Rating Rationale
July 03, 2019 | Mumbai
Black Rose Industries Limited
Rated amount enhanced
 
Rating Action
Total Bank Loan Facilities Rated Rs.75 Crore (Enhanced from Rs.60 Crore)
Long Term Rating CRISIL BBB-/Stable (Reaffirmed)
Short Term Rating CRISIL A3 (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed it 'CRISIL BBB-/Stable/CRISIL A3' ratings on the bank loan facilities of Black Rose Industries Limited (BRIL)
 
Ratings continue to reflect extensive experience of the promoters in the specialty chemical industry and the company's above average financial risk profile marked by comfortable capital structure and debt protection metrics. These rating strengths are partially offset by moderate scale and exposure to intense competition and moderate working capital requirements.

Analytical Approach

For arriving at the ratings, interest bearing unsecured loans of Rs 7.65 crore from promoters have been treated as neither debt nor equity as these are expected to be retained in business and interest payments will ploughed back into business.
 
CRISIL has consolidated the business and financial risk profiles of BRIL and B. R. Chemicals Co. Ltd (BRCC). This is because BRCC is its 100 per cent subsidiary and is in the same line of business.

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:
* Extensive industry experience of the promoter:
BRIL is promoted by Mr. Anup Jatia, who has extensive experience of close to two decades in the specialty chemical industry. He is a Chemical Engineer, by qualification, from California Institute of Technology, USA and possess technical expertise in the chemical industry. The extensive experience of the promoters has helped the company in establishing strong relations with its customers such as Mitsui Chemical, Sumito Chemical, Taoka Chemical in Japan and Lanxess Chemical in Germany ' all of whom have been associated with BRIL for a period of 7-15 years. Further, Company now plans to venture into manufacturing of 'Polyacrylamide' by incurring a capex of Rs. 60 crores, this should help the company to scale up its revenue and profitability. However, timely completion of capex and scale up of operation is a rating sensitivity factor
 
* Above financial risk profile:
Capital structure is healthy as reflected in net worth and total outside liability to adjusted networth ratio (TOLANW) of Rs 48.35 crore and 0.96 times respectively as on March 31, 2019. (Rs.35.34 crores and 1.42 times respectively as on March 31 2018). Capex of Rs. 60 crores is likely to be funded by a mix of internal accruals and equity infusion ' debt, if any, would be limited to 30 percent of the total project cost. Despite the debt funded capex, capital structure is expected to remain healthy with TOLANW likely to be around 0.7-0.8 times over the medium term. The interest coverage and net cash accrual to adjusted debt ratio was at 7.62 times and 0.63 times respectively in fiscal 2019, likely to remain above 7 times and 0.4 times respectively over the medium term. Financial risk profile is expected to remain healthy over the medium term, however, degree of debt component in funding the capex will remain a rating sensitivity factor
 
Weaknesses:
* Moderate working capital requirement: BRIL had gross current assets estimated to be around 83 days as on March 2019 mainly on account of receivables of 33 days and inventory of 42 days. Operations are expected to remain moderately working capital intensive over the medium term with gross current assets of around 80-90 days.
 
* Moderate scale of operations and exposure to intense competition: Revenues were Rs.308.7 crores in fiscal 2019, growth remained subdued at around 4% in fiscal 2019. The scale of operations are expected to remain moderate due to competition, largely from imports by other players in the industry. However, the proposed 'Polyacrylamide' plant should help the company in scaling up its operations over the long term.
Liquidity

Net cash accruals (NCA) were Rs.14.2 crores in fiscal 2019 against maturing debt obligations of Rs.3.72 crores. NCA is likely to be around Rs.13.5-14.5 crores per fiscal over the medium term against repayment obligations of Rs.3.7 crores per annum. BRIL is expected to raise equity to fund capital expenditure of Rs.60 crores over medium term, debt component, if any, is not likely to exceed 30% of the project cost. Average bank limit utilisation was moderate at 38% during the past 12 months ended in April 2019. Current ratio was comfortable 1.7 times as on March 31 2019, likely to remain at similar levels over the medium term.

Outlook: Stable

CRISIL believes that the business risk profile of the company would benefit over the medium term due to extensive experience of the promoters in the specialty industry. The outlook may be revised to 'Positive' in case of substantial improvement in its revenue and profitability leading to large cash accruals, thereby resulting in an improvement in its business risk profile. The outlook may be revised to 'Negative' if the cash accruals decline sharply, or in case of larger than expected debt funded capital expenditure thereby affecting the financial risk profile of the company, particularly liquidity.

About the Company

Incorporated in 1990, BRIL, formerly known as Asia Fab Limited, is engaged in the business of distribution of specialty chemicals in India. BRIL has also setup a unit at Jhagadia, Gujarat, wherein it manufactures 'acrylamide', which finds application in paints, emulsions, adhesives, etc. The installed capacity is 14,000 MTPA.

Apart from the above BRIL derives minor portion of its revenue from sale of industrial gloves and wind power. The company has two wind power plant at Rajasthan and Gujarat, having capacity of 0.8 MW each.

The company is being promoted by Mr. Anup Jatia, who is handling the day to day operation of the company.

Key Financial Indicators - Consolidated
Particulars Unit 2019 2018
Reported revenue Rs. Cr. 308.71 297.70
Reported profit after tax Rs. Cr. 13.82 11.75
PAT Margins % 4.48 3.95
Adjusted Debt/Adjusted Net worth Times 0.45 0.78
Interest coverage Times 7.86 5.59

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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)
Rating Assigned
with Outlook
NA Cash Credit NA NA Na 16 CRISIL BBB-/Stable
NA Letter of Credit NA NA NA 40.5 CRISIL A3
NA Letter of Credit Bill Discounting NA NA NA 5.9 CRISIL A3
NA Term Loan NA NA Feb-21 12.6 CRISIL BBB-/Stable
 
Annexure - List of entities consolidated
Names of Entities Consolidated Extent of Consolidation Rationale for Consolidation
B. R. Chemicals Co. Ltd Fully consolidated Parent-wholly owned subsidiary relationship and same line of business.
Black Rose Industries Limited Fully consolidated Parent-wholly owned subsidiary relationship and same line of business.
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  34.50  CRISIL BBB-/Stable/ CRISIL A3      10-04-18  CRISIL BBB-/Stable/ CRISIL A3  21-09-17  CRISIL BBB-/Stable    --  -- 
            06-04-18  CRISIL BBB-/Stable           
Non Fund-based Bank Facilities  LT/ST  40.50  CRISIL A3      10-04-18  CRISIL A3  21-09-17  CRISIL A3    --  -- 
            06-04-18  CRISIL A3           
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
Cash Credit 16 CRISIL BBB-/Stable Cash Credit 16 CRISIL BBB-/Stable
Letter of Credit 40.5 CRISIL A3 Letter of Credit 25.5 CRISIL A3
Letter of Credit Bill Discounting 5.9 CRISIL A3 Letter of Credit Bill Discounting 5.9 CRISIL A3
Term Loan 12.6 CRISIL BBB-/Stable Term Loan 12.6 CRISIL BBB-/Stable
Total 75 -- Total 60 --
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
CRISILs Criteria for Consolidation
The Rating Process
Understanding CRISILs Ratings and Rating Scales

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