Rating Rationale
December 01, 2021 | Mumbai
Resonance Specialties Limited
Ratings upgraded to 'CRISIL BBB- / Stable / CRISIL A3 '
 
Rating Action
Total Bank Loan Facilities RatedRs.12 Crore
Long Term RatingCRISIL BBB-/Stable (Upgraded from 'CRISIL BB+ / Stable')
Short Term RatingCRISIL A3 (Upgraded from 'CRISIL A4+ ')
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 rating on the bank loan facilities of Resonance Specialties Ltd (RSL) to ‘CRISIL BBB-/Stable/CRISIL A3’ from ‘CRISIL BB+/Stable/CRISIL A4+’

 

The rating upgrade reflect an improved business risk profile on the back of improved revenue, profitability and benefits it derives as part of a larger group. Revenue and operating margins grew by 23.9% and 540 basis points to Rs 71.9 crores and 22% respectively in fiscal 2021. Revenue growth is likely to be sustained over the medium term with healthy profitability. The current promoter’s group is also the promoters of IPCA Laboratories Limited (CRISIL A1+); RSL is expected to benefit from the technical, marketing and operational expertise of the promoters; further strengthening its business risk profile over the medium term

 

The ratings continues to reflect the established presence of RSL in the specialty chemicals industry and above average financial risk profile. These strengths are partially offset by a modest scale of operations and large working capital requirement.

Analytical Approach:

For arriving at the rating; CRISIL Rating has considered standalone financial of RSL and factored in operational benefits it derives from its association with larger promoter group

Key Rating Drivers & Detailed Description

Strengths

  • Extensive experience of promoter group and their established track record in the industry

The promoters has over 40 years of experience in the chemical and pharma industry with established relationship with customers and suppliers across the globe. The group also has track record of promoting and scaling up operations; the flagship company of the group (IPCA Laboratories Ltd) is one among the leading player in the industry with turnover of Rs 5483 crores in fiscal 2021. RSL is expected to receive extensive support from the group to enhance its technical, operational and marketing capabilities; strengthening business risk profile over the medium term

 

  • Above average financial risk profile: Financial risk profile is characterised by low leverage levels; moderate networth and strong debt protection metrics. Networth was moderate at Rs 34.8 crore as on March 31st 2021 (improved from Rs 24.61 crore a year before) and leverage levels were low with total outside liability to adjusted networth ratio of 0.40 times as on March 31, 2021. The company is currently debt free (as on September 30th 2021) and debt levels are expected to remain nominal over the medium term. Debt protection metrics continues to be healthy with interest coverage and net cash accrual to adjusted debt of 94.3 times and 18.90 for fiscal 2021; likely to be sustained over the medium term.

 

Weaknesses:

  • Working capital-intensive operations: Gross current assets (GCAs) were moderately high at 187 days as on March 31, 2021 driven by inventory and debtors of 110 and 44 days respectively. Inventory levels are higher than usual currently, however likely to moderate by 15-20 days over them medium term. Working capital requirement is expected to remain moderately high over the medium term, with GCAs sustained at around 180-190 days.

 

  • Moderate scale of operations and susceptibility to volatility in raw material prices

Scale of operations continues to remain moderate at Rs 71.9 crore in fiscal 2021; the moderate scale constrains RSL’s ability to get favourable terms from its customers and suppliers. However, association with the current promoter group partially mitigate this risk. Input prices are volatile and any material movement in prices may impact profitability. However, the company is able to pass on the price hike to its customers with a lag, partially mitigating the risk. 

Liquidity: Adequate

Net cash accrual was Rs 11.5 crore in fiscal 2021 and should be around Rs 11-13 crore over the medium term against nil debt obligation. Fund-based limits remained largely unutilised during the past 6 months through September 30, 2021.There are no large capex plans over the medium term. Current ratio was comfortable at 3.16 times and the company also had adequate cash balance of Rs 5.19 crore as on March 31, 2021.

Outlook: Stable

CRISIL Ratings believes RSL will continue to benefit from the extensive experience of its promoters and its focus on exports.

Rating sensitivity factors

Upward factors

  • Volume driven, above average revenue growth and sustained operating margin strengthening net cash accrual to over Rs 15 crore on a sustained basis.
  • Sustained financial risk profile with improved working capital management and healthy liquidity

 

Downward factors

  • Decline in revenue and operating margin  constraining net cash accrual below Rs 6 crore
  • Stretch in working capital cycle or substantial debt-funded capex or dividend pay-out affecting financial risk profile

About the company

RSL was set up in 1989. The company manufactures specialty chemicals such as lutidine, picoline, and their derivatives. These chemicals are used in diverse industries, including pharmaceuticals, agro chemicals, dyes and paints, food, and animal feeds. Makers Laboratories Ltd and Kaygee Investments Pvt Ltd acquired 54.24% stake in RSL in December 2021. The company is listed in Bombay Stock Exchange

Key Financial Indicators

As on / for the period ended March 31

 Units

2021

2020

Reported income

Rs crore

71.87

58.03

Reported profit after tax (PAT)

Rs crore

10.52

5.51

PAT margin

%

14.64

9.49

Adjusted debt/adjusted networth

Times

0.02

0.00

Interest coverage

Times

94.33

27.24

 

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

Complexity  Level

Issue Size
(Rs.Cr)

Rating Assigned
with Outlook

NA

Bank Guarantee

NA

NA

NA

NA

2

CRISIL A3

NA

Cash Credit

NA

NA

NA

NA

5

CRISIL BBB-/Stable

NA

Inland/Import Letter of Credit

NA

NA

NA

NA

3

CRISIL A3

NA

Proposed Long Term Bank Loan Facility

NA

NA

NA

NA

2

CRISIL BBB-/Stable

 

Annexure - Rating History for last 3 Years
  Current 2021 (History) 2020  2019  2018  Start of 2018
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 7.0 CRISIL BBB-/Stable   -- 31-12-20 CRISIL BB+/Stable 23-10-19 CRISIL BB/Stable   -- CRISIL BB-/Stable
      --   -- 13-10-20 CRISIL BB+/Watch Developing 24-01-19 CRISIL BB-/Stable   -- --
Non-Fund Based Facilities ST 5.0 CRISIL A3   -- 31-12-20 CRISIL A4+ 23-10-19 CRISIL A4+   -- CRISIL A4+
      --   -- 13-10-20 CRISIL A4+/Watch Developing 24-01-19 CRISIL A4+   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 2 YES Bank Limited CRISIL A3
Cash Credit 5 YES Bank Limited CRISIL BBB-/Stable
Inland/Import Letter of Credit 3 YES Bank Limited CRISIL A3
Proposed Long Term Bank Loan Facility 2 Not Applicable CRISIL BBB-/Stable

This Annexure has been updated on 23-Feb-23 in line with the lender-wise facility details as on 10-Feb-23 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
Understanding CRISILs Ratings and Rating Scales

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