Rating Rationale
December 30, 2022 | Mumbai
Meghmani LLP
Ratings reaffirmed at 'CRISIL A+/Stable/CRISIL A1'
 
Rating Action
Total Bank Loan Facilities RatedRs.175 Crore
Long Term RatingCRISIL A+/Stable (Reaffirmed)
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 reaffirmed its ‘CRISIL A+/Stable/CRISIL A1’ ratings on the bank facilities of Meghmani LLP (part of the Meghmani LLP group).

 

The ratings reflect the extensive experience of the promoters in the chemical industry, the group's established market position in the pigment segment and improved market position in the paracetamol segment. The ratings also take into consideration operational support expected from the group entities, and a healthy financial risk profile. These strengths are partially offset by large working capital requirement and susceptibility to volatility in raw material prices.

 

Operating revenue in fiscal 2022 more than doubled to Rs. 1,280 crore (FY21: Rs. 634 crore) driven by ~200% growth in the paracetamol division to Rs. 883 crore (FY21: Rs. 294 crore) and 11% growth in the pigment division to Rs. 387 crore (FY21: Rs. 349 crore). Revenues of the paracetamol division was aided by increase in capacity to 24,000 TPA from 7,500 TPA which resulted in increased volume offtake by ~82% and also increase in realizations by 65%. This division formed ~69% of overall revenues. The pigment division also witnessed stable growth of 11% y-o-y mainly aided by increase realizations even as volumes remained flattish. Realizations of paracetamol has currently moderated by ~9% to ~Rs. 588/kg (PY: Rs. 645/kg) and volumes are also expected to come down this year with lower stocking by pharmacists and improvement in supply chain disruptions from China. This is expected to result in some de-growth in division for fiscal 2023. Revenues for pigment division is expected to remain flattish with stable volumes and realizations. Overall for FY23 revenue is expected to be in the range of ~Rs. 1,000-1,100 crore.

 

Operating margins for FY22 moderated to 29.2% from 38.0% in FY21 owing  to sharp increase in price of major raw materials (PNCB, key RM for paracetamol increased by ~100%) which dented gross margins by 800 bps. Further, RM prices in both paracetamol and pigment division (RM prices linked to crude linked derivatives) increased sharply during Q4 of last fiscal with sharp uptick in crude prices which couldn’t be passed onto customers. This resulted in further moderation of operating margins to ~18.5% during H1FY23. With crude prices coming down, margins have now stabilized, and are expected in the range of 18-20% over the medium term.

 

Group’s financial risk profile remains strong with networth of Rs. 659 crore as against total debt of Rs. 123 crore resulting in low gearing of 0.19x times. Entire debt is in form of working capital. Networth is expected to increase to over Rs. 800 crore by fiscal 2024 with steady accretion to reserves and limited partner withdrawals. With majority of capex over, debt levels are also not expected to go up. Debt protection metrices continue to remain strong with interest coverage and NCATD expected above 20 times and 70% respectively over the medium term

Analytical Approach

For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of MP, Meghmani LLP (ML), and Ashish Chemicals (AC). This is because the entities, collectively referred to as the Meghmani LLP group, have common promoters and management and are in the same line of business. Besides, the firms have fungible cash flow and significant financial synergies.

 

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

  • Strong market position in the pigment segment and improved market position in the paracetamol segment: The group manufactures pigments that have diverse applications in industries such as textiles, paints, and inks. It is the largest manufacturer of the Violet 23 pigment in India and caters to speciality applications in violet as well as red pigments. In the pharmaceutical sector, ML is among the top manufacturers of paracetamol and is expected to improve sales further, owing to healthy demand from current customers, addition of clients and newly expanded paracetamol capacity. In the ink segment, AC benefits from its longstanding relationships with large printing solution players overseas.

 

  • Extensive experience of the promoters: The strong presence of the promoters in the domestic and international chemical business and operational linkages with the larger group should continue to support the business risk profile. The oldest firm of the group, AC, was set up in 1977. Currently, the Meghmani group has more than 15 manufacturing facilities in Gujarat and is the largest producer of copper phthalocyanine blue and beta blue pigments in the world. In the agrochemical segment, the product range covers the entire value chain: intermediates, technical, and formulations.

 

  • Healthy financial risk profile: Networth is estimated at Rs 659 crore and gearing at 0.20 time as on March 31, 2022. Debt protection metrics are healthy, with interest coverage and net cash accrual to total debt ratios estimated at over 49 times and 1.45 times, respectively, in fiscal 2022. Healthy margin, steady cash accrual, and moderate capex should continue to improve the already strong financial risk profile over the medium term.

 

Weaknesses

  • Stretched working capital cycle: Operations are working capital-intensive, with gross current assets estimated at 205 days as on March 31, 2022, driven by high receivables and inventory estimated at 132 and 94 days, respectively. The incremental working capital requirement, due to high debtors and inventory holding period as a policy for higher level of customer service, however, is being met by accrual, leading to modest reliance on external debt.

 

  • Susceptibility to volatile raw material prices: Raw materials for both the paracetamol and pigment segments include crude and benzene (para nitro chloro benzene) derivatives, prices of which are volatile. While the group can partly pass on increase in input prices to clients, during times of a slowdown and in case of extreme volatility, profitability would remain susceptible to fluctuations in input costs.

Liquidity: Strong

Liquidity is also strong supported by expected annual cash accruals in the range of Rs. 100-140 crore, nil repayment obligations and annual capex requirements of Rs. 65-80 crore.  Further at a consolidated level, company has working capital lines of Rs. 238 crore against which utilization has been moderate at 52% for 12 months ended May 2022 which provides additional cushion.

Outlook: Stable

CRISIL Ratings believes the Meghmani LLP group’s business risk profile to improve over the medium term with increase in scale of operations with the commissioning of the expanded capacities of its paracetamol and pigment plant. Revenue generation is expected to remain strong with healthy demand for both the paracetamol and pigment segments. Operating margin is expected to be sustained at healthy levels with stable realizations and high capacity utilization levels. Financial risk profile to remain strong with steady improvement in an already healthy networth, strong capital structure and steady cash accrual. Cash generation to improve over the medium term in the absence of any large capex, minimal term debt repayments and moderate incremental working capital requirements.

Rating Sensitivity factors

Upward factors

  • Improvement in operating performance driven by swift ramp up of new capacities, supporting double digit revenue growth and operating margins of over 20-22%.
  • Sustenance of healthy financial risk profile.

 

Downward factors

  • Significant moderation in performance – operating margins deteriorating to less than 18-20% on a sustained basis.
  • Large debt funded capex or acquisitions leading to increase in gearing to over 1.5x
  • Sustained large withdrawals, impacting debt metrics

About the Group

MP was set up as a partnership firm, Alpanil Industries, in 1992 and got its current name in 2009. It manufactures high-performance carbazole dioxazine pigment Violet 23 and high-performance quinacridone pigments, such as Violet 19.

 

AC was set up as a partnership firm by Mr Ashish Soparkar and Mr Jayantibhai Patel in 1977. It manufactures dispersion blue additives for printing ink.

 

ML (formerly, Meghmani Unichem LLP) was established in 2010 by Mr Maulik Jayantibhai Patel and Mr Kaushal Ashish Soparkar. The firm manufactures paracetamol and increased its capacity from 7,500 MTPA to 24,000 MTPA. Commercial production commenced in October 2011. ML also manufactures pigment red 122, whose capacity of 600 tpa began operations in November 2014. ML also has facilities for the production of Violet-23 with a capacity of 600 MTPA.

 

The Meghmani group comprises the flagship company, Meghmani Organics Ltd (rated 'CRISIL AA-/Stable/CRISIL A1+'), Meghmani Finechem Ltd (rated 'CRISIL AA-/Stable), Meghmani Industries Ltd (rated 'CRISIL A+/Stable/CRISIL A1), Navratan Speciality Chemicals LLP (rated 'CRISIL BBB+/Negative/CRISIL A2'), and the firms of the Meghmani LLP group.

Key Financial Indicators (Consolidated)

Particulars

Unit

2022

2021

2020

Revenue

Rs Crore

1280

634

496

Profit after tax

Rs Crore

214

157

93

PAT margin

%

16.7

24.8

18.7

Adjusted debt/adjusted networth

Times

0.21

0.1

0.09

Interest coverage

Times

49.9

145.46

81.76

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 Cash credit* NA NA NA 50 NA CRISIL A+/Stable
NA Cash credit NA NA NA 60 NA CRISIL A+/Stable
NA Letter of credit & bank guarantee NA NA NA 30 NA CRISIL A1
NA Non-fund based limit NA NA NA 35 NA CRISIL A1

*Interchangeable with non-fund based facility

Annexure – List of entities consolidated

Names of
entities consolidated		 Extent of
consolidation		 Rationale for
consolidation
Meghmani Pigments Full Consolidation Common promoters and management and are in the same line of business. Also significant financial synergies between the firms
Ashish Chemicals Full Consolidation Common promoters and management and are in the same line of business. Also significant financial synergies between the firms
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 110.0 CRISIL A+/Stable   -- 07-10-21 CRISIL A+/Stable 30-04-20 CRISIL A/Stable 02-01-19 CRISIL A/Stable CRISIL A-/Positive
      --   -- 28-07-21 CRISIL A+/Stable   --   -- --
Non-Fund Based Facilities ST 65.0 CRISIL A1   -- 07-10-21 CRISIL A1 30-04-20 CRISIL A1 02-01-19 CRISIL A1 CRISIL A2+
      --   -- 28-07-21 CRISIL A1   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 28.47 HDFC Bank Limited CRISIL A+/Stable
Cash Credit& 50 ICICI Bank Limited CRISIL A+/Stable
Cash Credit 31.53 HDFC Bank Limited CRISIL A+/Stable
Letter of credit & Bank Guarantee 30 HDFC Bank Limited CRISIL A1
Non-Fund Based Limit 35 ICICI Bank Limited CRISIL A1

This Annexure has been updated on 30-Dec-2022 in line with the lender-wise facility details as on 07-Oct-2021 received from the rated entity.

& - interchangeable with non-fund based facility
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
Rating Criteria for the Pharmaceutical Industry
CRISILs Criteria for rating short term debt
CRISILs Criteria for Consolidation

Media Relations
Analytical Contacts
Customer Service Helpdesk

Aveek Datta
Media Relations
CRISIL Limited
M: +91 99204 93912
B: +91 22 3342 3000
AVEEK.DATTA@crisil.com

Prakruti Jani
Media Relations
CRISIL Limited
M: +91 98678 68976
B: +91 22 3342 3000
PRAKRUTI.JANI@crisil.com

Rutuja Gaikwad 
Media Relations
CRISIL Limited
B: +91 22 3342 3000
Rutuja.Gaikwad@ext-crisil.com


Anuj Sethi
Senior Director
CRISIL Ratings Limited
D:+91 44 6656 3100
anuj.sethi@crisil.com

Poonam Upadhyay
Director
CRISIL Ratings Limited
D:+91 22 3342 3386
poonam.upadhyay@crisil.com

Karthick G
Senior Rating Analyst
CRISIL Ratings Limited
B:+91 22 3342 3000
Karthick.G@crisil.com		Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
CRISILratingdesk@crisil.com
 
For Analytical queries:
ratingsinvestordesk@crisil.com

 

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper/magazine/agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL Ratings. However, CRISIL Ratings alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites and portals.


About CRISIL Ratings Limited (A subsidiary of CRISIL Limited)

CRISIL Ratings pioneered the concept of credit rating in India in 1987. With a tradition of independence, analytical rigour and innovation, we set the standards in the credit rating business. We rate the entire range of debt instruments, such as bank loans, certificates of deposit, commercial paper, non-convertible/convertible/partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 33,000 large and mid-scale corporates and financial institutions. We have also instituted several innovations in India in the rating business, including ratings for municipal bonds, partially guaranteed instruments and infrastructure investment trusts (InvITs).
 
CRISIL Ratings Limited ('CRISIL Ratings') is a wholly-owned subsidiary of CRISIL Limited ('CRISIL'). CRISIL Ratings Limited is registered in India as a credit rating agency with the Securities and Exchange Board of India ("SEBI").
 
For more information, visit www.crisilratings.com 
 



About CRISIL Limited

CRISIL is a global analytical company providing ratings, research, and risk and policy advisory services. We are India's leading ratings agency. We are also the foremost provider of high-end research to the world's largest banks and leading corporations.

CRISIL is majority owned by S&P Global Inc, a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.

For more information, visit www.crisil.com

Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK

CRISIL PRIVACY NOTICE
 
CRISIL respects your privacy. We may use your contact information, such as your name, address and email id to fulfil your request and service your account and to provide you with additional information from CRISIL. For further information on CRISIL's privacy policy please visit www.crisil.com.



DISCLAIMER

This disclaimer is part of and applies to each credit rating report and/or credit rating rationale ('report') that is provided by CRISIL Ratings Limited ('CRISIL Ratings'). To avoid doubt, the term 'report' includes the information, ratings and other content forming part of the report. The report is intended for the jurisdiction of India only. This report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the report is to be construed as CRISIL Ratings providing or intending to provide any services in jurisdictions where CRISIL Ratings does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this report does not create a client relationship between CRISIL Ratings and the user.

We are not aware that any user intends to rely on the report or of the manner in which a user intends to use the report. In preparing our report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the report is not intended to and does not constitute an investment advice. The report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind to enter into any deal or transaction with the entity to which the report pertains. The report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Ratings are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold or sell any securities/instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL Ratings assumes no obligation to update its opinions following publication in any form or format although CRISIL Ratings may disseminate its opinions and analysis. The rating contained in the report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the report should rely on their own judgment and take their own professional advice before acting on the report in any way. CRISIL Ratings or its associates may have other commercial transactions with the entity to which the report pertains.

Neither CRISIL Ratings nor its affiliates, third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively, 'CRISIL Ratings Parties') guarantee the accuracy, completeness or adequacy of the report, and no CRISIL Ratings Party shall have any liability for any errors, omissions or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the report. EACH CRISIL RATINGS PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Ratings Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. Public ratings and analysis by CRISIL Ratings, as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any), are made available on its website, www.crisilratings.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee - more details about ratings by CRISIL Ratings are available here: www.crisilratings.com.

CRISIL Ratings and its affiliates do not act as a fiduciary. While CRISIL Ratings has obtained information from sources it believes to be reliable, CRISIL Ratings does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and/or relies on in its reports. CRISIL Ratings has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL Ratings has in place a ratings code of conduct and policies for managing conflict of interest. For details please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html.

Rating criteria by CRISIL Ratings are generally available without charge to the public on the CRISIL Ratings public website, www.crisilratings.com. For latest rating information on any instrument of any company rated by CRISIL Ratings, you may contact the CRISIL Ratings desk at crisilratingdesk@crisil.com, or at (0091) 1800 267 1301.

This report should not be reproduced or redistributed to any other person or in any form without prior written consent from CRISIL Ratings.

All rights reserved @ CRISIL Ratings Limited. CRISIL Ratings is a wholly owned subsidiary of CRISIL Limited.
 

 

CRISIL Ratings uses the prefix 'PP-MLD' for the ratings of principal-protected market-linked debentures (PPMLD) with effect from November 1, 2011, to comply with the SEBI circular, "Guidelines for Issue and Listing of Structured Products/Market Linked Debentures". The revision in rating symbols for PPMLDs should not be construed as a change in the rating of the subject instrument. For details on CRISIL Ratings' use of 'PP-MLD' please refer to the notes to Rating scale for Debt Instruments and Structured Finance Instruments at the following link: https://www.crisil.com/en/home/our-businesses/ratings/credit-ratings-scale.html