Detailed Rationale

Crisil Ratings has placed its ratings on the bank facilities of Shiv Texchem Limited (STL) on ‘Rating Watch with Negative Implications’.

 

Crisil Ratings has taken note of the announcement made by the United States (US) Department of State (US State Department) on October 9th, 2025, in relation to the imposition of sanctions and inclusion of STL in the OFAC’s (Office of Foreign Assets Control) Specially Designated Nationals (SDN) list for its involvement in the transshipment, sale and purchase of petrochemicals from Iran.

 

Crisil Ratings understands that the sanctions on STL restrict its ability to deal in US dollars and directly with US citizens. STL has significant procurement of its products from US-based suppliers, and the sanctions are likely to disrupt the supply of these materials, following the impositions. The ability of the management to further diversify its supplier base and procure imported goods domestically will remain a key monitorable factor. However, delays in resolving the trade restrictions may result in deterioration of the overall credit profile of the firm. Crisil Ratings will continue to monitor the developments in this regard and impact of the sanctions on the business profile and will resolve the watch once more clarity emerges on the matter.

 

Additionally, near term cash flows is supported by outstanding receivables of Rs ~500-550 crores, Inventories of ~Rs 700 crores, free Fixed Deposits (FDs) and cash equivalents of Rs ~80-90 crores as well as healthy unutilized fund-based bank lines availability which should be sufficient to cover the upcoming liabilities including Letter of Credit (LC). Furthermore, promoter support in form of unsecured loans will continue to support any need-based business and debt servicing related requirement. However, timely debtor collections as well as uninterrupted business continuity remains monitorable.

 

The rating continues to reflect STL’s established market position in the specialty chemical trading industry along, prudent risk management practices, diversified customer base and established relationship with the suppliers and moderate financial risk profile. These strengths are partially offset by susceptibility to intense competition, and large working capital requirement

Analytical Approach

Crisil Ratings has evaluated the standalone business and financial risk profile of STL while arriving at the ratings.

 

Unsecured loans of Rs 70 crores out of total Rs 86 crores as on March 2025 extended by the promoters, promoter family and promoter group companies has been treated as 75% equity and 25% debt with balance Rs 16 crores being treated as debt. These loans are expected to remain in the business over the medium term.

Key Rating Drivers - Strengths 

Established market position: STL benefits from the extensive experience of its promoters who have been in the chemicals trading industry for over three decades. This has helped them develop an understanding of business and industry dynamics and also establish healthy relationships with its clientele and suppliers. Backed by the long track record of operations and continuous product additions, the top line of the company has improved to Rs 2204 crores in fiscal 2025 from Rs 1536 crores in fiscal 2024. Steady order flow from the existing customers, addition of new customer and products is expected to help sustain the revenue growth over the medium term. Crisil Ratings believes STL will continue to benefit from the extensive industry experience of promoters and its established market position.

 

Prudent risk mitigation practices: Order-backed inventory (~75% to 80% of total inventory) and large product basket products with no single product accounting for more than 10% to 15% of total sales mitigates price fluctuation risk related to the product prices. As a result, the operating margins of the company have sustained in the range of 3.0% to 4.0% for the last three years ended FY 2025. Furthermore, strong internal checks, limited customer concentration and established relationships with reputable clientele should support the company limit the risk of bad debts to some extent. Top 5 customers contributed less than 10% in fiscal 2025. Prudent risk mitigation practices should support the company sustain its profitability amid increasing scale of operations.

 

Diverse customer base and established relationships with suppliers: STL has a large customer base comprising of more than 600 customers across pharmaceuticals, resins & abrasives, paint & dyes, personal care/cosmetics, etc. Its customers include some of the reputed clientele and it has a diversified set of customers with top 5 customers contributing less than 10% of total revenues.  STL also has an established supplier network in domestic as well as international markets for procurement of products, providing flexibility and better bargaining power to the company in case of any supply disruptions. Established relationships with suppliers, a diverse customer base and limited customer concentration in revenues will continue to support the business risk profile of the company.

 

Moderate financial risk profile: The net worth of the company has improved to Rs 385 crores as on March 31, 2025 led by the infusion of Equity through IPO and accretion to the reserves, from Rs 233 crores as on March 31, 2024, The capital structure remains moderate mainly due to the reliance on the outside debt for the working capital requirements leading to total outside liability to adjusted net worth ratio of 2.2 times as on March 31, 2025 (2.4 times as on March 31, 2024). Due to the moderate interest expenditure, the debt protection measures are also adequate as reflected in the interest cover of 3.8 times for fiscal 2025 and was around 3.18 times for fiscal 2024. The overall financial risk profile of the company is expected to improve over the medium term, backed by the steady accretion to the reserves due to the growing scale of operations.

Key Rating Drivers - Weaknesses 

Working capital intensive operations: STL's operations are working capital intensively as reflected in gross current assets (GCAs) of around 140-170 days for the past three fiscal ended FY 2025, driven by receivables of around 75 days and inventory of around 90 to 110 days. Although debtor days in fiscal 2025 has increased to 75 days from 43 days in fiscal 2024, it is on account of higher year end sales, it is expected that the debtors will remain in similar range over the medium term. It remains moderate as they are required to provide credit of around 45-90 days to its customers while inventory requirements are necessitated by lead time of 45-50 days on imports and a diversified product basket. Further Storage facility is also provided by the company at various ports as per negotiated terms with the customers adds to the inventory holding level. However, the inventory risk has been partially mitigated as around almost entirety of the inventory remains order backed and have assured offtake from STL’s customers. The working capital is being supported by average import creditors of around 60-75 days on procurement. Crisil Ratings expects the working capital cycle to remain at a similar level over the medium term

 

Susceptibility to intense competition: The prices of traded goods are volatile as they are linked to crude prices and demand scenario, and intense competition may constrain scalability, pricing power and profitability.  Intense competition from other importers and distributors could also exert pressure on the margin. This is partially mitigated by the long-standing presence in the chemical trading space and established relationships with suppliers and customers.

Liquidity Adequate

STL has adequate liquidity driven by expected cash accruals of more than Rs 60 crore over medium term, against annual term debt obligation around Rs 4.5 crore in each fiscal 2026 and 2027. Cash and cash equivalents were around Rs 245 crore as on March 31, 2025; out of which around Rs 40 crores being unencumbered, additionally, it has ~Rs 280-290 crores of FD and Cash and Bank balance as on date of which ~Rs 80-90 is free along with healthy unutilized fund based bank lines availability . The current ratio is healthy at 1.5 times as on March 31, 2025. STL also has access to bank limits, utilized to the tune of 65 % on an average over the 9 months ended April 2025. Liquidity remains further supported by the promoter’s support in the form of USL and equity. Crisil Ratings expects enhancement in bank limits, internal accruals, cash & cash equivalents and unutilized bank lines to be sufficient for repayment obligations and incremental working capital requirements

Rating sensitivity factors

Upward factors:

• A significant growth in revenues of over 40% while maintaining its operating profitability leading to higher cash accruals
• Sustained improvement in the financial risk profile while managing the working capital cycle.

 

Downward factors:

• Any significant increase in the debt levels leading to deterioration in the capital structure with total outside liability to adjusted net worth ratio (TOLANW) sustaining above 2.75 times
• Any significant decline in the scale or operating margins leading to lower than expected cash accruals

About the Company

STL was established in 1995 as proprietorship firm and later in 2005 it was converted into a private limited company. It is based in Mumbai and is engaged as trader and distributor of hydro based chemicals. The company is promoted and managed by Mr. Shyam Sundar Chokhani, Mr. Hemanshu Chokhani and Mr. Vikas Pavankumar. The company is listed on BSE SME platform.

Any other information: Not Applicable