Rating Rationale
August 25, 2022 | Mumbai
Kumar Organic Products Limited
Long-term rating upgraded to 'CRISIL A/Stable'; Short-term rating reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.75 Crore
Long Term RatingCRISIL A/Stable (Upgraded from 'CRISIL A-/Stable')
Short Term RatingCRISIL A1 (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 upgraded its long-term ratings on the bank facilities of Kumar Organic Products Limited (KOPL; part of KOPL Group) to ‘CRISIL A/Stable’ from ‘CRISIL A-/Stable’ while the short term rating has been reaffirmed at ‘CRISIL A1’.

 

The rating upgrade reflects expected sustenance of healthy business performance over the medium term. Revenue grew at a CAGR of 13 per cent over the 3 years ended fiscal 2022 to Rs.442 crores, while operating profitability remained at 17-19 per cent in the last two fiscals. The strong operating performance stems from improved demand of anti-bacterial and personal care related specialty chemicals in the US and European market post spread of Covid 19 pandemic.

 

Healthy operating performance and low debt levels continue to support the sustenance of a strong financial risk profile. The company’s TOLTNW remained at less than 0.1 time in the past three fiscals. Healthy cash accruals against no major repayment obligation, conservative bank limit utilization of less than 50%, and healthy cash and cash equivalents of more than Rs.55 crores continue to support the liquidity profile.

 

The ratings continue to reflect extensive industry experience of the promoters and KOPL Group’s strong financial risk profile marked by low gearing and comfortable debt protection metrics. These rating strengths are partially offset by the working capital-intensive operations and susceptibility to intense industry competition.

Analytical Approach

For arriving at its ratings, CRISIL Ratings has combined the financial and business risk profiles of KOPL and its subsidiaries Kumar Organic Products Europe AG, Kumar Organic Products (Singapore) Pte, Kumar Organic Products, United States of America as these three units function as the marketing arm of KOPL. All these units are together referred to as KOPL Group.

 

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:

  • KOPL Group’s promoters’ extensive industry experience: The promoters of KOPL Group have industry experience of more than 30 years, which has enabled the group to establish healthy relationship with customers and suppliers. The group supplies its products to players in FMCG, paints, cosmeceutical and specialty chemicals industry. The group has a diversified product line and customer base.

 

  • Strong financial risk profile: KOPL Group has above average financial risk profile marked by strong net worth base and low gearing. Group is estimated to report healthy net worth base of around Rs.287 crores, as on March 31, 2022. Large part of the funding requirement of the group is met vide internal sources resulting in low reliance on borrowings. Same has resulted in healthy gearing of less than 0.1 times as on March 31, 2022. The net cash accruals to total debt ratio and interest coverage continues to remain comfortable and were estimated at 2.15 times and 106.08 times, respectively as on March 31, 2022.

 

Weaknesses:

  • Large working capital requirement: GCA days as on March 2022 has remained modest at around 152 days. This was primarily on account of receivable and inventory days of around 67 and 65 respectively days as on March 31, 2022. Going forward, inventory days is expected to remain at similar levels owing to considerable in-hand orders and enhancement of product base. Working capital requirement is partially supported by credit period extended by the suppliers of around 92 days.

 

  • Susceptibility to intense industry competition: The group continues to face intense competition from several multinational companies and a few domestic companies. This restricts the KOPL group's bargaining power with its customers and suppliers. Further, any significant slowdown in the group's end-user industries viz; cosmetics, toiletries, paints etc. can have an adverse impact on the KOPL group's revenue.

Liquidity: Strong

KOPL Group has ample liquidity as reflected in its moderate bank limit utilization of less than 50 per cent over the last 12-month period ended July 2022. Moderate net cash accruals estimated at more than Rs.50 crores is more than adequate against negligible loan repayment obligations of less than Rs.0.5 crore. Also, KOPL, at a standalone level, maintains healthy cash and bank balances of around Rs.50 crores, which further supports liquidity. Current ratio continues to remain moderate and is estimated to be around 1.84 times as on March 31, 2022.

Outlook: Stable

CRISIL Ratings believes that the KOPL group will continue to benefit over the medium from extensive industry experience of its promoters.

Rating Sensitivity factors

Upward Factors:

  • Strong revenue growth along with improved operating margin of more than 18%
  • Improvement in working capital cycle and maintenance of healthy capital structure

 

Downward Factors:

  • Significant fall in revenue or decline in operating margin to less than 12%
  • Larger than expected working capital requirement, significant reduction in cash balance from existing levels or major debt funded capital expenditure plans

About the Group

Set up in 1993 by Mr K K Singh and Mr U K Singh, KOPL manufactures cosmeceutical specialty chemicals. The KOPL group has a presence in the US, the UK, Switzerland, Singapore and Germany.

Key Financial Indicators: Consolidated

Particulars

Unit

2022*

2021

Revenue

Rs crore

441.98

453.86

Profit after tax (PAT)

Rs Crore

49

53.25

PAT margin

%

11.0

11.73

Adjusted debt/adjusted networth

Times

0.09

0.06

Interest coverage

Times

106.08

31.96

*Provisional

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
instrument		 Date of
allotment		 Coupon
rate (%)		 Maturity
date		 Issue size
(Rs crore)		 Complexity 
levels		 Rating assigned
with outlook
NA Letter of credit & Bank Guarantee NA NA NA 40 NA CRISIL A1
NA Working Capital Facility NA NA NA 35 NA CRISIL A/Stable

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Kumar Organic Products Limited

100%

Financial and Operational fungibilities

Kumar Organic Products Singapore PTE. Ltd

100%

Subsidiary with operational and financial fungibilities

Kumar Organic Products Limited USA

100%

Subsidiary with operational and financial fungibilities

Kumar Organic Products Limited Switzerland

100%

Financial and Operational fungibilities

Kumar Organic Products Limited GMBH

100%

Subsidiary with operational and financial fungibilities
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 35.0 CRISIL A/Stable   -- 03-06-21 CRISIL A-/Stable 29-09-20 CRISIL A-/Stable 25-06-19 CRISIL A-/Stable CRISIL A-/Stable
Non-Fund Based Facilities ST 40.0 CRISIL A1   -- 03-06-21 CRISIL A1 29-09-20 CRISIL A1 25-06-19 CRISIL A1 CRISIL A1
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Letter of credit & Bank Guarantee 40 HSBC Bank Plc CRISIL A1
Working Capital Facility 15 DBS Bank India Limited  CRISIL A/Stable
Working Capital Facility 20 HSBC Bank Plc CRISIL A/Stable

This Annexure has been updated on 13-Mar-2023 in line with the lender-wise facility details as on 23-Feb-2023 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 rating short term debt
CRISILs Criteria for Consolidation

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