Rating Rationale
August 28, 2023 | Mumbai
J.G.Chemicals Limited
Ratings reaffirmed at 'CRISIL A-/Stable/CRISIL A2+'
 
Rating Action
Total Bank Loan Facilities RatedRs.60 Crore
Long Term RatingCRISIL A-/Stable (Reaffirmed)
Short Term RatingCRISIL A2+ (Reaffirmed)
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 reaffirmed its 'CRISIL A-/Stable/CRISIL A2+' ratings on the bank loan facilities of J.G.Chemicals Limited (JGC; a part of the JG group).

 

The ratings continue to reflect the extensive experience of the promoters in the zinc oxide industry and healthy financial risk profile. These strengths are partially offset by the group’s product concentration in revenue and exposure to cyclicality in end-user industries.

Analytical approach

BDJ Oxides Pvt Ltd (BDJ) is a 94.13% subsidiary of JGC and is in the same business. CRISIL Ratings has combined the business and financial risk profiles of both these entities (together referred to as the JG group) owing to operational and financial linkages between them.

 

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:

  • Extensive experience of the promoters: Presence of over three decades in diverse industries has enabled the promoters to develop a strong understanding of market dynamics and establish healthy relationships with suppliers and customers. Clientele is reputed and includes Apollo Tyres Ltd, MRF Ltd, and Ceat Tyres, from which the group receives repeat orders. The promoters are also able to anticipate price trends and calibrate purchasing and stocking decisions.

 

  • Healthy financial risk profile: Gearing and total outside liabilities to tangible networth ratio were strong at 0.33 time and 0.39 time, respectively, as on March 31, 2023, due to a large networth of Rs 213.27 crore. Capital structure is expected to remain stable over the medium term with no major debt-funded capital expenditure (capex), and steady accretion to reserves aided by strong revenue and profitability. Debt protection metrics were comfortable, with interest coverage and net cash accrual to adjusted debt ratios of 12.88 times and 85%, respectively, for fiscal 2023. The metrics are expected to improve further over the medium term.

 

Weakness:

  • Product concentration in revenue and exposure to cyclicality in end-user industries: Despite steady ramp-up in scale, product concentration persists as the group derives 98% of revenue from zinc oxide variations. It is also exposed to cyclicality in end-user segments, especially the tyre industry.

Liquidity: Strong

Bank limit was moderately utilised at 30% on average for the 12 months through April 2023. Expected annual net cash accrual of Rs 54-63 crore should be sufficient to meet yearly term debt obligation of Rs 2.82 crore, over the medium term. Current ratio was robust at 3.36 times as on March 31, 2023.

Outlook: Stable

The JG group will continue to benefit from its healthy market position, backed by established customer relationship and extensive experience of the promoters.

Rating sensitivity factors

Upward factors:

  • Substantial increase in revenue and stable operating margin leading to cash accrual above Rs 70 crore (at consolidated level)
  • Improvement in working capital cycle with stable capital structure

 

Downward factors:

  • Decline in profitability or operating income resulting in cash accrual less than Rs 35 crore
  • Large, debt-funded capex weakening financial risk profile, including liquidity
  • Sizeable stretch in working capital cycle

Key financial indicators (consolidated)

Particulars

Unit

2023

2022

Revenue

Rs crore

785.23

610.95

Profit after tax (PAT)

Rs crore

56.70

42.20

PAT margin

%

7.22

6.91

Adjusted debt/adjusted networth

Times

0.33

0.60

Interest coverage

Times

12.88

9.59

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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name of the
instrument
Date of
Allotment
Coupon
Rate (%)
Maturity
Date
Issue size
(Rs. Crore)
Complexity
Level
Rating assigned
with outlook
NA Cash credit NA NA NA 55 NA CRISIL A-/Stable
NA Bank Guarantee NA NA NA 0.75 NA CRISIL A2+
NA Proposed Working Capital Facility NA NA NA 4.25 NA CRISIL A-/Stable

Annexure – List of entities consolidated

Names of entities consolidated

Extent of consolidation

Rationale for consolidation

BDJ Oxides Pvt Ltd

Full

Common promoters and business, and significant operational and financial linkages

JG Chemicals Ltd

Full

Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 59.25 CRISIL A-/Stable   -- 22-06-22 CRISIL A-/Stable 16-03-21 CRISIL BBB+/Stable   -- CRISIL BBB/Positive
      --   -- 13-06-22 CRISIL A-/Stable   --   -- --
Non-Fund Based Facilities ST 0.75 CRISIL A2+   -- 22-06-22 CRISIL A2+ / CRISIL A-/Stable 16-03-21 CRISIL BBB+/Stable / CRISIL A2   -- CRISIL A3+ / CRISIL BBB/Positive
      --   -- 13-06-22 CRISIL A2+ / CRISIL A-/Stable   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 0.75 Bank of Baroda CRISIL A2+
Cash Credit 35 Bank of Baroda CRISIL A-/Stable
Cash Credit 20 Citibank N. A. CRISIL A-/Stable
Proposed Working Capital Facility 4.25 Not Applicable CRISIL A-/Stable
Criteria Details
Links to related criteria
CRISILs Bank Loan Ratings
The Rating Process
Understanding CRISILs Ratings and Rating Scales
CRISILs Approach to Financial Ratios
CRISILs Criteria for Consolidation

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