Rating Rationale
April 24, 2018 | Mumbai
Galaxy Surfactants Limited
Long-term rating upgraded to 'CRISIL A+/Stable'; short-term rating reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.906.33 Crore
Long Term Rating CRISIL A+/Stable (Upgraded from 'CRISIL A/Positive')
Short Term Rating CRISIL A1 (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has upgraded the rating on the long-term bank facilities of Galaxy Surfactants Limited (Galaxy; part of the GSL group) to 'CRISIL A+/Stable' from 'CRISIL A/Positive'. The rating on short term bank facilities has been reaffirmed at 'CRISIL A1'.

The upgrade reflects sustained improvement in GSL group's financial risk profile backed by healthy operating performance of domestic business, sustenance of improvement in Egypt operations coupled with continued decline in the debt levels on the back of repayment.
 
Revenue from operations continued to witness the momentum during nine months of fiscal 2018 driven by moderate domestic demand and improvement in the volume sales of GSL's Egypt subsidiary following increase offtake by FMCG players in Egypt. CRISIL estimates group's revenue from operations to grow by 10 per cent in fiscal 2018. Sustained improvement in operating income over the past couple of years while maintaining its profitability has led to healthy cash generation and decline in leverage. GSL is expected to generate cash accruals of over Rs.180 crore going forward.
 
Cash generated from the business has been primarily utilised to repay long term debt and fund incremental working capital requirements as a result its gearing has improved to ~0.5 time as on March 31, 2018. Further, the ratio of total-outside-liabilities-to-total-networth (TOL to TNW) and interest cover is estimated at ~1 time and ~12 times in fiscal 2018 an improvement from 1.53 times and 7.30 times respectively in fiscal 2016.
 
The ratings reflect the GSL group's established market position, steady demand from end user industry, sustained improvement in the operating performance of Egypt facility and the group's adequate financial risk profile. These rating strengths are partially offset by the moderately working-capital-intensive operations and vulnerability of its operating margin to volatility in raw material prices.

Analytical Approach

For arriving at its ratings, CRISIL has combined the business and financial risk profiles of Galaxy, Galaxy Chemicals Inc, Galaxy Holdings (Mauritius) Ltd, Galaxy Chemicals (Egypt) SAE, Rainbow Holdings GmBH, and Tri-K Industries Inc (Tri-K). This is because all these entities, collectively referred to as the GSL group herein, have significant operational synergies and financial linkages.

Key Rating Drivers & Detailed Description
Strengths
* Established position in Personal and Home Care (PHC) intermediates market: The GSL group has, for over two decades, been engaged in the manufacture and sale of surfactants and specialty chemicals used as intermediates by the PHC industry. The GSL group commands a significant market share in its range of products in India, driven by long-standing customer relationships. It caters to a large client base consisting of reputed FMCG multinationals and domestic customers. CRISIL believes that the GSL group will maintain its established market position in the PHC segments over the medium term, in view of its longstanding association with clients and strong R&D capabilities, and expects the group's revenues to grow at a healthy rate over the medium term due to growth in demand from the end-user segments.
 
* Sustained improvement in operating performance of Egypt facility: GSL group forayed into Middle East, African and Europe region by setting up a subsidiary in Egypt. The performance which had been impacted due to subdued demand in Middle East and Europe region witnessed an improvement in fiscal 2017 due to healthy demand supported by capital expenditure (capex) by major FMCG players in the Egypt and Middle East region. The operating performance of GSL Egypt continued to remain healthy during nine months of fiscal 2018. CRISIL believes that the operating performance of the subsidiary will continue to remain comfortable supported by healthy demand prospects in the region.
 
* Adequate financial risk profile: GSL group's financial risk profile is marked by healthy net worth and improving gearing and debt protection metrics. Overall gearing improved to 0.70 time as on March 31, 2017 as compared to 1.44 times as on March 31, 2015 and is estimated to improve to 0.50 time in fiscal 2018. Debt protection metrics have improved in line with the improvement in the profitability. Interest coverage ratio and net cash accruals to total debt (NCATD) improved from 5.29 times and 19 per cent for fiscal 2015 to 9.64 times and 46 per cent respectively for fiscal 2017 and is further estimated to improve to about 12 times and 50 per cent in fiscal 2018. CRISIL believes that GSL group's financial risk profile will further improve going forward driven by the healthy accretion to reserves and decline in the debt.
 
GSL group has strong liquidity reflected by low bank limit utilisation (average utilisation of ~39 per cent) and healthy cash generation.
 
Weakness
* Working capital intensive operations: GSL group maintains an inventory of 50-60 days. Further, the group has to extend credit of 40-60 days to its customers. Around 40 per cent of these current assets are funded by creditors, and the balance by working capital borrowings. CRISIL believes that while GSL group's working capital requirement would increase on account of the increase in the scale of operations, expectations of healthy cash generation would support the incremental working capital requirement needs. CRISIL also takes comfort from the strong credit profile of the customers which provides the group flexibility to discount debtors to generate liquidity if required.
 
* Susceptibility of operating performance to volatility in raw material prices: GSL group has a high dependence on Lauryl alcohol (LA) which forms more than 40 per cent of the raw material costs. The group derives majority of its revenue through cost plus model while for balance through non-cost plus model whereby the group derives its revenue on the basis of the prevailing market price. The profitability margin of the group remains susceptible to the significant volatility in the prices of key raw materials only to the extent the non-cost plus portion of the business.
Outlook: Stable

CRISIL believes that the GSL group will continue to benefit over the medium term from its strong market position and established clientele in the domestic and global markets.
 
Upside Scenario
* Sustained strong operating performance thereby leading to healthy cash accruals
* Effective working capital management
 
Downside Scenario
* Lower-than-expected revenue and profitability
* Large debt-funded capex or acquisitions, or stretch in working capital cycle, leading to material weakening in its financial risk profile.

About the Company

The GSL group, set up in 1980, manufactures, sells, and distributes surfactants and specialty chemicals, which are used as intermediate raw materials in home and personal care products.

Galaxy Chemicals (Egypt) SAE, a step-down subsidiary of GSL, has set up a Greenfield project in Suez, 140 km from Cairo in Egypt. Tri-K is based in the US and markets the group's products in that geography and also manufactures proteins for the global cosmetic and personal care industry.

As per provisional results, for nine months ended December 31, 2017, GSL reported a PAT of Rs.118 crore on net sales of Rs.1790 crore.

Key Financial Indicators
As on / for the period ended March 31 2017 2016
Revenue Rs crore 2,168 1,805
Profit after tax Rs crore 145 101
PAT margins % 6.7 5.6
Adjusted Debt/Adjusted Net worth Times 0.70 0.95
Interest coverage Times 9.64 7.30

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 Term Loan NA NA Dec-20 62.12 CRISIL A+/Stable
NA Term Loan NA NA Jan-19 6.64 CRISIL A+/Stable
NA Term Loan NA NA Feb-19 6.64 CRISIL A+/Stable
NA Term Loan NA NA Apr-20 9.64 CRISIL A+/Stable
NA Term Loan NA NA Mar-21 30.00 CRISIL A+/Stable
NA Cash Credit NA NA NA 265.00 CRISIL A+/Stable
NA Factoring/ Forfaiting NA NA NA 85.00 CRISIL A1
NA Letter of Credit & Bank Guarantee NA NA NA 270.40 CRISIL A1
NA Proposed Long Term Bank Loan Facility NA NA NA 170.89 CRISIL A+/Stable
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fixed Deposits  FD    --    --  27-07-17  Withdrawal  05-07-16  FA+/Stable      FA/Stable 
                19-01-16  FA/Stable       
                14-01-16  FA/Stable       
Fund-based Bank Facilities  LT/ST  635.93  CRISIL A+/Stable/ CRISIL A1      27-07-17  CRISIL A/Positive/ CRISIL A1  05-07-16  CRISIL A/Stable/ CRISIL A1      CRISIL A-/Stable/ CRISIL A2+ 
                19-01-16  CRISIL A-/Stable/ CRISIL A2+       
                14-01-16  CRISIL A-/Stable/ CRISIL A2+       
Non Fund-based Bank Facilities  LT/ST  270.40  CRISIL A1      27-07-17  CRISIL A1  05-07-16  CRISIL A1      CRISIL A2+ 
                19-01-16  CRISIL A2+       
                14-01-16  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
Cash Credit 265 CRISIL A+/Stable Cash Credit 265 CRISIL A/Positive
Factoring/ Forfaiting 85 CRISIL A1 Factoring/ Forfaiting 85 CRISIL A1
Letter of credit & Bank Guarantee 270.4 CRISIL A1 Letter of credit & Bank Guarantee 270.4 CRISIL A1
Proposed Long Term Bank Loan Facility 170.89 CRISIL A+/Stable Proposed Long Term Bank Loan Facility 133.65 CRISIL A/Positive
Term Loan 115.04 CRISIL A+/Stable Term Loan 152.28 CRISIL A/Positive
Total 906.33 -- Total 906.33 --
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 Criteria for Consolidation

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

Jyoti Parmar
Media Relations
CRISIL Limited
D: +91 22 3342 1835
B: +91 22 3342 3000
 jyoti.parmar@crisil.com

Anuj Sethi
Senior Director - CRISIL Ratings
CRISIL Limited
D:+91 44 6656 3100
anuj.sethi@crisil.com


Amit Bhave
Director - CRISIL Ratings
CRISIL Limited
D:+91 22 3342 3113
amit.bhave@crisil.com


Rabin Bihani
Rating Analyst - CRISIL Ratings
CRISIL Limited
D:+91 22 4097 8218
Rabin.Bihani@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 NOTICE

CRISIL respects your privacy. We 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 and other parts of S&P Global Inc. and its subsidiaries (collectively, the “Company) you may find of interest.

For further information, or to let us know your preferences with respect to receiving marketing materials, please visit https://www.crisil.com/en/home/privacy-and-cookie-notice.html. You can view the Company’s Customer Privacy at https://www.spglobal.com/corporate-privacy-policy

Last updated: April 2016


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.

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