Rating Rationale
February 28, 2022 | Mumbai
Jesons Industries Limited
Rating outlook revised to ‘Positive’; Ratings reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.390 Crore
Long Term RatingCRISIL A-/Positive (Outlook revised from 'Stable'; Rating Reaffirmed)
Short Term RatingCRISIL A2+ (Reaffirmed)
 
Rs.25 Crore Commercial PaperCRISIL A2+ (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has revised the outlook on the long-term bank facilities of Jesons Industries Limited (JIL) to ‘Positive’ from ‘Stable’ while reaffirming the ratings at ‘CRISIL A-’. The rating on the short-term bank facilities and commercial paper (CP) is reaffirmed at ‘CRISIL A2+’.

 

The revision in outlook is driven by expectation of improvement in business risk profile while sustaining the financial risk profile. JIL, on consolidated basis reported revenue of over Rs.1500 crore from April-December 2021, on account of increase in production capacity in the subsidiary and higher sales realization. It is estimated to report about Rs. 1900 crores in fiscal 2022, an increase of 75% over fiscal 2021. Sustenance of this growth with higher volumes while maintaining operating margins of 9-10% will remain key monitorable. Financial risk profile continues to remain strong backed by a strong networth and limited reliance on outside borrowings. Liquidity is strong with healthy net cash accruals against moderate repayment obligation and moderate bank limit utilisation.

 

The ratings continue to reflect the established market position in the specialty chemical industry backed by extensive experience of the promoter and diversified customer base , moderate working capital cycle and strong financial risk profile. These strengths are partially offset by exposure to volatility in raw material prices.

Analytical Approach

For arriving at its ratings, CRISIL Ratings has consolidated the business and financial risk profiles of JIL and its 2 subsidiaries which are strategically important to and have a significant degree of operational integration with JIL. These companies are - Jesons Techno Polymers LLP and Jesons Innovative Polymers Pvt Ltd. CRISIL considers these entities as being strategic to JIL in view of their strong integration with JIL’s operations.

 

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 promoter and established market position: The three-decade-long experience of the promoter, Mr Dhiresh Gosalia along with professionally qualified and experienced secondary level management, has helped JIL establish itself as a large organised player in the pressure-sensitive adhesive market, and maintain healthy relationships with customers and suppliers. The group has further diversified into products such as emulsion binders for various industries, and across geographies with a multi-locational manufacturing set-up. 

 

  • Diversified customer base: JIL caters to a diversified end-user industry which include packaging, automobile, textile, wood, paint, footwear, construction chemicals, leather, and furniture. JIL has an established customer base of more than 1500 clients across India and in various overseas market. The top 10 customers contributed 23% revenues during fiscal 2021. This diversity helps in overcoming the risk of slowdown in a particular industry and achieving higher growth.

 

  • Moderate working capital cycle: Gross current assets have been in range of 100-112 days for past three fiscals ended March 2020, led by receivables of 50-60 days and inventory of 30-40 days. It increased in March 2021, due to increase in inventory and higher year-end sales. Working capital cycle is likely to correct to 125-130 days, as on March 31, 2022, with reduction in debtors and inventory It offers credit period of 60-75 days to its customers, which are primarily small and medium-size players. It also needs to maintain inventory of 30-40 days to meet the business requirement.

 

  • Strong financial risk profile: Networth is strong at Rs. 267.5 crores as on March 31, 2021 and estimated at around Rs 390 crore as on March 31, 2022, led by continued accretion to reserves. Despite debt-funded capex undertaken recently, capital structure is comfortable with gearing of 0.29 times and total outside liabilities to adjusted networth ratio of 1.62 times, as on March 31, 2021; it is estimated at 0.3 time and 1.25 time, respectively, as on March 31, 2022. Debt protection metrics are adequate, with interest coverage and net cash accrual to adjusted debt ratios at 23.6 times and 1.28 times, respectively, for fiscal 2021; it is estimated at similar levels for fiscal 2022.

 

Weakness:

  • Exposure to volatility in raw material prices: Prices of inputs such as butyl acrylate monomer, styrene and vinyl acetate monomer, which are derivatives of crude oil, tend to be volatile. Thus, profitability may be under pressure in the event of unfavourable price movements. JIL’s operating profitability is also low due to low value-addition. The operating margin has thus fluctuated between 6% and 13% in the three fiscals ended March 31, 2021. Sustainability of operating margin at 9-10% over the medium term will  remain a key monitorable.

Liquidity: Strong

Liquidity is strong, driven by expected cash accrual of Rs 125-135 crore per fiscal in 2023 and 2024, against debt obligation of Rs 7.6 crores annually. The fund-based limit of Rs 85 crore was also utilised moderately, at an average of 52% over the 12 months ended January 31, 2022. Cash and cash equivalents stood at Rs 23 crore, as on March 31, 2021. The company has plans to incur capital expenditure of Rs 70-80 crore over the next three fiscals years. Low gearing provides sufficient headroom to raise additional debt to meet its capex requirement and significant cushion in the bank limit to meet the incremental working capital requirement.

Outlook: Positive

CRISIL Ratings believes JIL’s business risk profile will improve backed by higher volumes while sustaining its financial risk profile.

Rating Sensitivity factors

Upward factors:

  • Sustenance of improvement in revenue and operating profitability above 8%%
  • Improvement in working capital cycle, reflected in GCA below 120 days

 

Downward factors:

  • Decline in operating margin to below 7%, impacting cash accruals
  • Stretch in working capital cycle leading to reduced cushion in bank line and gearing above 0.5 times

About the Company

JIL was incorporated in 1999, by the promoter, Mr Dhiresh Gosalia. The company manufactures pressure-sensitive adhesives and coating emulsions. It has plants three plants, one each at Roorkee (Uttarkhand), Daman (Daman and Diu), and Chennai (Tamil Nadu).

 

Jesons Techno Polymers LLP is a 50% subsidiary of JIL and has capacities at Mundra (Gujarat); it started operations from fiscal 2022.  Jesons Innovative Polymers Pvt Ltd has been incorporated to setup manufacturing facilities at Boisar (Maharashtra).

Key Financial Indicators - Consolidated

As on / for the period ended March 31

 

2021

2020

Operating income

Rs crore

1086.46

901.82

Reported profit after tax (PAT)

Rs crore

92.85

29.63

PAT margin

%

8.55

3.3

Adjusted debt/adjusted networth

Times

0.29

0.26

Interest coverage

Times

23.60

6.51

 

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

Complexity levels

Issue Size 

(Rs Cr)

Rating Assigned 

with Outlook

NA

Commercial Paper

NA

NA

7-365 days

Simple

25

CRISIL A2+

NA

Cash Credit

NA

NA

NA

NA

85

CRISIL A-/Positive

NA

Letter of Credit

NA

NA

NA

NA

260

CRISIL A2+

NA

Proposed Letter of Credit

NA

NA

NA

NA

45

CRISIL A2+

 

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Jesons Industries Limited

Full

Common management team and significant operational and financial linkages

Jesons Techno Polymers LLP

Jesons Innovative Polymers Pvt Ltd

 

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 85.0 CRISIL A-/Positive   -- 24-03-21 CRISIL A-/Stable 07-08-20 CRISIL A-/Stable 05-09-19 CRISIL A-/Stable --
      --   -- 05-03-21 CRISIL A-/Stable 20-03-20 CRISIL A-/Stable 31-08-19 CRISIL A2+ / CRISIL A-/Stable --
Non-Fund Based Facilities ST 305.0 CRISIL A2+   -- 24-03-21 CRISIL A2+ 07-08-20 CRISIL A2+ 05-09-19 CRISIL A2+ --
      --   -- 05-03-21 CRISIL A2+ 20-03-20 CRISIL A2+ 31-08-19 CRISIL A2+ --
Commercial Paper ST 25.0 CRISIL A2+   -- 24-03-21 CRISIL A2+ 07-08-20 CRISIL A2+   -- --
      --   -- 05-03-21 CRISIL A2+   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 15 Axis Bank Limited CRISIL A-/Positive
Cash Credit 10 IDFC FIRST Bank Limited CRISIL A-/Positive
Cash Credit 10 RBL Bank Limited CRISIL A-/Positive
Cash Credit 15 DBS Bank India Limited CRISIL A-/Positive
Cash Credit 20 HDFC Bank Limited CRISIL A-/Positive
Cash Credit 15 ICICI Bank Limited CRISIL A-/Positive
Letter of Credit 40 RBL Bank Limited CRISIL A2+
Letter of Credit 40 IDFC FIRST Bank Limited CRISIL A2+
Letter of Credit 55 ICICI Bank Limited CRISIL A2+
Letter of Credit 60 DBS Bank India Limited CRISIL A2+
Letter of Credit 30 HDFC Bank Limited CRISIL A2+
Letter of Credit 35 Axis Bank Limited CRISIL A2+
Proposed Letter of Credit 45 IDFC FIRST Bank Limited CRISIL A2+

This Annexure has been updated on 28-Feb-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

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