Rating Rationale
May 02, 2019 | Mumbai
Chembond Chemicals Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.19 Crore
Long Term Rating CRISIL A-/Stable (Reaffirmed)
Short Term Rating CRISIL A1 (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL A-/Stable/CRISIL A1' ratings on the bank facilities of Chembond Chemicals Limited (Chembond; part of the Chembond group).

The ratings continue to reflect the group's strong business and financial risk profiles. These strengths are partially offset by working capital intensity in operations and exposure to intense competition in the specialty chemicals industry.

Analytical Approach

For arriving at its ratings, CRISIL continues to combine the business and financial risk profiles of Chembond with those of its subsidiaries. This is because all these entities, together referred to as the Chembond group, are owned and managed by the same promoters and have significant operational and financial linkages.

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:
* Strong business risk profile: The group enjoys a leadership position in India in the water treatment chemicals segment. High brand visibility of primary products has enabled cross-selling of other chemicals such as industrial coatings and construction chemicals. The group also supplies industrial enzymes for applications in animal feed, textiles, and alcohol processing. Customer base is spread across the automobiles, steel, fertilisers, refineries, petrochemicals, power plants, and infrastructure segments. Group has developed in-house, technology to manufacture polymers from organically. This segment is expected to drive growth and profitability over the medium term.
 
* Healthy financial risk profile: Networth is healthy, estimated at around Rs 200 crore (adjusted for intangibles) as on March 31, 2019; total outside liability to adjusted networth is estimated to be low at 0.2 times, likely to remain at around 0.3 times over the medium term. Debt protection metrics is robust with estimated interest coverage ratio of above 25 times and net cash accruals to total debt of above 3 times, for fiscal 2019. Operating margin improved to an estimated 8% in fiscal 2019 (7.3% & 5.8% in fiscal 2018 & 2017 respectively) largely on account of discontinuation of toll manufacturing. Surplus liquid funds, estimated at around Rs 60 crore as on March 31 2019 ensure reliance on incremental working capital debt is minimal. Any large investment outgo leading to weakening of financial risk profile will be a key monitorable.
 
Weaknesses:
* Working-capital-intensive operations: Operations are working capital intensive, with gross current assets estimated at around 160 days as on March 2019 is largely driven by receivables estimated at 90-100 days. Though this is partially offset by sizeable credit from suppliers (payables of 70-100 days), working capital requirement will remain large over the medium term.
 
* Exposure to intense competition: Competition is intense in the surface and water-treatment chemical sector due to moderate nature of capital requirements and easy availability of raw materials. Customer profile is strong and includes players such as Tata Motors Ltd, Fiat India Automobiles Ltd, LG India, Whirlpool of India Ltd, Hitachi Home and Life Solutions Ltd. However, the group is not the only supplier to these clients, restricting bargaining power. Additionally, any vendor rationalization by customers or loss of price competitiveness because of technological disadvantages may constrain revenue. However, the diverse nature of the customer profile, spread across industries and geographies, minimizes adversities such as loss of customers in any segment or industry.
Liquidity

Net cash accruals is estimated around Rs 16.5 crores in fiscal 2019, and is likely to be Rs 19-20 crore per fiscal over the medium term, against nominal debt repayment obligations of around Rs 0.1 crore per annum and capital expenditures of Rs 10-15 crore over fiscals 2020 and 2021. Bank limit of Rs 19 crore was largely unutilized over the past 12 months. Liquid assets of around Rs 60 crore also support liquidity as of March 2019.

Outlook: Stable

CRISIL believes the Chembond group will benefit over the medium term from healthy demand for water treatment chemicals and established relationship with key customers. The outlook may be revised to 'Positive' if cash accrual increases substantially due to higher-than-expected revenue or profitability. The outlook may be revised to 'Negative' if a considerable decline in operating margin or revenue, large, debt-funded capital expenditure, or investment in unrelated business weakens financial risk profile.

About the Group

Set up in 1975 by Dr Vinod Shah, Mr Ashwin Nagarwadia, and Mr Parviz Dastur, Chembond manufactures specialty chemicals and provides a range of products for diverse industrial applications. It offers metal-treatment chemicals, water-treatment chemicals, and industrial enzymes through its subsidiaries and JVs. Chembond also manufactures construction chemicals for the construction and infrastructure sectors, and high-performance coatings for structural protection from corrosion, for floors and walls in clean rooms, and for shop floors and building exteriors. The company diversified into equipment-based solutions for water treatment. Additionally, it trades in building construction chemicals. The groups manufacturing and blending plants are located at Tarapur (Thane, Maharashtra), Baddi (Himachal Pradesh), Chennai (Tamil Nadu) and Dudhwada (Vadodara, Gujarat). Warehouses and branch offices are located at Ahmedabad (Gujarat), New Delhi, Faridabad (Haryana), Kolkata (West Bengal).
  
In 2001, the Chembond group formed a JV with Ashland Inc, USA, and simultaneously acquired Drewtreat Chemicals Ltd for water-treatment chemicals. Pursuant to the sale of water-technologies business globally by Ashland Inc to Solenis, Solenis Netherlands BV took over the minority stake in the Indian JV, Chembond Ashland Water Technology Ltd; the JV was renamed Chembond Solenis Water Technologies Ltd effective August 21, 2014. On April 27, 2017, Chembond entered into an agreement to acquire the equity shares of Chembond Solenis Water Technologies Limited from Solenis Netherlands B.V., post which the said entity became a wholly owned subsidiary of Chembond.
 
In November 2017, Chembond acquired 100% stake in Phiroze Sethna Pvt. Ltd., a company into manufacturing of sealants and adhesives for the automotive industry. Phiroze Sethna also has a wholly owned subsidiary, Gramos Chemicals India Pvt. Ltd., which manufactures products used in paint shops in the automotive industry.

Key Financial Indicators
Particulars Unit 2018 2017
Revenue Rs crore 279.85 289.72
Profit After Tax (PAT) Rs crore 12.99 25.24
PAT Margin % 4.6 8.7
Adjusted Debt/Adjusted Net Worth Times 0.05 0.04
Interest coverage Times 35.6 18.0

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. 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 Bank Guarantee NA NA NA 3.00 CRISIL A1
NA Cash Credit NA NA NA 16.00 CRISIL A-/Stable
 
Annexure - Details of Instrument(s)
Names of Entities Consolidated Extent of Consolidation Rationale for Consolidation
Chembond Clean Water Technologies limited Fully consolidated CCL owns majority stake in the company and asserts control. Managed by the same promoters and have significant operational financial linkages.
Chembond Water technologies limited Fully consolidated Wholly owned subsidiary of CCL. managed by the same promoters and have significant operational financial linkages
Chembond Biosciences Ltd (Previously Chembond Industrial Coatings Limited) Fully consolidated Wholly owned subsidiary of CCL. managed by the same promoters and have significant operational financial linkages
Chembond Material Technologies Limited (Previously Petrochem Industries Limited) Fully consolidated Wholly owned subsidiary of CCL. managed by the same promoters and have significant operational financial linkages
Chembond-Calvatis Industrial Hygiene Systems Limited Fully consolidated CCL owns majority stake in the company and asserts control. Managed by the same promoters and have significant operational financial linkages.
Chembond Polymers and Materials Limited Fully consolidated Wholly owned subsidiary of CCL. managed by the same promoters and have significant operational financial linkages
Chembond Chemicals (Malaysia) SDN BHD Fully consolidated Wholly owned subsidiary of CCL. managed by the same promoters and have significant operational financial linkages
Phiroze Sethna Pvt Ltd Fully consolidated Wholly owned subsidiary of CCL. managed by the same promoters and have significant operational financial linkages
Gramos Chemicals India Pvt Ltd Fully consolidated Wholly owned step-down subsidiary of CCL. managed by the same promoters and have significant operational financial linkages
Chembond Distribution Limited Fully consolidated Wholly owned subsidiary of CCL. managed by the same promoters and have significant operational financial linkages
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  16.00  CRISIL A-/Stable      28-03-18  CRISIL A-/Stable  24-02-17  CRISIL A-/Stable  03-11-16  CRISIL A-/Stable  CRISIL A-/Stable 
Non Fund-based Bank Facilities  LT/ST  3.00  CRISIL A1      28-03-18  CRISIL A1  24-02-17  CRISIL A1  03-11-16  CRISIL A1  CRISIL A1 
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
Bank Guarantee 3 CRISIL A1 Bank Guarantee 3 CRISIL A1
Cash Credit 16 CRISIL A-/Stable Cash Credit 16 CRISIL A-/Stable
Total 19 -- Total 19 --
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 Consolidation
The Rating Process
Understanding CRISILs Ratings and Rating Scales

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