| Navratan Specialty Chemicals LLP | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL has reaffirmed its 'CRISIL BBB+/Stable/CRISIL A2' ratings on the bank facilities of Navratan Specialty Chemicals LLP (NSCL) and withdrawn the rating on Rs 7.75 crore term loan at the company's request and confirmation from the bankers. The rating withdrawn is in line with CRISIL's rating withdrawal policy. |
| Key Rating Drivers & Detailed Description |
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Strengths: * Extensive experience of the promoters, the Meghmani group, in the chemicals industry, steady demand prospects, and healthy operating efficiency: The group has extensive experience in the pigments, dyes and dye intermediates, and agrochemicals industry through Ashish Chemicals ('CRISIL A/Stable/CRISIL A1'), which was set up in 1977. NSCL was formed to aid the group's diversification into industrial textiles, through the PVC flex banner segment. The firm has locational advantage, as its plant in Gujarat is close to southern and western markets, which account for more than 50% of domestic demand. The source of the key raw material is in Gujarat, which is an added advantage. The group imports inputs, depending on the cost. Operations are supported by backward integration into the manufacture of knitted polyester fabric. Revenue growth will be flat in the near term, with steady operating margin at 12-13%. * Adequate financial risk profile: Networth is expected at Rs 90 crore as on March 31, 2020, with gearing at 1.4 times, because of large working capital requirement. Capital expenditure is expected at Rs 1-3 crore per annum in fiscals 2020 and 2021. Steady cash accrual, repayment of term-debt, absence of large capital expenditure (capex), and prudent working capital management will reduce reliance on debt. Moreover, the firm has adequate financial support from group companies, Meghmani Industries Ltd ('CRISIL A+/Stable/CRISIL A1') and Meghmani Dyes and Intermediaries LLP ('CRISIL A+/Stable/CRISIL A1'). Weaknesses: * Limited track record in the flex banner segment: NSCL commenced operations at its PVC flex banner facility in October 2012, has an estimated market share of 20-25% in the organised flex banner segment in fiscal 2019. Two or three indigenous players, including Pioneer Polyleathers Pvt Ltd, and overseas players, mainly from China, cater to this market. NSCL has established its presence by replacing costlier imported products, and benefits from the healthy demand in the segment. However, its ability to competitively price products and generate healthy cash flow over the medium term will be critical to its successful entrenchment in the segment. * Exposure to regulatory risks: The domestic PVC flex banner industry faces stiff competition from China and Korea. In July 2010, the government of India imposed an antidumping duty of 1-13% on different types of flex. In August 2016, it extended the duty to PVC flex films imported from China for 5 years through fiscal 2021. Decrease in competition from import led to growth in the domestic flex banner industry. Any change in policy or removal of the antidumping duty will significantly impact domestic players such as NSCL, as Chinese imports are cheaper, as their processors are world leaders in flex exports, and enjoy significant cost advantage, because of their scale of operations. * Vulnerability to volatility in raw material prices: The operating margin remains vulnerable to fluctuations in raw material prices. Key raw materials, including PVC, epoxies, and plasticisers, are derived from crude oil and naphtha, and hence, their prices are in line with crude oil prices. Ability to handle fluctuations in crude oil prices will be a key monitorable, as the firm has to adopt penetrative product pricing for scaling up and sustaining operations. |
| Liquidity Adequate |
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NSCL has adequate liquidity, driven by cash accrual expected above Rs 20 crore per fiscal in fiscals 2020 and 2021. Cash and cash equivalent was Rs 3 crore as on March 31, 2019. Bank lines of Rs 68.5 crore were utilised at 85% on average over the 12 months through January 2020. The firm has debt obligation of Rs 11 crore and Rs 9 crore in fiscals 2020 and 2021, respectively, and negligible capex. Internal accrual, cash and cash equivalent, and unutilised bank lines will be sufficient to meet the debt obligation and incremental working capital requirement. Financial support from group entities supports liquidity. |
| Outlook: Stable |
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CRISIL believes NSCL will continue to benefit from the promoters' extensive experience, healthy operating profitability, driven by backward integration, and adequate financial risk profile. |
| Rating Sensitivity factors |
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Upward factors * Substantial and sustained improvement in revenue while maintaining healthy operating margin over 13-15% * Sustenance of adequate financial risk profile Downward factors * Large, debt-funded capex or a significant stretch in the working capital cycle, weakening the credit metrics, with gearing increasing to over 1.5 times * Significantly lower-than-expected revenue or a steep decline in profitability, impacting cash generation |
| About the Firm |
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Set up as a limited liability partnership in September 2011, NSCL is owned by the Gujarat-based Meghmani group, and is promoted by the second generation of the founder's family. The main shareholders are Mr Ankit Patel, Mr Lalit Patel, and Mr Karana Patel. The firm manufactures PVC flex banners, which are used for outdoor advertisements. Its plant in Chharodi, Gujarat, can manufacture 36,000 tonne of PVC flex banners per annum, 6,500 tonne of PVC foam boards per annum, and 27,000 tonne of calendering lines. |
| Key Financial Indicators | ||||||||||||||||||||||||
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| 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 - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
*One way interchangeability from letter of credit to cash credit up to Rs 5.00 crore | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| For further information contact: | ||||||
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