Detailed Rationale

Crisil Ratings has reaffirmed its 'Crisil A-/Stable/Crisil A2+' ratings on the bank facilities of Indo Amines Limited (IAL; part of the Indo Amines group)

The ratings continue to reflect the established market position of the company backed by the extensive experience of the promoters in the chemical industry and the group’s healthy financial risk profile. These strengths are partially offset by susceptibility to commodity prices and large working capital requirement.

Key Rating Drivers & Detailed Description

Strengths:

Established market position backed by the extensive experience of the promoters: IAL's promoters have been engaged in the chemical intermediates business for over three decades which has enabled them to develop a strong understanding of market dynamics and establish healthy relations with customers and suppliers. IAL has a diversified business profile with diversity at product, geography, customers and end-use industry level. The established market position and global competitiveness are also reflected in healthy growth of revenue at compound annual growth rate of 14.58% over the last three fiscals.

Healthy financial risk profile: The financial risk profile was above average with robust networth of around Rs 293 crore as on September 30, 2024. This supports the financial flexibility of the group. Supported by robust networth, the capital structure was moderate with total outside liabilities to adjusted networth ratio of 0.91 time as on September 30, 2024. This is expected to remain comfortable. The capital structure is expected to improve over the medium term on the back of healthy accrual, absence of large debt-funded capital expenditure (capex) and scheduled repayment. The overall financial risk profile is expected to further improve over the medium term.

Weaknesses:

Susceptibility to commodity prices: The prices of raw material inputs, which are derivatives of crude oil, are volatile, thus impacting profitability. The international market prices of raw materials follow the petrochemicals cycle. However, order-backed sales and the ability to pass on volatility in raw material prices to customers will continue to mitigate this risk. The group’s operating margin has remained at 7.7-12.5% over the past five years through fiscal 2020 with the least (7.7%) in fiscal 2022.

Large working capital requirement: Moderately high working capital requirement was reflected in gross current assets (GCAs) of 140 days as on March 31, 2024, driven by receivables and inventory of 84 days and 49 days, respectively. The working capital requirement was supported by payables of 64 days as on March 31, 2024 and by bank limit. GCAs days are expected at 149-150 days over the medium term

Rating sensitivity factors

Upward factors:

• Healthy revenue growth driven by volume and operating margin improving over 11%, leading to more-than-expected net cash accrual
• Efficient working capital management, further strengthening the financial risk profile

Downward factors: 

• Further decline in revenue or operating profitability below 7%, leading to lower-than-expected net cash accrual
• Stretched working capital cycle or sizeable debt-funded capex, constraining the financial risk profile

Key Financial Indicators

Annexure - Details of Instrument(s)

* Interchngeable with non fund based limits 

Annexure – List of entities consolidated

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