believes that the AICL group would maintain its established presence aided by extensive experience of promoters in the industry. Increasing demand and customer base has helped increase revenues steadily to Rs. 2015 crores in fiscal 2023 from Rs.904 crores in fiscal 2021. The group has reported revenues of Rs. 863 crores for first half of fiscal 2024 and is expected to sustain its scale over the medium term.

 

  • Diversified revenue profile with established clientele: Apart from being a manufacturer and trader of bituminous products, AICL group provides integrated solution to its customers in terms of transportation. AICL group is also engaged in transportation of LPG cylinders, power generation through windmill and ship chartering business. The parent company - AICL’s freight expenses are expected to be moderated to the extent of 60-70% in the form of freight revenue from this ship chartering business. The profitability from ship chartering business offsets for the moderate margins in the Bitumen trading segment. In addition, the group benefits from the established customer and supplier network in domestic and international markets which supports repeat business across segments.

 

  • Strong financial risk profile: With continuous accretion to reserves AICL group has built a net worth of Rs. 399 crores as on March 31, 2023 as compared to Rs 290 as on March 31, 2022. The gearing and total outside liabilities to adjusted net worth (TOLANW) is 0.34 time and 0.86 time, respectively, as on March 31, 2023. Despite proposed debt funded capex for procuring vessels the capital structure is expected to be comfortable in the medium term with expected Gearing and total outside liabilities to adjusted networth (TOLANW) at 0.51 time and 0.77 time, respectively as on March 31, 2024. AICL group’s debt protection metrics is healthy with interest coverage of 11.78 times and net cash accruals to total debt (NCATD) of 0.81 time respectively, for fiscal 2023. The debt protection metrics are expected to remain at healthy over the medium term backed by healthy profitability.

 

  • Prudent risk management strategies: AICL group has prudent risk management strategies marked by moderate credit extended to customers and low inventory holding. The average inventory maintained over the past 3 years ended fiscal 2023 is low at around 16-23 days. Majority of the purchases are order backed while certain inventories are maintained in order to cater to urgent demand from its customers. Counterparty risk is mitigated to some extent by a large and diversified clientele and established long relationship of 3-4 decades with major clients. It is also able to pass on its foreign exchange exposure to customers.

 

Weaknesses:

  • Susceptibility of the operating margin to volatility in raw material prices and forex rates: The price of the main raw material, bitumen has been extremely volatile in the past as it is a derivative product of crude oil. Thus, any sudden sharp increase or decrease in the price of bitumen, can impact the operating margins. Also, in the shipping business, any fluctuation in the prices of fuel is covered in the freight rates charged to the customer. Thus, although, company is able to pass on this increase to customers, inability to do so fully or lag in passing on, has led to some volatility in operating margins that have ranged from 6.3% to 9.1% in the past five fiscals, through fiscal 2023.

 

  • Exposure to cyclicality in end user industry: The entity caters to the infrastructure, industrial gases, and power industries. The end-user industries are cyclical and are strongly correlated to economic cycles. In the past, because of economic recession, the construction sector faced a slowdown, impacting credit profiles of players. This also leads to a stretch in debtors from small clients, reflected in sizeable debtors more than 6 months of Rs.46.67 crores as on March 31, 2023, though reducing.

 

  • Exposure to supplier concentration risk: Supplier concentration to constrain the business risk profile of the company. High supplier concentration limits price negotiation capability. The company majorly procures its bitumen from suppliers like AGEE EXIM DMCC and PETRO ADDICHEM FZC. Continuation of the strong relationship with these companies will remain a key rating sensitivity factor despite longstanding ties between these entities.

Liquidity: Strong

AICL group has adequate liquidity driven by expected cash accruals of 120-155 crores annually against repayment obligations of around Rs.26-42 crores over the medium term. Cash and cash equivalents were high at Rs 37 crores coupled with liquid mutual funds of Rs. 25.66 crores as on March 31, 2023. Fund based limits has an average utilization of 62% on an average over the 12 months ended December 2023. CRISIL Ratings expects internal accruals, cash & cash equivalents and unutilized bank lines to be sufficient to meet its repayment obligations and incremental working capital requirements.

Outlook: Stable

CRISIL Ratings believes AICL group will benefit from the extensive experience of the promoters, diversified businesses and low debt levels.

Rating Sensitivity factors

Upward factors:

  • Significant improvement in scale of operations or sustained improvement in operating margins above 8%, leading to higher cash accruals
  • Improvement in working capital management and sustenance of financial risk profile along with continuation of strong relationship with suppliers

 

Downward factors:

  • Decline in net cash accruals below Rs.45 crore on account of decline in revenue or operating margin.
  • Substantial increase in its working capital requirements or large debt funded capex, weakening its liquidity and financial profile.

About the Company

AICL, formerly known as Bombay Baroda Roadways India Limited, was incorporated in 1995. AICPL is primarily engaged in manufacturing of bitumen and bitumen products. It also transports Liquified Petroleum Gas (LPG) and bituminous product. AICPL also forayed into ship operating and chartering business through its subsidiary in UAE.

 

The company is headquartered in Mumbai (Maharashtra) and is promoted by Mr. Jaiprakash Agarwal, Mr. Lalit Agarwal, Mr. Ramchandra Agarwal and Mr. Mahendra Agarwal. The manufacturing units are located at Belgaum, Hyderabad, Taloja and Baroda. The company is listed on Bombay and National Stock Exchanges.

Key Financial Indicators

As on / for the period ended March 31

Unit

2023

2022

Operating income

Rs crore

2,015.53

1,598.37

Reported profit after tax (PAT)

Rs crore

20.03

125.33

PAT margin

%

4.58

3.98

Adjusted debt /adjusted net worth

Times

0.34

0.51

Interest coverage

Times

11.53

8.72

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 99.31 NA CRISIL A-/Stable
NA Standby Letter of Credit NA NA NA 25 NA CRISIL A-/Stable
NA Term Loan NA NA Feb-2026 15.69 NA CRISIL A-/Stable

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of consolidation

Rationale for Consolidation

Agarwal Industrial Corporation Limited

Full

Wholly owned subsidiary

Bituminex Cochin Private Limited

Full

AICL Overseas FZ LLC

Full
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 115.0 CRISIL A-/Stable   -- 03-01-23 CRISIL A-/Stable   -- 07-10-21 CRISIL BBB+/Positive --
      --   --   --   -- 23-09-21 CRISIL BBB+/Positive --
Non-Fund Based Facilities LT 25.0 CRISIL A-/Stable   -- 03-01-23 CRISIL A-/Stable   -- 07-10-21 CRISIL BBB+/Positive --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 2.81 Union Bank of India CRISIL A-/Stable
Cash Credit 25 IDFC FIRST Bank Limited CRISIL A-/Stable
Cash Credit 17 Citi Bank CRISIL A-/Stable
Cash Credit 25 HDFC Bank Limited CRISIL A-/Stable
Cash Credit 29.5 Kotak Mahindra Bank Limited CRISIL A-/Stable
Standby Letter of Credit 25 HDFC Bank Limited CRISIL A-/Stable
Term Loan 11.63 Kotak Mahindra Bank Limited CRISIL A-/Stable
Term Loan 4.06 HDFC Bank Limited CRISIL A-/Stable
Criteria Details
Links to related criteria
CRISILs Bank Loan Ratings - process, scale and default recognition
The Rating Process
CRISILs Approach to Financial Ratios
Understanding CRISILs Ratings and Rating Scales
CRISILs Criteria for Consolidation

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