| Dai-Ichi Karkaria Limited | ||||||
| Long-term rating upgraded to 'CRISIL BB+/Stable'; Short-term rating reaffirmed | ||||||
| Rating Action | ||||||
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| 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 upgraded its rating on the long term bank facilities of Dai-Ichi Karkaria Limited (DKL; a part of the DK group) to 'CRISIL BB+/Stable' from ‘CRISIL BB/Stable'; the short-term rating is reaffirmed at 'CRISIL A4+’.
The upgrade reflects improvement in business risk profile of the company mainly due to restoration of capacities in the Dahej plant, while maintaining its financial risk profile. Consequently, company’s net cash accruals are expected to remain above Rs 14 crore fiscal 2023 onwards. The company will continue to benefit from its extensive experience and expertise in Pour Point Depressants(PPD) and other oil field products, it manufactures for exports to the world’s largest oil service providers .
Company has reported revenue of Rs 183 crore in fiscal 2023 against Rs 119 crore in fiscal 2022. Growth in revenue was majorly led by healthy demand and increased capacity. Further, business risk profile is also supported by increasing contribution from the oil field segment which is expected to increase further backed by healthy demand from end user segment. The upgrade also factors in a sustained strengthening of financial risk profile supported by improved capital structure and debt protection metrics.
The ratings continues to reflect the company’s established market position and improvement in business risk profile, but they can be susceptible to vulnerability of operating margins due to sharp volatility in foreign exchange (forex) rates and commodity prices, working capital-intensive operations and exposure to intense competition. |
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 and moderate Business risk Profile 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. The company also completed its Phase 2 restoration capex in December 2022 in Dahej. During fiscal 22-23 the operating margins turned positive to 11.7%, it is expected to improve marginally over the medium term.
Moderate capital structure Net worth was healthy at Rs 147 crore as on March 31, 2023, and total outside liabilities to adjusted net worth ratio comfortable at 0.48 time, adjusted debt/ adjusted net worth is expected to be sub 0.5 times as on March 31, 2023 and same it is expected to improve over medium term on account of lower reliance on external debt.
Weaknesses: Moderately high working capital operations Operations are working capital intensive, as reflected in gross current assets of 139 days as on March 31, 2023, mainly driven by debtor’s days of over 50 days. While working capital cycle is expected to improve with better collection, overall working capital cycle will remain intensive over the medium term.
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. |
Liquidity: Stretched Bank limit(CC) is fully utilized for the past twelve months ending in March 2023. The company has also sold assets and received interim insurance money of Rs 11 crore in fiscal 23 which has led to improvement in liquidity, the company also is expecting to receive insurance payout in fiscal 24 which will provide additional cushion to the liquidity. Low gearing and moderate net worth support its financial flexibility and provides the financial cushion available in case of any adverse conditions or downturn in the business. |
Outlook: Stable The DK group will continue to benefit from extensive experience of its promoters. |
Rating Sensitivity Factors Upward factors * Significant growth in operating revenue leading net cash accruals above Rs.15 Crores * Significant reduction in debt position leading to higher financial flexibility
Downward factors * Operating losses owing to lower-than-expected scale up in revenue resulting in net cash accruals to repayment obligation ratio being less than 1.0 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 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 whole-time director; Ms Meher Taff, daughter of Ms Vakil, is the managing 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 Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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Annexure - List of Entities Consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||
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Criteria Details
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