Rating Rationale
November 29, 2021 | Mumbai
Crest Speciality Resins Private Limited
Ratings upgraded to 'CRISIL A- / CRISIL A2+ '; rated amount enhanced for Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.84 Crore (Enhanced from Rs.75.6 Crore)
Long Term RatingCRISIL A-/Stable (Upgraded from 'CRISIL BBB+/Positive' )
Short Term RatingCRISIL A2+ (Upgraded from 'CRISIL A2')
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has upgraded its ratings on the bank facilities of Crest Speciality Resins Private Limited (Crest) to ‘CRISIL A-/Stable/CRISIL A2+’ from 'CRISIL BBB+/Positive/CRISIL A2’

 

The upgrade reflects a belief that the business risk profile of Crest will continue to improve over the medium term, supported by steady revenue growth and moderately healthy operating profitability. Revenue may grow at more than 25% in fiscal 2022, driven by healthy demand for composites, addition of products and supported by enhancement in capacities. Operating margin is expected to remain moderately healthy at over 12% owing to focus on speciality resins and presence in few niche resins. The upgrade also factors in comfortable capital structure, with gearing expected below 0.5 time, and strong debt protection metrics with interest coverage ratio above 10 times.

 

The ratings also consider longstanding presence and technical expertise of the promoter, diversified product profile and end-user industry, and comfortable financial risk profile. These strengths are partially offset by the modest scale of operations amid intense competition, large working capital requirement and exposure to government policies on raw material and finished goods imports.

Key Rating Drivers & Detailed Description

Strengths:

  • Longstanding presence and technical expertise of promoter:

The promoter has been in the chemical industry for about three decades. In-house research and development and technical expertise of directors/professionals helped the company establish its brand and serve reputed clients such as Berger Becker Coatings Pvt Ltd (‘CRISIL A-/Stable), Arvind Ltd, JSW Paints Pvt Ltd, Paharpur Cooling Towers Ltd (‘CRISIL A+/Stable’) and Nippon Paint (India) Pvt Ltd.

 

  • Varied products and diversified end-user industry/applications:

Product profile is vast and comprises acrylate resin, coating resin, gelcoat/ fire retarder resin, ultra-resin, vinyl ester resin and polyester resin. In the last couple of years, the company added different products/grades and the focus on speciality resins has increased. Production of a new product, blow moulding compound, has commenced in fiscal 2022, further diversifying the product basket. This helped widen the clientele and strengthen market presence.

 

The company caters to varied end-user industries -- telecom, chemical, automobile, renewable energy, mass transportation, capital goods, infrastructure, electrical & electronic components and textiles – thereby hedging risk of various business cycles.

 

  • Comfortable financial risk profile:  

Financial risk profile should remain supported by moderately healthy operating profitability. Gearing was low and total outside liabilities to tangible networth (TOL/TNW) ratio moderate at 0.5 time and 1.4 times, respectively, as on March 31, 2021. Debt protection metrics were strong with interest coverage and net cash accrual to total debt ratios of 9.20 times and 0.49 time, respectively, in fiscal 2021. Return on capital employed remains healthy as this industry does not entail much capital investment and fixed assets turnover is adequate.

 

Weaknesses:

  • Susceptibility to volatile raw material prices:

Exposure to risk of fluctuation in the cost of raw material will persist, though partially mitigated by no long-term arrangements with customers and modest inventory of 4-45 days. Revenue was moderate at about Rs 260 crore in fiscal 2021 and is projected at around more than Rs 330 crore in fiscal 2022.

 

  • Large working capital requirement:

Gross current assets were 210 days as on March 31, 2021, driven by debtors of 110 days.  A credit of 60-80 days is normally offered to customers, which usually gets extended. However, the working capital cycle is partially supported by availing of supplier’s credit of about 90 days, thus leading to lower reliance on working capital limit.

Liquidity: Adequate

Cash accrual is projected at Rs 25 crore per annum over the medium term, sufficient to meet the yearly debt obligation of Rs 3-4 crore. Bank limit utilisation was moderate at 61% for the eight months through September 2021. The company has been able to achieve positive cash flow from operations, which has supported capital expenditure. Moderate TOL/TNW and healthy capital base of Rs 82 crore provides comfortable financial flexibility.

Outlook: Stable

Crest is likely to benefit from its established market position and technical expertise of the promoter.

Rating Sensitivity factors

Upward factors:

  • Revenue growth of 25-30% per annum and stable operating profitability
  • Significant improvement in the working capital cycle

 

Downward factors:

  • TOL/TNW ratio weakening to more than 2.5 times
  • Further stretch in the working capital cycle

About the Company

Crest, incorporated in 1989 and promoted by Mr Ranajit Sen, manufactures acrylate resin, coating resin, gelcoat/ fire retarder resin, ultra-resin, vinyl ester resin and polyester resin. The company is managed by professionals with expertise in each segment. It has one manufacturing unit each in Kheda (Gujarat) and Dharwad (Karnataka).

Key Financial Indicators

As on / for the period ended March 31

 

2021(A)

2020(A)

Operating income

Rs crore

259.9

307

Reported profit after tax (PAT)

Rs crore

17.31

23.01

PAT margin

%

6.66

7.49

Adjusted debt/adjusted networth

Times

0.55

0.50

Interest coverage

Times

9.2

10.4

 

Status of non-cooperation with previous CRA

Crest has not cooperated with Acuite Ratings and Research Ltd, which has also classified the ratings as issuer not cooperating’ on March 12, 2021, on account of non-furnishing of information for monitoring of ratings.

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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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 crore) Complexity level Rating assigned With outlook
NA Cash credit NA NA NA 40 NA CRISIL A-/Stable
NA Letter of credit NA NA NA 20 NA CRISIL A2+
NA Proposed long-term bank loan facility NA NA NA 0.88 NA CRISIL A-/Stable
NA Term loan NA NA Dec-2026 23.12 NA CRISIL A-/Stable

 

Annexure - Rating History for last 3 Years
  Current 2021 (History) 2020  2019  2018  Start of 2018
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 64.0 CRISIL A-/Stable   -- 29-10-20 CRISIL BBB+/Positive / CRISIL A2 24-07-19 CRISIL BBB+/Positive 02-07-18 CRISIL BBB+/Stable CRISIL BBB+/Stable
Non-Fund Based Facilities ST 20.0 CRISIL A2+   -- 29-10-20 CRISIL A2 24-07-19 CRISIL A2 02-07-18 CRISIL A2 CRISIL A2
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 15 HDFC Bank Limited CRISIL A-/Stable
Cash Credit 12.5 The Federal Bank Limited CRISIL A-/Stable
Cash Credit 12.5 DSB Bank Limited CRISIL A-/Stable
Letter of Credit 7.48 HDFC Bank Limited CRISIL A2+
Letter of Credit 5 The Federal Bank Limited CRISIL A2+
Letter of Credit 2.52 HDFC Bank Limited CRISIL A2+
Letter of Credit 5 DSB Bank Limited CRISIL A2+
Proposed Long Term Bank Loan Facility 0.88 - CRISIL A-/Stable
Term Loan 8.23 HDFC Bank Limited CRISIL A-/Stable
Term Loan 7.5 The Federal Bank Limited CRISIL A-/Stable
Term Loan 7.39 DSB Bank Limited CRISIL A-/Stable

This Annexure has been updated on 29-Nov-2021 in line with the lender-wise facility details as on 29-Nov-2021 received from the rated entity.

Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
Rating Criteria for Chemical Industry
CRISILs Criteria for rating short term debt
Understanding CRISILs Ratings and Rating Scales

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