Rating Rationale
November 22, 2021 | Mumbai
Bhabani Pigments Private Limited
Ratings reaffirmed at 'CRISIL A- / Stable / CRISIL A2+ '
 
Rating Action
Total Bank Loan Facilities RatedRs.28.34 Crore
Long Term RatingCRISIL A-/Stable (Reaffirmed)
Short Term RatingCRISIL A2+ (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL A-/Stable/CRISIL A2+’ ratings on the bank facilities of Bhabani Pigments Private Limited (Bhabani).

 

Business risk profile of the company is marked by established position in the CPC crude blue industry along with healthy and longstanding relation with its customers leading to repeat orders over the years. However, the company’s scale has remained constrained at modest levels over the 5 fiscals in the range of Rs 100-130 Cr as the company has been operating at around full capacity over the years. The capacity expansion has been delayed due to pending of necessary approvals for setting up a new facility. However, the company has received the approvals in the current year and is rolling out the capex plan for capacity expansion. The capex is to be rolled out in three phases. The first phase has commenced in FY21 and is expected to be completed by Jan 2023. The same is expected to be funded by debt to the extent of 50%. The capex with respect to phase two and three will commence post completion of phase one and subject to prevailing market conditions.

 

Operating profitability of the company has consistently improved over the years as indicated by EBITDA margins of 20.2% in FY21 in comparison to FY20 where margins stood at 16.8%. The same has been on account of technological upgradation undertaken by the management over the last two fiscals which has led to higher cost efficiencies in operations. It is expected to remain at similar levels supported by healthy EBITDA margins of 20.3% in H1FY22.

 

Financial risk profile is marked by healthy networth of Rs 188 Cr as on 31st Mar 2021. It is expected to improve going forward supported by healthy and stable accretion to reserves. Capital structure continues to remain robust indicated by TOLTNW of 0.1 time as on 31st Mar 2021 on account of low reliance on external debt. Going forward, it is expected to remain at healthy levels at below 0.2 time.

 

CRISIL Ratings on the bank facilities of Bhabani Pigments Pvt Ltd (Bhabani) continues to reflect the company’s established position in the CPC crude blue industry, longstanding relationships with key customers and healthy financial risk profile. The strengths are partially offset by modest scale of operations, susceptibility of operating margin to volatility in raw material prices and vulnerability to regulatory changes.

Key Rating Drivers & Detailed Description

Strengths:

  • Established position in the CPC crude blue industry and longstanding relationships with key customers: Presence of 20 years has resulted in established relationships with reputed clients, including Sudershan Chemical Industries Ltd, Choksi Pigment, Subhasri Pigments Pvt Ltd, and Heubach Colour Pvt Ltd (‘CRISIL A+/Stable/CRISIL A1’). Revenue has remained in the range of Rs 100-130 Cr over the last 6 fiscals ended 2021. As the company has a capacity expansion which is to be undertaken in the current fiscal, the same is expected to support and improve the market position of the company in the pigment industry.

 

  • Healthy financial risk profile: The financial risk profile is supported by low total outside liabilities to adjusted networth ratio of 0.09 time and healthy networth of Rs 188.5 crores as on March 31, 2021. It is expected to improve going forward supported by healthy and stable accretion to reserves. Capital structure continues to remain robust indicated by TOLTNW of 0.1 time as on 31st Mar 2021 on account of low reliance on external debt. Going forward, despite the debt-funded capex plan over the next 2 fiscals, it is expected to remain at healthy levels at below 0.2 time. Debt protection metrics were strong, as reflected in interest coverage and net cash accrual to adjusted debt ratio of 137 times and 4.3 times, respectively, in fiscal 2021. The debt protection metrics is also expected to remain healthy over the medium term on account of continued healthy accretion to reserves.

 

Weaknesses:

  • Modest scale of operations and susceptibility to regulatory changes: Bhabani has capacity to manufacture 4,500 tonne per annum (TPA) of CPC crude blue and 750 TPA of alpha blue pigment. Although capacity was fully utilised in the past five fiscals, revenue growth has been subdued and constrained in the range of Rs 100-130 Cr over the last 5 fiscals ended 2021. In the current fiscal, the company has earned revenue of around Rs 80 Cr till September 2021 and is expected to achieve revenue of around Rs 160 Cr in FY22. The improvement in revenue is mostly on account of rise in the selling price due to rise in input cost. Going forward, as the company is setting up capacity in Rajasthan, as it has received the necessary approvals, it is expected to drive revenue growth post the capacity expansion. Further, the pigment industry is highly regulated because of its polluting nature. Any adverse change in government regulations can severely impact operations.

 

  • Susceptibility of operating margin to volatility in raw material prices: The operating margin is to have improved to above 20% in fiscal 2021 from 16.8%, 14.3%, 13.7% and 24.2% in fiscals 2020, 2019, 2018 and 2017, respectively. The margin has fluctuated because of increased exposure to competition from both organised and unorganised segments, increase in the price of key raw material phthalic anhydride, which is a crude oil derivative, and increased expenses incurred to make changes in processes to increase operating efficiency. The changes have resulted in sustained improvement in operating efficiency, and hence, the operating margin is expected above 20% in the medium term. However, the margin will remain susceptible to volatility in raw material prices.

Liquidity: Strong

Bank limit utilisation is low at around 4.56 percent for the past ten months ended Aug-21.  Cash accrual are expected to be over Rs 24 Cr which are sufficient against nil term debt obligation for FY22. In addition, it will be act as cushion to the liquidity of the company.
 

Current ratio is healthy at 3.5 times on March 31, 2021. Liquid investments of around Rs. 51 Cr in shares, debentures, and mutual funds as on March 31, 2021.Low gearing and moderate net worth support its financial flexibility and provides the financial cushion available in case of any adverse conditions or downturn in the business.

Outlook: Stable

CRISIL Ratings believes Bhabani will continue to benefit from its established position in the CPC crude blue industry and healthy relationships with customers.

Rating Sensitivity factors

Upward factors:

  • Sustained increase in revenue by 50% and stable operating margin, leading to higher cash accrual
  • Significant improvement in the return on capital employed

 

Downward factors:

  • Net cash accrual below Rs 15 crore on account of decline in revenue or operating margin
  • Large, debt-funded capex, weakening the capital structure with significant deterioration of capital structure

About the Company

Incorporated in 1993, Bhabani is promoted by members of the Kanoi and Garg families. The company has a 4,800 TPA production capacity for phthalocyanine pigments, which are intermediate products used in the manufacture of pigments. It has integrated forward into manufacturing alpha blue with capacity of 750 TPA, used as a colouring agent in plastic and rubber. The company also has five windmills, three having a total capacity of 4 MW in Rajasthan, one of 1.25 MW in Maharashtra, and one of 1.50 MW in Tamil Nadu.

Key Financial Indicators

As on / for the period ended March 31

 

2021

2020

Operating income

Rs crore

125.43

103.84

Reported profit after tax

Rs crore

18.6

13.05

PAT margins

%

14.8

12.57

Adjusted Debt/Adjusted Net worth

Times

0.03

0.00

Interest coverage

Times

137.59

45.00

 

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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs cr) Complexity level Rating assigned with outlook
NA Bank guarantee NA NA NA 0.3 NA CRISIL A2+
NA Cash credit NA NA NA 10 NA CRISIL A-/Stable
NA Letter of credit NA NA NA 3 NA CRISIL A2+
NA Proposed fund-based bank limits NA NA NA 0.04 NA CRISIL A-/Stable
NA Working capital facility NA NA NA 15 NA CRISIL A-/Stable

 

Annexure - Rating History for last 3 Years
  Current 2021 (History) 2020  2019  2018  Start of 2018
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 25.04 CRISIL A-/Stable   -- 17-08-20 CRISIL A-/Stable 27-02-19 CRISIL A-/Stable   -- CRISIL A-/Stable
      --   -- 27-04-20 CRISIL A-/Stable   --   -- --
Non-Fund Based Facilities ST 3.3 CRISIL A2+   -- 17-08-20 CRISIL A2+ 27-02-19 CRISIL A2+   -- CRISIL A2+
      --   -- 27-04-20 CRISIL A2+   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 0.3 State Bank of India CRISIL A2+
Cash Credit 10 State Bank of India CRISIL A-/Stable
Letter of Credit 3 State Bank of India CRISIL A2+
Proposed Fund-Based Bank Limits 0.04 NA CRISIL A-/Stable
Working Capital Facility 8 Citibank N. A. CRISIL A-/Stable
Working Capital Facility 7 Citibank N. A. CRISIL A-/Stable

This Annexure has been updated on 22-Nov-2021 in line with the lender-wise facility details as on 05-Aug-2021 received from the rated entity.

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

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