Rating Rationale
April 09, 2020 | Mumbai
Chemco Plastic Industries Private Limited
Ratings removed from 'Watch Developing' ; Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.130 Crore
Long Term Rating CRISIL A-/Stable (Removed from 'Rating Watch with Developing Implications'; Rating Reaffirmed)
Short Term Rating CRISIL A2+ (Removed from 'Rating Watch with Developing Implications'; Rating Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has removed its ratings on the bank facilities of Chemco Plastic Industries Private Limited (Chemco) from 'Rating Watch with Developing Implications' and has reaffirmed the ratings at 'CRISIL A-/CRISIL A2+,' while assigning a 'Stable' outlook to the long term bank facilities.
 
CRISIL had placed its rating on the bank facilities of Chemco on watch on March 17, 2020 following the inability of the company to meet its debt obligations due to the imposition of moratorium on deposits with Yes Bank. The moratorium on Yes Bank had impacted company's ability to service debt in a timely manner despite having the cushion in liquidity and willingness to repay the debt. The company has working capital and term loan facilities with Yes Bank.
 
Subsequently, the debt obligations have been paid post the lifting of moratorium of Yes Bank.  
 
CRISIL has taken cognizance of the restrictions on economic activity, including closure of all non-essential manufacturing plants, due to the spread of Novel Coronavirus (Covid-19). This will impact the company's performance in fiscal 2021 as against CRISIL's earlier expectations. Impact of Covid-19 related restrictions applicable post April 14th, 2020 will remain a key monitorable.
 
The rating continues to reflect company's established market position, long track record, reputed clientele, and comfortable financial risk profile. The ratings also factor in the promoter's extensive experience in the packaging industry. These strengths are partially offset by exposure to customer concentration risk, and susceptibility to volatility in raw material prices and foreign exchange (forex) rates.

Analytical Approach

Unsecured loans of Rs 10.01 crore extended by the promoter as of March 31, 2019, have been treated as neither debt nor equity, as the loans are expected to be retained in the business over the medium term and are subordinated to bank debt. Also preference shares of Rs 1.17 crore as on March 31, 2019 has been treated as debt.

Key Rating Drivers & Detailed Description
Strengths:
* Established market position, supported by long track record and reputed clientele
The company is an established player in the specialty plastic PET Preforms, Jars & Bottles packaging industry with track record of over two decades in catering to the food, beverage, pharmaceutical and oil segments. Moreover, established relationships with reputed customers, such as Bisleri International Pvt Ltd, Hindustan Coca Cola Beverages Pvt Ltd (HCCBL), and Moon Beverages Ltd ('CRISIL A+/Watch Developing'), strengthen its market position. Chemco plans to manufacture multilayered fabric post commercialization of CAPEX at its Halol facility. The new product addition would aid product diversity and thereby the business risk profile of the company.
 
* Extensive experience of the promoter
The promoter, Mr. Ramawatar I. Saraogi, is a polymer engineer and has over 35 years of experience in the PET (polyethylene terephthalate) preforms, jars, and bottles industry. He is supported by Mr. Vaibhav R. Saraogi as managing director of the company, who is a postgraduate who has been focusing on the marketing, strategic and technological aspects of the company.
 
* Robust financial risk profile
The financial risk profile is robust as indicated by healthy net worth of Rs.106 crore and healthy gearing of 0.62 time as on March 31, 2019. Also the debt protection metrics are healthy with interest coverage of 5.83 times and NCAAD of 0.63 time as on March 31, 2019. Despite debt funded CAPEX, the financial risk profile would continue to remain healthy.
 
Weaknesses:
* Exposure to customer concentration risk
About 45% of the revenue in fiscal 2019 (as against 60% in fiscal 2018) came from the top two customers, resulting in high customer concentration risk. However, over the past few years Chemco has been diversifying its customer base and has continuously added new customers. Also with commercialization of CAPEX at its Halol facility, CRISIL expects further diversity in its customer profile, thereby aiding business risk profile.
 
* Susceptibility to volatility in raw material prices
Raw material cost accounts for 70% of the cost of sales, and any adverse movement in input prices will constrain the operating margin. The operating margins declined to 15.8% in fiscal 2019 as against 19.2% in fiscal 2018 because of adverse raw material prices and addition of new customers. CRISIL believes that margins would continue to remain volatile and sustenance of the same will continue to remain key rating sensitivity factor.
Liquidity Strong

Liquidity is strong. Chemco generated a net cash accrual of Rs 41.44 crore in fiscal 2019 against a debt repayment obligation of 11 crore in fiscal 2019. Chemco did a debt-funded CAPEX at Sanand and Halol which is expected to commercialize in the second half of current year. This has resulted in more than expected repayments over the medium term; however the increased capacity utilization from the newly added plants would add to the bottom line and therefore cash accruals are expected to show a steady growth. The cash accruals are expected to remain between Rs 5065 crore against repayment obligation of Rs 15-17 crore over medium term. The bank limit of Rs 30 crore was utilized on average at 87% on average for past 11 months ending February 2019. Further the company has received enhancement in the limits and the bank limit as on June 2019 stood at Rs 38 crore.

Outlook: Stable

CRISIL believes Chemco will continue to benefit from the extensive experience of its promoter and established relationships with key customers.

Rating Sensitivity factors
Upward Factor
* Sustenance of revenue and operating margins remaining above 19% over the medium term
* Efficient working capital management
 
Downward Factor
* Debt funded CAPEX resulting in weakening of capital structure
* Financial flexibility getting constrained because of TOLANW of more than 1.5 times over the medium term
About the Company

Chemco, promoted by Mr Ramawatar I. Saraogi, manufactures PET bottles, jars, and preforms for personal care, healthcare, confectionary, agricultural chemical, beverage, and lubricant industries.

Key Financial Indicators
As on / for the period ended March 31   2019 2018
Operating income Rs crore 345.12 233.83
Reported profit after tax Rs crore 24.00 13.65
PAT margin % 7.0 5.8
Adjusted debt/adjusted net worth Times 0.62 0.91
Interest coverage Times 5.83 6.02

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 44 CRISIL A-/Stable
NA Letter of Credit NA NA NA 15.5 CRISIL A2+
NA Bank Guarantee NA NA NA 3 CRISIL A2+
NA Proposed Long Term
Bank Loan Facility		 NA NA NA 12.96 CRISIL A-/Stable
NA Rupee Term Loan NA NA Mar-25 54.54 CRISIL A-/Stable
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  111.50  CRISIL A-/Stable  17-03-20  CRISIL A-/Watch Developing  29-11-19  CRISIL A-/Stable  31-10-18  CRISIL A-/Stable  13-07-17  CRISIL BBB+/Stable  CRISIL BBB/Positive 
        10-01-20  CRISIL A-/Stable  20-11-19  CRISIL A-/Stable  31-08-18  CRISIL A-/Stable       
Non Fund-based Bank Facilities  LT/ST  18.50  CRISIL A2+  17-03-20  CRISIL A2+/Watch Developing  29-11-19  CRISIL A2+  31-10-18  CRISIL A2+  13-07-17  CRISIL A2  CRISIL A3+ 
        10-01-20  CRISIL A2+  20-11-19  CRISIL A2+  31-08-18  CRISIL A2+       
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 A2+ Bank Guarantee 3 CRISIL A2+/Watch Developing
Cash Credit 44 CRISIL A-/Stable Cash Credit 44 CRISIL A-/Watch Developing
Letter of Credit 15.5 CRISIL A2+ Letter of Credit 15.5 CRISIL A2+/Watch Developing
Proposed Long Term Bank Loan Facility 12.96 CRISIL A-/Stable Proposed Long Term Bank Loan Facility 12.96 CRISIL A-/Watch Developing
Rupee Term Loan 54.54 CRISIL A-/Stable Rupee Term Loan 54.54 CRISIL A-/Watch Developing
Total 130 -- Total 130 --
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 Approach to Recognising Default
CRISILs Bank Loan Ratings
CRISILs Criteria for rating short term debt
The Rating Process

For further information contact:
Media Relations
 Analytical Contacts
 Customer Service Helpdesk
Saman Khan
Media Relations
CRISIL Limited
D: +91 22 3342 3895
B: +91 22 3342 3000
saman.khan@crisil.com

Naireen Ahmed
Media Relations
CRISIL Limited
D: +91 22 3342 1818
B: +91 22 3342 3000
naireen.ahmed@crisil.com

 Mohit Makhija
Director - CRISIL Ratings
CRISIL Limited
B:+91 124 672 2000
mohit.makhija@crisil.com

Jaya Mirpuri
Director - CRISIL Ratings
CRISIL Limited
D:+91 20 4018 1926
jaya.mirpuri@crisil.com

Dhaval Vora
Rating Analyst - CRISIL Ratings
CRISIL Limited
D:+91 22 6172 3788
Dhaval.Vora@crisil.com 		Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
CRISILratingdesk@crisil.com
 
For Analytical queries:
ratingsinvestordesk@crisil.com

 

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper / magazine / agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL. However, CRISIL alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites, portals etc.


About CRISIL Limited

CRISIL is a leading agile and innovative, global analytics company driven by its mission of making markets function better. We are India’s foremost provider of ratings, data, research, analytics and solutions. A strong track record of growth, culture of innovation and global footprint sets us apart. We have delivered independent opinions, actionable insights, and efficient solutions to over 1,00,000 customers.
 
We are majority owned by S&P Global Inc., a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.
 
For more information, visit www.crisil.com 

Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK

About CRISIL Ratings
CRISIL Ratings is part of CRISIL Limited (“CRISIL”). We pioneered the concept of credit rating in India in 1987. CRISIL is registered in India as a credit rating agency with the Securities and Exchange Board of India (“SEBI”). With a tradition of independence, analytical rigour and innovation, CRISIL sets the standards in the credit rating business. We rate the entire range of debt instruments, such as, bank loans, certificates of deposit, commercial paper, non-convertible / convertible / partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 24,500 large and mid-scale corporates and financial institutions. CRISIL has also instituted several innovations in India in the rating business, including rating municipal bonds, partially guaranteed instruments and microfinance institutions. We also pioneered a globally unique rating service for Micro, Small and Medium Enterprises (MSMEs) and significantly extended the accessibility to rating services to a wider market. Over 1,10,000 MSMEs have been rated by us.

CRISIL PRIVACY
 
CRISIL respects your privacy. We may use your contact information, such as your name, address, and email id to fulfil your request and service your account and to provide you with additional information from CRISIL.For further information on CRISIL’s privacy policy please visit www.crisil.com.

DISCLAIMER

This disclaimer forms part of and applies to each credit rating report and/or credit rating rationale that we provide (each a “Report”). For the avoidance of doubt, the term “Report” includes the information, ratings and other content forming part of the Report. The Report is intended for the jurisdiction of India only. This Report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the Report is to be construed as CRISIL providing or intending to provide any services in jurisdictions where CRISIL does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this Report does not create a client relationship between CRISIL and the user.

We are not aware that any user intends to rely on the Report or of the manner in which a user intends to use the Report. In preparing our Report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the Report is not intended to and does not constitute an investment advice. The Report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind or otherwise enter into any deal or transaction with the entity to which the Report pertains. The Report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Rating are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities / instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL assumes no obligation to update its opinions following publication in any form or format although CRISIL may disseminate its opinions and analysis. CRISIL rating contained in the Report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the Report should rely on their own judgment and take their own professional advice before acting on the Report in any way.CRISIL or its associates may have other commercial transactions with the company/entity.

Neither CRISIL nor its affiliates, third party providers, as well as their directors, officers, shareholders, employees or agents (collectively, “CRISIL Parties”) guarantee the accuracy, completeness or adequacy of the Report, and no CRISIL Party shall have any liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the Report. EACH CRISIL PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the Report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. CRISIL’s public ratings and analysis as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any) are made available on its web sites, www.crisil.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee – more details about CRISIL ratings are available here: www.crisilratings.com.

CRISIL and its affiliates do not act as a fiduciary. While CRISIL has obtained information from sources it believes to be reliable, CRISIL does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and / or relies in its Reports. CRISIL keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of the respective activity. As a result, certain business units of CRISIL may have information that is not available to other CRISIL business units. CRISIL has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL has in place a ratings code of conduct and policies for analytical firewalls and for managing conflict of interest. For details please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html

CRISIL’s rating criteria are generally available without charge to the public on the CRISIL public web site, www.crisil.com. For latest rating information on any instrument of any company rated by CRISIL you may contact CRISIL RATING DESK at CRISILratingdesk@crisil.com, or at (0091) 1800 267 1301.

This Report should not be reproduced or redistributed to any other person or in any form without a prior written consent of CRISIL.

All rights reserved @ CRISIL