Rating Rationale
October 29, 2020 | Mumbai
Black Rose Industries Limited
Ratings upgraded to 'CRISIL BBB/Stable/CRISIL A3+'
 
Rating Action
Total Bank Loan Facilities Rated Rs.75 Crore
Long Term Rating CRISIL BBB/Stable (Upgraded from 'CRISIL BBB-/Stable')
Short Term Rating CRISIL A3+ (Upgraded from 'CRISIL A3')
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has upgraded its ratings on the bank facilities of Black Rose Industries Limited (BRIL) to 'CRISIL BBB/Stable/CRISIL A3+' from 'CRISIL BBB-/Stable/CRISIL A3'.
 
The upgrade reflects the expectation that BRIL will be able to maintain its improved business and financial risk profiles over the medium term, driven by higher contribution from the manufacturing segment, supported by enhanced capacities and new products. Revenue and profitability grew by 21.2% and 200 basis points, respectively, in fiscal 2020. The nationwide lockdown and other measures taken by the central and state government to contain the Covid-19 pandemic are likely to have only a moderate impact on the operations of the company in fiscal 2021. While revenue was constrained in the first quarter of fiscal 2021, it has bounced back to 80-85% of pre-Covid-19 levels and is likely to improve further in the coming quarters. The upgrade also factors in a strengthened financial risk profile supported by improved capital structure and debt protection metrics, likely to improve further over the medium term.
 
The ratings continue to reflect the extensive experience of the promoters in the specialty chemicals industry and the company's above-average financial risk profile. These strengths are partially offset by low contribution from the manufacturing segment, exposure to foreign exchange (forex) fluctuations and product concentration.

Analytical Approach

CRISIL has consolidated the business and financial risk profiles of BRIL and BR Chemicals Co Ltd (BRCC). This is because BRCC is BRIL's 100% 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 experience of the promoters
Mr Anup Jatia, the key promoter, has experience of close to two decades in the specialty chemicals industry. He is a chemical engineer from the California Institute of Technology, USA, and possess technical expertise in the chemicals industry. The extensive experience of the promoters has helped the company establish strong relations with its customers, such as Mitsui Chemicals, Sumitomo Chemical and Taoka Chemical in Japan and Lanxess in Germany'all of whom have been associated with BRIL for 7-15 years. Furthermore, the company has commenced manufacturing of polyacrylamide in a liquid form. It also plans to set up a plant to manufacture polyacrylamide solid by incurring capital expenditure (capex) of Rs 60 crore; this should help the company scale up its revenue and profitability. However, time taken for completion of capex and scaling up of operations is a rating sensitivity factor.
 
* Above-average financial risk profile
Capital structure is healthy, as reflected in networth and total outside liabilities to adjusted networth (TOLANW) ratio of Rs 67.2 crore and 1.1 times, respectively, as on March 31 2020 (Rs 48.35 crore and 1.3 times, respectively, as on March 31, 2019). Capex of Rs 60 crore, likely to commence in fiscal 2022, is expected to be funded by a mix of internal accrual and equity infusion. In the absence of any debt funding for the capex, capital structure should remain healthy, with TOLANW likely to be below 1 time over the medium term. Debt protection metrics is healthy, indicated by interest coverage and net cash accrual to adjusted debt ratios of 11.1 times and 1 time, respectively, in fiscal 2020, likely to remain above 13 times and 1 time, respectively, over the medium term. The financial risk profile should remain healthy over the medium term.
 
Weaknesses
* Low contribution from the manufacturing segment and exposure to forex fluctuations
BRIL currently generates about 70% of its revenue from the distribution business, largely imported from Japan, South Korea and Germany. The business is dependent on relationships with the suppliers and is exposed to regulatory changes with respect to international trade. Profitability is also susceptible to fluctuations in forex rate because of large imports. However, longstanding relationships with the principals and partial hedging of forex exposure partially mitigate these risks.
 
* Product concentration in the manufacturing segment
Currently, BRIL generates almost all of its manufacturing revenue from a single product (acrylamide) and is likely to have two products (acrylamide and polyacrylamide) contributing to the revenue over the medium term. This exposes the company to any adverse impact of price movements, demand-supply dynamics and competition from domestic and foreign peers.
Liquidity Adequate

Net cash accrual, expected at Rs 18-25 crore per fiscal, will sufficiently cover yearly debt obligation of Rs 3 crore over the next two fiscals. BRIL is expected to raise equity to fund capex of Rs 60 crore over the medium term. Bank limit utilisation averaged 33% over the six months through September 2020. Current ratio was comfortable at 1.6 times as on March 31, 2020, and is expected at 1.5-2 times over the medium term.

Outlook: Stable

CRISIL believes BRIL's business risk profile will continue to benefit from the promoters' extensive experience and its enhanced manufacturing capacities.

Rating Sensitivity factors
Upward factors
* Significant growth in revenue driven by the manufacturing segment and improved operating margin of above 12% strengthening net cash accrual
* Stable financial risk profile, with low leverage and improved financial flexibility

Downward factors
* Decline in revenue and profitability constraining net cash accrual to below Rs 12 crore per annum over the medium term
* Stretched working capital cycle or any large, debt-funded capex weakening the financial risk profile
About the Company

Incorporated in 1990, BRIL, formerly known as Asia Fab Ltd, distributes specialty chemicals in India. It has also set up a unit in Jhagadia, Gujarat, wherein it manufactures acrylamide and polyacrylamide, which finds application in paints, emulsions and adhesives, water treatment etc, with installed capacity of 20000 and 40000 tonne per annum respectively.

BRIL derives a minor portion of its revenue from sale of industrial gloves and wind power. The company has two wind power plants in Rajasthan and Gujarat with capacity of 0.8 megawatt each.

Mr Anup Jatia, the promoter of the company, handles the day-to-day operations.

Key Financial Indicators Consolidated
Particulars Unit 2020 2019
Reported revenue Rs crore 373.50 309.46
Reported profit after tax (PAT) Rs crore 20.67 13.88
PAT margin % 5.53 4.48
Adjusted debt/adjusted networth Times 0.3 0.6
Interest coverage Times 11.1 7.0

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 Levels Issue Size
(Rs Crore)		 Rating Assigned with Outlook
NA Cash Credit NA NA Na NA 16 CRISIL BBB/Stable
NA Letter of Credit NA NA NA NA 40.5 CRISIL A3+
NA Letter of Credit Bill Discounting NA NA NA NA 5.9 CRISIL A3+
NA Term Loan NA NA Feb-2021 NA 12.6 CRISIL BBB/Stable
 
Annexure - List of entities consolidated
Names of Entities Consolidated Extent of Consolidation Rationale for consolidation
BR Chemicals Co Ltd Fully consolidated Parent-wholly owned subsidiary relationship and the same line of business
Black Rose Industries Ltd Fully consolidated Parent-wholly owned subsidiary relationship and the same line of business
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  34.50  CRISIL BBB/Stable/ CRISIL A3+      03-07-19  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+      03-07-19  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 40.5 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 75 --
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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