Detailed Rationale

Crisil Ratings has upgraded its rating on the long-term bank facilities of Anupam Rasayan India Limited (ARIL; part of Anupam Rasayan group) to ‘Crisil A+/Stable’ from 'Crisil A/Positive' while reaffirming its short term rating at ‘Crisil A1’.

 

The rating upgrade reflects healthy and sustained improvement in the Anupam Rasayan group’s credit risk profile along with the expectation of Crisil Ratings that the credit risk profile will continue to improve over the medium term.

 

The improvement in the business risk profile is driven by the group’s continued established market position in the specialty chemical business, revenue diversification, strong orderbook and Letter of Intent (LOI) for future executions along with geographical expansion. As on H1 FY25, LOIs and contracts grew to Rs.8,919 crores, spanning life sciences, specialty chemicals, and polymers. Conversion of these LOIs and contracts into sales will result in healthy revenue growth and better capacity utilization.

 

While revenue de-grew in fiscal 2024 on account of lower volume offtake from end users and reduced realisations across the industry, a diversified product base and new product innovations, along with strong acceptance of the products in the market, will drive sales growth over the medium term. Further expansion into high-value fluorination chemistry products and polymer applications will strengthen revenue profile over medium term. The group achieved revenue of Rs 548 crore during the six months ended September 30, 2024 and is expected to achieve revenue of over Rs 1350 crore during fiscal 2025.

 

The operating margins were impacted during H1FY25 on account of subdued demand in agrochemicals and delay in new product commercialization. However, the group was able to achieve higher gross margins compared to similar period of FY 24. Operating margin is expected to remain range-bound at 26- 27 % over the medium term.

 

The financial risk profile of the group is also expected to improve driven by strong net worth, improving capital structure and adequate debt protection metrics. Though the group has high reliance on debt for working capital requirement, the same is supported by strong net worth of Rs.2786 crore as on March 31, 2024

 

Rating reflects the group’s strong business risk profile marked by established market position and diversified revenue streams and strong financial risk profile. The above strengths are partially offset by large working capital requirements, moderate operating efficiencies and susceptibility of operating margins to volatility in raw material prices and foreign exchange rates.

Analytical Approach

For arriving at its ratings, Crisil Ratings has consolidated the business and financial risk profiles of ARIL with its wholly owned subsidiaries - Jainam Intermediates Private Limited, ARIL Transmodal Logistic Private Limited, ARIL Fluorospeciality Private Limited, Anupam Japan GK, Anupam Europe AG Anupam USA LLC and subsidiary over which the company exercises effective control - Tanfac Industries Ltd. Together these are referred to as the Anupam Rasayan group.

 

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:

• Strong business risk profile marked by established market position and healthy operating efficiency: The group has a strong market position in custom synthesis and manufacturing of specialty chemicals because of integrated operations and a strong clientele. With nearly four decades of experience, the company has built a robust reputation for its expertise in complex multi-step synthesis and innovative manufacturing processes. Group caters to globally relevant chemical & agrochemical companies, including 31 MNC and cumulative 75 clients. Customer-centric solutions has positioned the company as a preferred partner for clients across various industries, including agrochemicals, personal care, pharmaceuticals, and other specialty segments including polymers and electronic chemicals. Further expansion into high-value fluorination chemistry products and polymer applications expected to strengthen market position

 

• Diversified revenue streams and backward integration: Combined revenue from the pharma and polymer segments expected to exceed 30% of total revenue in FY25. These segments are positioned as growth drivers, reducing dependency on agrochemicals. Company has already started Commercializing new molecules launched in FY24 and H1 FY25. Company Focusing on growing contributions from Japanese customers in the fluoropolymer segment. In polymer segment new product introductions targeting the US market and applications in engineering fluids and polymers.

 

Company has also acquired Tanfac Industries Limited in past .Tanfac is a leading producer of Hydrogen Fluoride (HF) and Potassium Fluoride (KF) in India, essential for fluorination chemistry. These materials are critical inputs for producing fluorinated molecules used in pharma, polymers, and agrochemicals. By acquiring Tanfac, Anupam Rasayan secures an uninterrupted supply of these raw materials.

 

• Strong financial risk profile: The capital structure is likely to remain supported by continuous reduction in debt and the absence of large, debt-funded capex. The group’s dependence on debt is expected to reduce over medium term. Networth and total outside liabilities to adjusted networth ratio are healthy at Rs 2786.0 crore and 0.6 time, respectively, as on March 31, 2024 and Rs.2828 Crores and 0.7 times respectively as on Sept 30th 2024. Over medium term, total outside liabilities to adjusted networth of the group will be below 0.70 times.

 

Debt protection metrices were robust on account of strong operating profitability.
 

The financial risk profile is expected to remain strong with healthy accretion of reserves, with no debt funded capex expected over the medium term.

 

Weaknesses:

• Large working capital requirement: Gross current assets (GCAs) were high at around 530 days as on March 31, 2024 (463 days a year earlier), driven by inventory and debtors of more than 350 days and 140 days, respectively. Inventory was higher at the year-end owing to inventory comprising 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 over medium term, which will remain key monitorable.

 

• Moderate operating efficiency: Operating efficiency is moderate on account of the high working capital requirement which has led to moderate return on capital employed (ROCE). The company is undergoing a capex of Rs 670 crores out of which Rs.601 Crores is already completed till September 2025 which would impact the operating efficiency. But with the additional revenue coming in and the expected decrease in working capital requirement, operating efficiency is expected to improve and will remain monitorable over medium term.

 

• Susceptibility to volatility in forex rates, economic downturns, and intense competition from global players: The Company derives over 50% of revenue from exports to Europe, North America, and other regions, and imports 15-20% of its requirement, thus benefiting from a partial hedge. Though open positions are hedged through forward contracts, operations remain susceptible to sharp changes in forex rates. Any economic downturn, impacting demand, poses an additional challenge.

Liquidity: Strong

Liquidity is backed by healthy cash accrual against debt obligation, moderate bank utilization, though elongated working capital cycle, and healthy cash and bank balance. Average utilization of bank limits was 84% during the 12 months through Sept-24. The company had accruals of over Rs 85 crore in H1FY25. The group is likely to maintain annual accrual of over Rs 220 crore over the medium term.

Outlook: Stable

Crisil Ratings believes the group’s operating performance will continue to benefit from the established brand and comfortable financial risk profile.

Rating sensitivity factors

Upward factors:

• Sustained volume growth, with material diversification in revenue profile; increase in share from specialty chemical/pharmaceutical/polymer divisions
• Maintenance of operating margin over 25%, benefitting cash generation
• Sustenance of healthy financial risk profile and improvement in liquidity backed by better working capital cycle

 

Downward factors:

• Sustained decline in revenue with operating margin falling below 18%
• Large, debt-funded capex or a sizeable stretch in the working capital cycle, increasing gearing to above 1 time

About the Group

ARIL, incorporated in 1977, is promoted by Mr. Anand Desai. The company manufactures specialty chemicals used in the Crop Protection, pharmaceutical, polymer, pigment, and biocide industries. Its manufacturing units are at Sachin and Jhagadia, near Surat in Gujarat. The company has ISO 9001-2015, ISO 45001-2018 and ISO 14001-2015 certifications for quality, occupational health and safety and environmental management systems, respectively. The company is listed in BSE and NSE.
 

ARIL has acquired an aggregate of 25.79% share of Tanfac Industries Limited , as on May 20, 2022. During FY 24 Tanfac Limited was having revenue of Rs.378 Crores and EBIDTA of Rs.72 Crores.