Rating Rationale
June 02, 2020 | Mumbai
Solenis Chemicals India Private Limited
Rating Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.5 Crore
Long Term Rating CRISIL BB-/Stable (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its rating on the long term bank facility of Solenis Chemicals India Private Limited (SCIPL) at 'CRISIL BB-/Stable'.
 
The rating continues to reflect the extensive experience and established presence of the promoter group in the specialty chemicals industry, their funding support, and moderate financial risk profile because of limited external debt. Theses strengths is partially offset by a cash losses reported in last three fiscals, large working capital requirements and moderate exposure to foreign exchange rates.

Analytical Approach

Unsecured loans from promoter have been treated as neither debt nor equity as these loans will remain in business over the medium term. Furthermore, CRISIL has treated compulsory convertible debentures (CCD) issued by the company as equity as these CCDs will be compulsorily converted into equity and are subscribed by parent.

Key Rating Drivers & Detailed Description
Strengths: 
* Extensive experience of the promoters and their funding support: The promoter, the Solenis group of The Netherlands, has over three decades of experience in the specialty chemicals industry and has adequate technical expertise, which will help the company to establish operations. It is also supported by strong funding support from the parent group 'Solenis Netherlands B.V.' as reflected in equity infusion of Rs. 280 crore done towards acquisition and working capital funding. The parent has also extended funding support in the form of compulsory convertible debentures of Rs. 22.4 crore which will be converted to equity in 2024.
 
* Ramp-up in scale of operation: Topline has improved post acquisition of BASF's wet paper and water chemicals business and subsequent ramp-up in fiscal 2020. Solenis has posted estimated revenue of Rs. 400 crore in FY 2020. The substantial increase in revenue is mainly owing to additions BASF's wet paper and water chemicals business. Also, post-acquisition the company has widened its geographic reach.
 
* Moderate financial risk profile: Despite the losses, the financial risk profile remains moderate because of limited external debt.  There has been significant equity infusion in fiscal 2019 for the acquisition of new business, and towards meeting working capital requirements. Networth was more than Rs. 150 crores as on March 31, 2019 and was estimated to be around Rs.120 crore in fiscal 2020. Further, the company has limited reliance on external debt with cash credit limit of Rs. 5 crore and no external long term debt which supports overall financial metrics.
 
Weaknesses:
* Losses reported in recent years: The company has reported losses in recent years. Further a large loss was estimated to be reported in fiscal 2020 because of an exceptional one time expenditure towards the acquisition transaction fees and other costs related to streamlining the process and integration, royalty charges etc. A track record of profitable operations will remain critical and can provide positive bias to the ratings.
 
* Large working capital requirements: Solenis has large working capital cycle with estimated GCA days of over 200 days as on Mar 31, 2020 mainly due to high inventory and high debtor days. The receivables have further impacted in first two months of current fiscal due to pandemic outbreak and disruptions in business.
 
* Moderate exposure to foreign exchange rate fluctuations: The company exports its products to Europe and USA. Therefore, the company is exposed to foreign exchange rates risks. Moreover, the company does not hedge its forex position with forward contracts and deals only with spot rates in the currency markets which makes it susceptible to the fluctuations in the foreign currency market. Nonetheless it receives natural hedge because of its sizable imports.
Liquidity Adequate

Solenis has adequate liquidity supported by funding support from parent as well as group companies by way of extended credit for material and services. Though the cash acrruals are expected to be negative in FY 2020 due to exceptional costs related to acquisition, there are no repayment obligations. Also, the bank limit utilization stood low at 15% for the past 12 months ended April 2020. Also, the parent company 'Solenis Netherlands B.V.' has extended funding support in the form of equity infusion of Rs. 280 crore. Also, the company has cash and bank balances of over around Rs. 30 crore to support its working capital requirements.

Outlook: Stable

CRISIL believes SCIPL will, over the medium term, continue to benefit from the extensive industry experience and extended financial support from its promoters.

Rating Sensitivity factors
Upward factors
* A track record of profitable operations and cash accruals of over Rs.15 cr annually
* Improvement in working capital cycle and maintenance of liquidity
 
Downward factors
* Lower than expected revenue along with significant losses
* Stretch in working capital cycle and weakening in liquidity.
About the Company

Incorporated in May 2014, SCIPL is a wholly owned subsidiary of Solenis Netherlands BV. The company manufactures specialty chemicals used in the paper and pulp, construction, water treatment, oil and gas, chemical processing, mining, bio refining, and power industries. It is managed by Mr Uday Patankar, Mr Sachindra Kukade, and other directors.

During 2018-19, Solenis group and BASF have completed the transfer of BASF's paper wet-end and water chemicals business to Solenis globally. Consequently, BASF's Ankleshwar, India plant was acquired by Solenis India.

Key Financial Indicators
As on / for the period ended March 31   2019 2018
Operating income Rs crore 82.60 48.15
Reported profit after tax Rs crore (21.48) (15.44)
PAT margin % (26.00) (32.06)
Adjusted Debt/Adjusted Networth Times 0.00 (0.16)
Interest coverage Times (2.11) (1.86)

Any other information: Not applicable

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)
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs crore) Rating assigned with outlook
NA Cash Credit NA NA NA 5.00 CRISIL BB-/Stable
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  5.00  CRISIL BB-/Stable      28-03-19  CRISIL BB-/Stable  24-01-18  CRISIL BB-/Stable      CRISIL BB-/Stable 
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit 5 CRISIL BB-/Stable Cash Credit 5 CRISIL BB-/Stable
Total 5 -- Total 5 --
Links to related criteria
Rating criteria for manufaturing and service sector companies
Rating Criteria for Chemical Industry
CRISILs Approach to Recognising Default
CRISILs Bank Loan Ratings
CRISILs Criteria for rating short term debt

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