| KLJ Petroplast Limited | ||||||
| Rating reaffirmed at 'Provisional CRISIL A+ (CE) / Positive'; 'CRISIL A1+ (CE) ' Converted from Provisional Rating | ||||||
| Rating Action | ||||||
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| & A prefix of 'Provisional' indicates that the rating centrally factors in the strength of specific structures, and is contingent upon occurrence of certain steps or execution of certain documents by the issuer, as applicable, without which the rating would either have been different or not assigned ab initio. This is in compliance with a May 6, 2015 directive ‘Standardizing the term, rating symbol, and manner of disclosure with regards to conditional/ provisional/ in-principle ratings assigned by credit rating agencies' by Securities and Exchange Board of India (SEBI) and April 27, 2021 circular ‘Standardizing and Strengthening Policies on Provisional Rating by Credit Rating Agencies (CRAs) for Debt Instruments’ by SEBI | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has converted its 'Provisional’ rating on the short-term bank facilities of KLJ Petroplast Limited (KPP to a ‘Final’ rating of ‘CRISIL A1+ (CE)'. CRISIL Ratings has now received the final executed documents for this transaction. These executed documents are in line with terms of the transaction when provisional rating was assigned. Hence, CRISIL Ratings has converted the provisional rating to a final rating.
The long-term ratings have been reaffirmed at 'Provisional CRISIL A+ (CE). The ratings are based on the strength of the unconditional and irrevocable corporate guarantee by the company’s parent, KLJ Plasticizers Ltd (KPL; rated ‘CRISIL A+/Positive/CRISIL A1+’). Please see section on Additional disclosures for Provisional ratings for more details. |
Analytical Approach The ratings are based on CRISIL Ratings’ criteria for rating instruments backed by guarantees. The (CE) suffix in the rating reflects the payment structure that is designed to ensure full and time-bound payment to lenders owing to corporate guarantee by KLJ Plasticizers Ltd.
To arrive at its unsupported ratings, CRISIL Ratings has applied its homogeneous group criteria, wherein the team has combined the business and financial risk profiles of KLJ Plasticizers Ltd, KLJ Polymer & Chemicals Ltd, KLJ Resources Ltd, KLJ Organics Ltd, KLJ Organic (Thailand) Ltd, KLJ Petroplast Ltd and KLJ Polymers Pvt Ltd, collectively referred to as the KLJ Group-Chemical.
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: * Unconditional and irrevocable corporate guarantee by KPL KPP's ratings are based upon unconditional, continuing and irrevocable guarantee from KPL, and an unconditional undertaking by the latter for securing principal and interest obligation on the company's entire debt. KPP has a strong credit profile, driven by its dominant market position and strong business and financial risk profiles and healthy cash surplus of over Rs 250 crore as on December 31, 2020.
* Revenue visibility attributable to KLJ Group’s established market position in the plasticizers segment The group is a leading manufacturer of plasticizers in south Asia with an installed capacity of 2 lakh ton per annum (TPA) as on December 31, 2020. Its leadership position is supported by the large variety of plasticizers it offers, including phthalate, maleate, specialty and flame-retardant. Its strong market position is underpinned by the large scale of operations (estimated turnover of Rs 4,500-5,000 crore in fiscal 2021) and diverse customer base. Plasticizers are generally used by compounding units, and end-user industries are varied, including footwear, cables, flexible polyvinyl chloride (PVC) films, leather, vinyl flooring, medical equipment, adhesives, perfumes, automobile parts, rubber belts and tube compounds. Furthermore, with the enhanced capacity through KPP, the group will focus on selling high-margin non-phthalate plasticizers (currently around 25% of plasticizer sales). Also, backward integration through captive PAN capacity will help in further reducing operating costs and strengthening competitiveness in the plasticizers segment, which should result in overall improvement in profitability. * Strong experience of KLJ Group-Chemical and healthy financial flexibility of the group In addition to its dominant market position, the group’s strong business profile is supported by proximity of its production facilities to ports and long-term relationships with their suppliers for ease of raw material procurement. The group also has strong in-house research and development division that focuses on improving the throughput and proportion of value-added specialty products. Increasing demand and pricing power has resulted in higher realizations in the first half of fiscal 2021 and is expected to benefit profitability in the near term.
The networth is sizeable and the adjusted gearing is comfortable. As on March 31, 2021, the networth is estimated at Rs 2,100 crore. Capital expenditure (capex) of Rs 465 crore and Rs 290 crore in fiscals 2022 and 2023, respectively, is likely to be funded through a mix of long-term debt of Rs 475 crore and internal cash accrual. The KLJ group is expected to generate cash accrual of above Rs 200 crore annually over the medium term, against low term debt repayment. As a result, the debt metrics are expected to remain comfortable with adjusted total outside liabilities to tangible networth (TOLTNW) ratio estimated at 0.65 time as on March 31, 2021, which is likely to remain below 1 time over the medium term, on account of steady cash accrual and phased drawdown of debt. Liquidity is strong, as reflected in healthy cash accrual, small-term debt obligation, low utilization of the fund-based limit, and high current ratio.
Weakness: * Project implementation and stabilization risks Commercial operations will commence in a phased manner over the next three fiscals ending with initiation of PAN project in March 2023. The planned capex of Rs 785 crore involves installation of phthalate plasticizer capacity of 3,00,000 MT and backward integration project of PAN capacity of 1,04,000 MT. The plants are to become operational in three phases, with the first phase of plasticizer of 1,20,000 MT commencing from October 2021, the remaining plasticizer capacity from March 2022 and PAN project from March 2023. Timely commencement of commercial operations, within budgeted costs, will remain key monitorables. The plant is also susceptible to initial stabilization issues with capacity utilizations remaining a key monitorable.
* Weak financial risk profile as operations are yet to commence KPP has started building its plant and procuring machinery, however operations are only expected to commence from October 2021 onwards. This has resulted in weak financial risk profile and debt protection metrics on a standalone basis with adjusted gearing and TOLTNW ratio both expected to be above 2.5 times in fiscal 2022. Overall financial performance is expected to improve gradually with commencement and increase in scale of operations. |
Liquidity: Strong Liquidity remains strong, derived from credit enhancement available in the form of an unconditional and irrevocable corporate guarantee by KPP's parent, KPL. KPL is likely to provide financial support in the event of an exigency in a timely manner. KPP is expected to complete capex of around Rs 785 crore by fiscal 2024, which is being funded through term loan of Rs 475 crore and rest from KPL in the form of unsecured promoter loans and equity infusion. With commercialization of its first phase, KPP is also expected to take working capital limits to fund their operations.
The KLJ group has sufficient liquidity with unencumbered cash and bank balance above Rs 305 crore as on December 31, 2020. Unutilized bank lines were around Rs 255 crore (with bank limit utilization averaging 33% over the nine months through December 2020). |
Outlook: Positive CRISIL Ratings believes the rating outlook on KPP’s bank loan facilities is based on the parent’s rating outlook. The outlook may be revised to ‘Stable’ in case of a similar revision in the rating outlook on KPL. |
Rating Sensitivity factors Upward factors
Downward factors
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Adequacy of credit enhancement structure The rating is based upon the strength of an unconditional, continuing and irrevocable guarantee extended by KPL, along with an unconditional undertaking, to ensure full and timely payment of all amounts due to the lender.
According to the payment mechanism, the guarantor (KPL) will pay, not later than three calendar days from the due date, any amount due and payable by KPP in relation to these instruments in case of any default or shortfall in payment. The guarantee and the undertaking together cover the entire principal, interest and other monies payable under the guaranteed loan. |
Unsupported ratings: CRISIL A- CRISIL Ratings has introduced the 'CE' suffix for instruments having explicit credit enhancement feature in compliance with the Securities and Exchange Board of India’s (SEBI's) circular dated June 13, 2019. |
Key drivers for unsupported ratings For arriving at the unsupported ratings, CRISIL Ratings has applied the homogeneous group criteria and has combined the business and financial risk profiles of KLJ Plasticizers Ltd, KLJ Polymer & Chemicals Ltd, KLJ Resources Ltd, KLJ Organics Ltd, KLJ Organic (Thailand) Ltd, KLJ Petroplast Ltd and KLJ Polymers Pvt Ltd, collectively referred to as the KLJ Group-Chemical. The ratings factor in the contribution of revenues to the group, growth trend and financial risk profile of KPP with respect to the KLJ Group.
The ratings factor in healthy revenue visibility for the project with captive consumption of entire PAN capacity for manufacturing of plasticizers and expansion of plasticizer capacity for the group. The ratings also take into consideration strong need-based support from the KLJ group. These are partially offset by the susceptibility of the project to time overruns mainly for statutory approvals and weak standalone financial risk profile.
Additional disclosures for Provisional ratings:
The provisional rating is contingent upon execution of the following documents:
The provisional rating shall be converted into a final rating following receipt of transaction documents duly executed within the 90 days from the date of issuance of the instrument. The final rating assigned shall be consistent with the available documents at the end of the validity period. In case of non-receipt of the duly executed transaction documents within the above-mentioned timelines, the rating committee of CRISIL Ratings may grant an extension of up to another 90 days in line with its policy on provisional ratings.
Rating that would have been assigned in absence of the pending steps/ documentation: In the absence of pending documentation considered while assigning provisional rating as mentioned above, CRISIL Ratings would have assigned a rating of ‘CRISIL A-‘
Risks associated with provisional nature of credit rating: A prefix of 'Provisional' to the rating symbol indicates that the rating is contingent upon occurrence of certain steps or execution of certain documents by the issuer, as applicable. In case the documents received deviates significantly from the expectations, CRISIL Ratings may take an appropriate action including placing the rating on watch or a rating/outlook change, depending on status of progress on a case to case basis. In the absence of the pending documentation, the rating on the instrument would have been different. |
About the Company KLJ Petroplast Ltd (KPP was incorporated on October 10, 2020, in Jhagadia Industrial Area, Gujarat. It was established for manufacturing of plasticizers and PAN. The company is a wholly owned subsidiary of KPL, which is a part of the KLJ group. |
About the Guarantor Set up in 1997 as a partnership firm, KLJ Plasticizers manufactures various plasticizers at its unit in Silvassa. It was reconstituted as a public limited company in July 2008. The Silvassa unit is the single-largest manufacturing facility for plasticizers in India. The group commenced operations for manufacturing benzyl products in 2017 with capacity of 15,000 TPA.
For the nine months through December 2020, gross turnover for the group was Rs 3,848 crore and profit before tax Rs 522 crore, against Rs 4,488 crore and Rs 165 crore, respectively, during the corresponding period in the previous fiscal. |
Key Financial Indicators-- KLJ Group
Key financial indicators – KPP
*The company is still in project phase and will commence operations from fiscal 2022. |
List of covenants
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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)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||
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Criteria Details
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