Rating Rationale
April 25, 2022 | Mumbai
Dai-Ichi Karkaria Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.51 Crore (Reduced from Rs.119 Crore)
Long Term RatingCRISIL BB/Stable (Reaffirmed)
Short Term RatingCRISIL A4+ (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its 'CRISIL BB/Stable/CRISIL A4+’ ratings on the bank facilities of Dai-Ichi Karkaria Limited (DKL; a part of the DK group). Also, the rating on the proposed long-term bank loan facility of Rs 68 crore has been withdrawn at the company’s request which is in line with CRISIL Ratings’ policy for withdrawal of ratings.

 

The ratings continue to reflect established market position of the DK group in the specialty chemical segment and moderate capital structure. These strengths are partially offset by operating performance being highly susceptible to timely completion of ongoing capex plan to restore the Dahej plant capacity destroyed in fire incident and weak interest coverage ratio. Further rating also factors in susceptibility of operating margins to volatility in the raw material prices.

Analytical Approach

CRISIL Ratings has consolidated the business and financial risk profiles of DKL with Dai-ichi Gosei Chemicals (India) Ltd (DGCL) and ChampionX Dai-ichi India Pvt Ltd (formerly, Nalco Champion Dai-ichi India Pvt Ltd) because DGCL is a 97% subsidiary and ChampionX Dai-ichi India Pvt Ltd is a 50% joint venture of DKL. Collectively, these entities are referred to as the DK group.

 

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:

  • Established market position

The DK group has an established market position in specialty chemicals, catering to a variety of industries such as oil field, pigment, paint, textile, polymers, paper, construction chemical and agro industry. Diversified business segments with entrenched position in the oil field segment is backed by technical collaborations and expertise of the promoters.

 

  • Moderate capital structure

Networth was healthy at Rs 170.41 crore as on March 31, 2021, and total outside liabilities to adjusted networth ratio comfortable at 0.34 time. The company has availed fresh long term debt for ongoing capex however adjusted debt/ adjusted networth is expected to be sub 0.5 times as on March 31, 2022.

 

Weaknesses:

  • Operating performance susceptible to timely completion of capex and restoration of plant capacity at Dahej

The DK group set up a new facility in Dahej; its operating performance remains affected by the delay in the completion of capital expenditure (capex) during fiscal 2019 and subsequent stabilisation due to delay in shifting of a certain portion of the machinery to the new plant from its earlier plant at Pune. It was further constrained by the disruptions caused by the Covid-19 pandemic (from March 2020) and a fire incident in November 2020. The company is undertaking a new capex in a phased manner to restore plant capacity; its timely completion, without cost overrun, will remain a key rating sensitivity factor.

 

  • Exposure to volatility in raw material prices

The operating margin is likely to remain susceptible to volatility in the cost of raw materials, which  are crude oil derivatives. However, the risk is partially mitigated by the company's focus on value-added products that command better pricing. 

 

  • Weak interest coverage ratio

On account of operating loss, company’s interest coverage ratio is expected to remain weak in fiscal 2022 as seen from the 9 month YTD operating performance ended December 2021.

Liquidity: Stretched

Bank limit utilisation was moderate at around 86% for the 12 months through March 2022. The company incurred operating loss in fiscals 2021 and 2022. The company sold a land parcel of Rs 153 crore in fiscal 2021 and further realised funds of around Rs 10 crore in fiscal 2022 owing to sale of additional land parcel, part insurance claim and salvage value. The company received on-account interim insurance claim of Rs 4 crore in February 2022 and expects receipt of final insurance claim in fiscal 2023, timely receipt of the same will be a key monitorable.

 

Cash accrual is projected at Rs 10.00-15.00 crore per annum, sufficient to meet the repayment obligation of Rs 6.25 crore over the medium term; cash accrual is likely to further improve basis restoration of plant capacity and healthy demand. Current ratio was 1.4 times on March 31, 2021. Low gearing and moderate networth should support financial flexibility.

Outlook: Stable

The DK group will continue to benefit from extensive experience of its promoters.

Rating Sensitivity factors

Upward factors

  • Significant improvement in liquidity through timely realisation of entire insurance claim proceeds
  • Timely completion of ongoing capex without cost overrun
  • Operating margin rising over 5% resulting in improved interest coverage ratio

 

Downward factors

  • Continued operating losses owing to lower-than-expected scale up in revenue resulting in net cash accruals to repayment obligation ratio being less than 1.2 time
  • Stretch in the working capital cycle; large, debt-funded capex or acquisition; delay in receipt of insurance claim; or more-than-expected dividend pay-out weakening financial risk profile

About the DK group

DKL was incorporated on May 13, 1960, and commenced commercial production in 1963, in technical collaboration with Dai-ichi Kogyo Seiyaku Company Ltd, Japan. DKL has its registered office in Mumbai and is certified with ISO 9001. The company manufactures specialty chemicals at its plant in Dahej and Kurkumbh. Mr Dhunjishaw Neterwala is the founder of DKL; his daughter, Ms S F Vakil, is the chairperson and managing director; Ms Meher Taff, daughter of Ms Vakil, is the chief operating officer and whole time director.

 

ChampionX Dai-ichi India Pvt Ltd is a joint venture of DKL and CTI Chemicals Asia Pacific Pte Ltd, Singapore. DGCL is a 97% subsidiary of DKL.

Key Financials (Consolidated)

As on / for the period ended March 31

 

2021

2020

Operating income

Rs crore

97.42

107.17

Reported profit after tax (PAT)

Rs crore

50.68

-22.93

PAT margin

%

52.02

-21.39

Adjusted debt/adjusted networth

Times

0.12

0.91

Interest coverage

Times

-1.32

-0.29

 

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

15

NA

CRISIL BB/Stable

NA

Letter of credit & Bank Guarantee

NA

NA

NA

10

NA

CRISIL A4+

NA

Long Term Loan

NA

NA

Mar-27

22.20

NA

CRISIL BB/Stable

NA

Working Capital Term Loan

NA

NA

Mar-26

2.80

NA

CRISIL BB/Stable

NA

Loan Equivalent Risk Limits

NA

NA

NA

1.0

NA

CRISIL BB/Stable

NA

Proposed Long Term

Bank Loan Facility

NA

NA

NA

68

NA

Withdrawn

 

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Dai-Ichi Karkaria Limited

Full

Financial, operational and managerial linkages

Dai-Ichi Gosei Chemicals India Limited

Full

Financial, operational and managerial linkages

Nalco Champion Dai-Ichi India Private Limited

Share of profit

Financial, operational and managerial linkages

 

Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 109.0 CRISIL BB/Stable   -- 09-09-21 CRISIL BB/Stable 01-12-20 CRISIL BB/Watch Developing 22-11-19 CRISIL BB/Stable CRISIL BB+ /Stable(Issuer Not Cooperating)*
      --   -- 25-02-21 CRISIL BB/Stable   -- 03-01-19 CRISIL BB+/Stable --
Non-Fund Based Facilities ST 10.0 CRISIL A4+   -- 09-09-21 CRISIL A4+ 01-12-20 CRISIL A4+/Watch Developing 22-11-19 CRISIL A4+ CRISIL A4+ (Issuer Not Cooperating)*
      --   -- 25-02-21 CRISIL A4+   -- 03-01-19 CRISIL A4+ --
All amounts are in Rs.Cr.
* - Issuer did not cooperate; based on best-available information
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 15 Axis Bank Limited CRISIL BB/Stable
Letter of credit & Bank Guarantee 10 Axis Bank Limited CRISIL A4+
Loan Equivalent Risk Limits 1 Axis Bank Limited CRISIL BB/Stable
Long Term Loan 22.2 Axis Bank Limited CRISIL BB/Stable
Proposed Long Term Bank Loan Facility 68 Not Applicable Withdrawn
Working Capital Term Loan 2.8 Axis Bank Limited CRISIL BB/Stable

This Annexure has been updated on 25-Apr-22 in line with the lender-wise facility details as on 30-Jul-21 received from the rated entity.

Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Chemical Industry
CRISILs Criteria for Consolidation
Understanding CRISILs Ratings and Rating Scales

Media Relations
Analytical Contacts
Customer Service Helpdesk

Pankaj Rawat
Media Relations
CRISIL Limited
B: +91 22 3342 3000
pankaj.rawat@crisil.com

Hiral Jani Vasani
Media Relations
CRISIL Limited
B: +91 22 3342 3000
hiral.vasani@crisil.com

Rutuja Gaikwad 
Media Relations
CRISIL Limited
B: +91 22 3342 3000
Rutuja.Gaikwad@ext-crisil.com


Rahul Subrato Kumar Guha
Director
CRISIL Ratings Limited
D:+91 22 4097 8320
rahul.guha@crisil.com

Jumana Badshah
Associate Director
CRISIL Ratings Limited
D:+91 22 3342 8324
Jumana.Badshah@crisil.com

Akshay Jaiprakash Jain
Manager
CRISIL Ratings Limited
B:+91 22 3342 3000
Akshay.Jain@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 Ratings. However, CRISIL Ratings alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites and portals.


About CRISIL Ratings Limited (A subsidiary of CRISIL Limited)

CRISIL Ratings pioneered the concept of credit rating in India in 1987. With a tradition of independence, analytical rigour and innovation, we set 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 33,000 large and mid-scale corporates and financial institutions. We have also instituted several innovations in India in the rating business, including ratings for municipal bonds, partially guaranteed instruments and infrastructure investment trusts (InvITs).
 
CRISIL Ratings Limited ('CRISIL Ratings') is a wholly-owned subsidiary of CRISIL Limited ('CRISIL'). CRISIL Ratings Limited is registered in India as a credit rating agency with the Securities and Exchange Board of India ("SEBI").
 
For more information, visit www.crisilratings.com 
 



About CRISIL Limited

CRISIL is a global analytical company providing ratings, research, and risk and policy advisory services. We are India's leading ratings agency. We are also the foremost provider of high-end research to the world's largest banks and leading corporations.

CRISIL is 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

CRISIL PRIVACY NOTICE
 
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 is part of and applies to each credit rating report and/or credit rating rationale (‘report’) that is provided by CRISIL Ratings Limited (‘CRISIL Ratings’). To avoid 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 Ratings providing or intending to provide any services in jurisdictions where CRISIL Ratings 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 Ratings 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 to 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 Ratings 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 Ratings assumes no obligation to update its opinions following publication in any form or format although CRISIL Ratings may disseminate its opinions and analysis. The 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 Ratings or its associates may have other commercial transactions with the entity to which the report pertains.

Neither CRISIL Ratings nor its affiliates, third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively, ‘CRISIL Ratings Parties’) guarantee the accuracy, completeness or adequacy of the report, and no CRISIL Ratings 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 RATINGS 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 Ratings 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. Public ratings and analysis by CRISIL Ratings, 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 website, www.crisilratings.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee – more details about ratings by CRISIL Ratings are available here: www.crisilratings.com.

CRISIL Ratings and its affiliates do not act as a fiduciary. While CRISIL Ratings has obtained information from sources it believes to be reliable, CRISIL Ratings does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and/or relies on in its reports. CRISIL Ratings has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL Ratings has in place a ratings code of conduct and policies for managing conflict of interest. For details please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html.

Rating criteria by CRISIL Ratings are generally available without charge to the public on the CRISIL Ratings public website, www.crisilratings.com. For latest rating information on any instrument of any company rated by CRISIL Ratings, you may contact the CRISIL Ratings 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 prior written consent from CRISIL Ratings.

All rights reserved @ CRISIL Ratings Limited. CRISIL Ratings is a wholly owned subsidiary of CRISIL Limited.
 

 

CRISIL Ratings uses the prefix ‘PP-MLD’ for the ratings of principal-protected market-linked debentures (PPMLD) with effect from November 1, 2011, to comply with the SEBI circular, "Guidelines for Issue and Listing of Structured Products/Market Linked Debentures". The revision in rating symbols for PPMLDs should not be construed as a change in the rating of the subject instrument. For details on CRISIL Ratings' use of 'PP-MLD' please refer to the notes to Rating scale for Debt Instruments and Structured Finance Instruments at the following link: https://www.crisil.com/en/home/our-businesses/ratings/credit-ratings-scale.html