Rating Rationale
October 08, 2020 | Mumbai
Anupam Rasayan India Limited
Rated amount enhanced
 
Rating Action
Total Bank Loan Facilities Rated Rs.650 Crore (Enhanced from Rs.553 Crore)
Long Term Rating CRISIL A-/Stable (Reaffirmed)
Short Term Rating CRISIL A2+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL A-/Stable/CRISIL A2+' ratings on the bank facilities of Anupam Rasayan India Limited (ARIL).
 
The ratings continue to reflect an established position in the specialty chemicals business, a strong relationship with large global customers, and a healthy financial risk profile. These strengths are partially offset by sizeable working capital requirement, and susceptibility to volatility in foreign exchange (forex) rates, economic downturns, and intense competition from global players.
 
The lockdown and other measures taken by the central and state governments towards containment of the Covid-19 pandemic are not expected to significantly impact revenue and profitability in the current fiscal. Manufacturing operations were not materially affected due to lockdown, since the company operates in the essential segment. Revenue improved by 51.6% year-on-year during the five months period from April to September 2020 with sustained margins, growth in revenue is expected to be sustained in the coming quarters.

Analytical Approach

CRISIL has treated unsecured loans of Rs 234.37 crore from ARIL's shareholders as neither debt nor equity as the loans carry a low interest rate of around 3% per annum and are expected to remain in the business over the medium term.

Key Rating Drivers & Detailed Description
Strengths: 
* Established market position and strong relationship with large global customers: The established market position in the specialty chemical business is backed by a healthy product portfolio, strong clientele, and long-term contract manufacturing agreements with customers. The strong and reputed customer base includes BASF SA, Sumitomo Chemical Company Limited, and Syngenta Etc. Continuous research and development has helped to widen the product portfolio, cater to a larger customer base, and thereby, achieve revenue growth over the past few fiscals. New capacities commenced operations in the last quarter of fiscal 2020 is expected to be operational for the full year in fiscal 2021 and should support revenue growth over the medium term
 
* Healthy financial risk profile supported by capital infusion: Adjusted networth was large at Rs 551crore, and the gearing and total outside liabilities to tangible networth (TOLTNW) ratio moderate at 1.12 time and 1.5 times, respectively, as on March 31, 2020. Debt protection metrics were healthy, with interest coverage ratios of 3.27 times for fiscal 2020. Reliance on bank lines to meet incremental working capital requirement and large debt funded capex in the past has led to significant increase in debt levels over the past few fiscals (adjusted debt was Rs.554 crore as on March 31, 2020 compared to Rs.312 crore as on March 31 2017). This has constrained net cash accrual to adjusted debt ration to around 0.18 times as on March 31 2020; however likely to improve over medium term backed by equity infusion.
 
The company is in the process of raising equity and has signed share subscription and shareholders agreement to raise additional USD 32 million (appx Rs.235 crores) from existing investors in the near term (during quarter three of fiscal 2021) and plans to raise additional equity over the medium term. The money raised is expected to be used for repayment of existing debt and fund capital expenditure plans in the future. This should materially reduce the debt levels and improve financial health profile over medium term. Timely and successful closure of these fund raising activities shall remain a rating sensitivity factor.
 
Weaknesses:
* Sizeable working capital requirement: Gross current assets (GCAs) were high at 361 days as on March 31, 2020 (268 days a year earlier), driven by inventory and debtors of 275 days and 89 days, respectively. Credit of 60-90 days is provided to customers with good track record of payment, and substantial inventory is maintained due to the large product portfolio and bulk purchase of raw material to take advantage of better prices, though the inventory is order backed. Inventory during March 2020 was significantly higher than normal due to loss of revenue in March 2020 and higher inventory held to ensure uninterrupted operation amidst challenges raised by the pandemic, inventory levels are expected to moderate to 170-180 days over the medium term. Overall operations are likely to remain working capital intensive over the medium term.
 
* Susceptibility to volatility in forex rates, economic downturns, and intense competition from global players: The Company derives 60-70% of revenue from exports to Europe, North America, and other regions, and imports 17% 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. Significant competition from global players in the agro chemicals industry, particularly from China, also limits bargaining power.
Liquidity Adequate

Net Cash accruals are expected to be healthy over the medium term and should comfortably cover yearly debt obligations each year. Bank limit of Rs 200 crore was moderately utilized at 87% during the 12 months through July 2020. Equity infusion of Rs.235 crores expected in third quarter of current fiscal should support liquidity profile. Comfort is also derived from the USL support of around Rs. 234 Crores from KPI LLC, which is expected to remains in the business over the medium term.

Outlook: Stable

CRISIL believes ARIL will continue to benefit from its established market position, reputed clientele, and healthy profitability

Rating Sensitivity factors
Upward factor
* Significant revenue growth and sustained profitability strengthens return on capital employed to above 14%
* Considerable improvement in the capital structure backed by equity infusion strengthening TOLTNW ratio to below 1 time, along with an improved working capital cycle
 
Downward factor
* Stretch in the working capital leading to GCAs sustaining above  350 days
* Significant decline in revenue and profitability, or larger-than-expected, debt-funded capex or acquisition impacting the credit profile
About the Company

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 9001-2008 and ISO 14001-2004 certifications for quality and environmental management systems, respectively.

Key Financial Indicators
Particulars Unit 2020* 2019
Revenue Rs crore 540.5 513.2
Profit after tax (PAT) Rs crore 50.1 50.2
PAT margin % 9.3 9.8
Adjusted debt/adjusted networth Times 1.0 0.9
Interest coverage Times 3.3 4.6
*Provisional

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)
ISIN Name of instrument Date of allotment Coupon
rate (%)
Maturity date Complexity level Issue size
(Rs. Cr)
Rating assigned with outlook
NA External Commercial Borrowings NA NA NA NA 41.26 CRISIL A-/Stable
NA Foreign Currency Term Loan NA NA Mar-2027 NA 24.63 CRISIL A-/Stable
NA Fund-Based Facilities NA NA NA NA 255 CRISIL A-/Stable
NA Non-Fund Based Limit NA NA NA NA 12 CRISIL A2+
NA Proposed Long Term Bank Loan Facility NA NA NA NA 45.11 CRISIL A-/Stable
NA Term Loan NA NA Mar-2027 NA 272 CRISIL A-/Stable
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  638.00  CRISIL A-/Stable      04-10-19  CRISIL A-/Stable  20-11-18  CRISIL BBB+/Stable  01-11-17  CRISIL BBB+/Stable  CRISIL BBB+/Positive 
                05-11-18  CRISIL BBB+/Stable  01-09-17  CRISIL BBB+/Stable   
Non Fund-based Bank Facilities  LT/ST  12.00  CRISIL A2+      04-10-19  CRISIL A2+  20-11-18  CRISIL A2  01-11-17  CRISIL A2  CRISIL A2 
                    01-09-17  CRISIL A2   
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
External Commercial Borrowings 41.26 CRISIL A-/Stable Export Packing Credit 200 CRISIL A-/Stable
Foreign Currency Term Loan 24.63 CRISIL A-/Stable Letter of Credit 5 CRISIL A2+
Fund-Based Facilities 255 CRISIL A-/Stable Letter of credit & Bank Guarantee 7 CRISIL A2+
Non-Fund Based Limit 12 CRISIL A2+ Proposed Long Term Bank Loan Facility 38 CRISIL A-/Stable
Proposed Long Term Bank Loan Facility 45.11 CRISIL A-/Stable Term Loan 303 CRISIL A-/Stable
Term Loan 272 CRISIL A-/Stable -- 0 --
Total 650 -- Total 553 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Chemical Industry
CRISILs Bank Loan Ratings
CRISILs Criteria for rating short term debt
The Rating Process
Understanding CRISILs Ratings and Rating Scales

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