Rating Rationale
August 23, 2024 | Mumbai
C J S Specialty Chemicals Private Limited
Rating Reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.75 Crore
Short Term RatingCRISIL A2+ (Reaffirmed)
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL A2+’ rating on the short-term bank facilities of C J S Specialty Chemicals Private Limited (CJSSPL; part of the CJ Shah group).

 

The ratings reflect the stable operating performance in fiscal 2024 with relatively steady margins despite the chemical industry witnessing several headwinds during the fiscal. The rating also factors in the extensive experience of the promoters in the chemical trading business and their strong managerial support, the group’s longstanding relationships with customers, and diversified product profile and customer base. These strengths are partially offset by CJSSPL’s modest scale of operations at the standalone level and susceptibility to volatility in key commodity prices and exposure to inventory risks. Adequate risk management practices have helped to sustain profitability despite volatility in product realisations, foreign exchange (forex) rates and commodity (mainly crude) prices.

 

The company's strong presence in the specialty chemicals segment, varied product profile, diverse clientele and supplier network, and the promoters’ experience in the chemical business have helped sustain the business risk profile.

 

The financial profile remains comfortable, backed by nil long-term debt and adequate liquidity. While increase in the networth has been restricted by capital withdrawals, however, low capital expenditure (capex) needs and efficient working capital management also reduces dependence on external debt and helps in maintaining a comfortable financial risk profile.

Analytical Approach

In accordance with the homogeneous group criteria, CRISIL Ratings has combined the business and financial risk profiles of CJSSPLand its group companies , CJ Shah & Co (CJ Shah) and Shah CJ World LLP (SCJW), collectively referred to as the CJ Shah group.

 

The approach has been changed in this review to include SCJW in the homogeneous group as this firm has strong linkages with the group and the promoters have provided articulation to support all the group entities, if required. During the last rating exercise, SCJW was removed from the homogeneous group in the absence of similar articulation.

 

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

The four-decade-long experience of the promoters in the chemicals trading industry and their established relationships with large suppliers and customers should continue to support the business.

 

  • Longstanding relationship with its customers

Longstanding relationship with customers have helped the group build expertise regarding their requirements, which gives it a competitive advantage. The group also has a strong collection mechanism for timely recovery of dues from customers and supplies products across a variety of categories.

 

  • Strong managerial support from the promoters

Strong managerial support from the promoters of the CJ Shah group will help CJSSPL grow its business over the long term.

 

Weaknesses:

  • Moderate scale of operations at the standalone level

CJSSPL operates primarily in the specialty chemicals segment, with varied product categories. The company’s scale of operations remains modest and its operating margin has fluctuated due to volatility in product prices given their commodity nature. Though the performance has improved over the years, the business risk profile will remain constrained by the company’s modest scale.

 

  • Susceptibility to volatility in key commodity prices and exposure to inventory risks

Most of the traded goods are imported, while domestic sales contribute the most to revenue, thus exposing the company to build-up of inventory. Although, it mitigates this risk through order-backed procurement, its profitability will remain susceptible to sudden sharp movements in forex rates or commodity prices.

Liquidity: Strong

Liquidity is strong, backed by minimum capex requirement and subsequently low dependence on external long-term debt. The company has healthy cash and equivalents. Utilisation of fund-based facilities was low, and that for non-fund based facilities averaged 60% for the 12 months through March, 2024.

Rating Sensitivity factors

Upward factors

  • Significant increase in revenue above Rs 700 crore and sustenance of operating profitability of CJSSPL
  • Improvement in the financial risk profile 
  • Sustained improvement in the credit risk profile of the CJ Shah group

 

Downward factors

  • Substantial decline in operating margin below 3% caused by fluctuations in forex rates and commodity prices
  • Significant increase in working capital or large capital withdrawal, weakening the key credit metrics

About the Group

CJ Shah was set up by the late Mr Mahesh Shah in 1961, and is currently managed by his son, Mr. Apurva Shah. The firm imports petrochemicals and sells them to paints, agro-chemical and pharma companies. It is an exclusive distributor of certain chemicals of global companies for the Indian market.

 

In 2008, the Shah brothers promoted CJSSPL, which trades exclusively in specialty chemicals. The brothers have a majority holding in this company. Mr Dharmesh Mange and Mr Ashish Shah, two unrelated individuals with expertise in specialty chemicals, hold the remaining stake.

 

In 2019, a part of CJ Shah was demerged to form SCJW. This entity trades in drum packaging, chemicals and pharmaceuticals. It is owned and managed by Mr Ashit Shah, the younger brother of Mr Apurva Shah. SCJW has strong linkages with the CJ Shah group.

Key Financial Indicators (consolidated; CRISIL Ratings-adjusted figures)

As on / for the period ended March 31

Unit

2024*

2023

Revenue

Rs crore

7,029

7,170

PAT

Rs crore

NA

NA

PAT margin

%

NA

NA

Adjusted debt/adjusted networth

Times

0.15

0.19

Interest coverage

Times

NA

NA

*Provisional

 

Key financial indicators (standalone)

As on/for the period ended March 31

Unit

2024*

2023

Revenue

Rs crore

589

489

Profit after tax (PAT)

Rs crore

NA

NA

PAT margin

%

NA

NA

Adjusted debt/adjusted networth

Times

0.06

0.03

Interest coverage

Times

NA

NA

*Provisional

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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. 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

Letter of Credit

NA

NA

NA

75

NA

CRISIL A2+

 

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

CJ Shah & Co

Majority

Group entity

Shah CJ World LLP

Majority

Group entity

 

Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Non-Fund Based Facilities ST 75.0 CRISIL A2+   -- 26-05-23 CRISIL A2+ 28-02-22 CRISIL A2+   -- CRISIL A2+
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Letter of Credit 25 Hongkong & Shanghai Banking Co CRISIL A2+
Letter of Credit 25 Standard Chartered Bank Limited CRISIL A2+
Letter of Credit 25 Kotak Mahindra Bank Limited CRISIL A2+
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Criteria for rating trading companies
Criteria for rating entities belonging to homogenous groups
Rating Criteria for Chemical Industry
CRISILs Criteria for rating short term debt

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