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 45% for the past four years ending fiscal 2022. CRISIL Ratings believes that the AICL group would maintain its established presence aided by extensive experience of promoters in the industry.

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. 290 crores as on March 31, 2022. The gearing and total outside liabilities and adjusted net worth (TOLANW) is 0.51 time and 0.85 time, respectively, as on March 31, 2022. With repayment of debt and steady accretion to reserves, the capital structure is expected to remain comfortable over the medium term. Also the management has been averse to external long term debt funding, as also depicted by low levels of debt contracted for the recently created fleet of ship. AICL group's debt protection metrics is adequate with interest coverage of 8.8 times and net cash accruals to total debt (NCATD) of 0.55 time respectively, for fiscal 2022. The debt protection metrics are expected to remain at similar levels over the medium term.

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 2022 is around 15-20 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 2022.

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.48 crores as on March 31, 2022, though reducing.

Key Financial Indicators- Consolidated

Annexure - Details of Instrument(s)

Annexure – List of entities consolidated

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