Rating Rationale
January 08, 2020 | Mumbai
Solvay Specialities India Private Limited
Rating outlook revised to 'Stable'; rating reaffirmed 
 
Rating Action
Total Bank Loan Facilities Rated Rs.395 Crore (Enhanced from Rs.350 Crore)
Long Term Rating CRISIL AA/Stable (Outlook revised from 'Negative' and rating reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has revised its outlook on the long term bank facilities of Solvay Specialities India Private Limited (SSIPL) to 'Stable' from 'Negative' while reaffirming the rating at 'CRISIL AA'.

The outlook revision reflects better than expected performance in fiscal 2019 with operating margin of 5.2% against earlier expectation of loss at operating level. Operating performance was impacted in fiscal 2019 due to lower offtake from other Solvay group entities, stoppage of production at existing Panoli plant for around a month due to ongoing brownfield capacity expansion as well as continued losses at operating level in the surfactant segment. However reimbursement from parent (Solvay SA, rated 'BBB/Stable/A-2' by S&P Global Ratings) towards raw material cost escalation in March 2019 amounting to around Rs 70 crore led to improved operating margin.  Furthermore, the operating performance in fiscal 2020 is expected to improve with revenue growth of 10-11% and operating margins at 8-8.5% due to steady growth in the standalone business of SSIPL and reduction in losses in Rhodia Specialty Chemicals India Private Limited.

Earlier in fiscal 2019, Rhodia Specialty Chemicals India Private Limited, a wholly owned subsidiary of Solvay S A, present in surfactants segment was merged with SSIPL in October 2018 with retrospective effect from April 2017.

The company is undertaking a large brownfield capacity expansion at its Panoli plant for the production of Polyether Sulfone (PESU), a high growth high performance Sulfone, mainly used in healthcare segment. The commercial operations at the project are expected to start by January 2020. Over medium term, the financial performance of SSIPL is expected to improve due to contribution from the project as well as recovery in operating performance surfactants segment.

Financial risk profile is supported by low gearing of 0.5 time in 2019, which mitigates the effect of moderated debt protection metrics. With improvement in operating profitability, the interest coverage is expected to remain above 4.5 times and net cash accruals by total debt above 20% over the medium term. The company derives high support from Solvay Group reflected in large creditors period offered by it as well as promoter loan of Rs. 90 crore. The company is highly integrated with Solvay group with around 50% of revenue and purchases were from Solvay group entities in fiscal 2019.

The rating reflects the strong technological, managerial, and financial support the company receives from parent, Solvay SA (rated 'BBB/Stable/A-2' by S&P Global Ratings), a leading European chemicals company. SSIPL is Solvay SA's wholly owned subsidiary and the flagship company of the Solvay group in India. The rating also factors in SSIPL's established position in ultra-performance specialty polymers business and strong research & development (R&D) prowess, and its moderate financial risk profile. These strengths are partially offset by exposure to exposure to risk from lower exports to Solvay Group entities and high competitive pressure in surfactants segment and susceptibility to risks associated with ongoing large capacity expansion.

Analytical Approach

For arriving at its rating, CRISIL has applied its parent notch up framework to factor in support from Solvay SA.

Key Rating Drivers & Detailed Description
Strengths: 
* Strong managerial, technical and financial support from parent, Solvay S A
SSIPL is strategically important for its parent as the Solvay group is focusing on India as a manufacturing destination and growth market. SSIPL has strong operational linkages with the Solvay group as ~56 % of its revenues in fiscal 2019 were from supplies to other Solvay group companies. It is a flagship company of the group in India and the group uses this entity to distribute its products in India. It has full access to the technological capability of the parent, and Solvay group has significant control over SSIPL's management and operations. The parent has infused large equity (Rs.332 crore as on March 31, 2019) into SSIPL and remains committed to provide need based support in future.  

* Established position in specialty polymers and strong R&D
SSIPL has an established position in ultra-performance specialty polymers business and strong R&D capability. The company manufactures polyether ether ketones (PEEK) and sulfones which are at the top of the polymer value chain, and are used in diverse sectors. SSIPL's plant in Panoli, Gujarat, is the Solvay group's largest plant worldwide for manufacturing PEEK. The company houses the group's global R&D centre at Vadodara, Gujarat, focussing on product innovation.

 * Above average financial risk profile
SSIPL's financial risk profile was comfortable with networth of Rs 510 crore as at 31st March 2019. Debt protection metrics were moderate, with adjusted interest coverage and net cash accrual to total debt ratios of 5.4 times and 0.15 time, respectively, for fiscal 2019. The debt protection metrics remained moderate in fiscal 2019 on account of lower operating profitability. Gearing is likely to increase moderately over the medium term on account of the planned capex to around 0.7 time in fiscal 2020. The company is carrying out brownfield expansion in high growth high performance Sulfones business, mainly to cater to demand from healthcare segment. The proposed capex of Rs.415 crore has been funded out of debt of Rs 350 crore and existing liquidity and cash accruals. The project loan has a bullet repayment in August 2023 with option to prepay from August 2021 which lends financial flexibility to the company.

Weaknesses:
* Exposure to risk from lower exports to Solvay Group entities and high competitive pressure in surfactants segment.
SSIPL has strong operational linkages with the Solvay group as ~56 % of its revenues in fiscal 2019 were from supplies to other Solvay group companies. In fiscal 2019, the supplies to Solvay group's USA (United States of America) entity declined sharply impacting the operating performance of the company. The Surfactant segment of Rhodia entity continues to incur losses and will remain susceptible to high competitive pressures in India.

* Project risk
In line with group's focus on India as a key manufacturing destination, the company has planned a debt-funded brownfield expansion of Rs 415 crore (80% of its networth as on March 31, 2019) in the high- growth high-performance sulfones business at Panoli, Gujarat, mainly to cater to favourable demand from healthcare industry. The capex is expected to phase out in 1.5 years. Strong in-house project team working under the active guidance of a global project management team and technological support from the parent should support the project execution. The project is expected to commence commercial operations in April to June 2020 quarter.

Although the capex is in existing line of business, such large projects are susceptible to time and cost overrun risk.
Liquidity Strong

The company remains minimum dependent on external funds for working capital purpose with minimal bank limit utilization of sanctioned fund based working capital limit of Rs 190 crore. Surplus cash is at Rs 54 crore in March 2019. The company derives high financial support from Solvay Group reflected in creditor days of 300+ and promoter loan of Rs. 90 crore as on March 2019.

Outlook: Stable

CRISIL believes SSIPL will continue to benefit from strong support of its parent and its established position in the ultra-performance specialty polymer industry.

Rating Sensitivity factors:
Upward factors:
* Upward movement in the rating of Solvay SA by one notch and
* Significant and sustained improvement in profitability to above 15%
 
Downward factors:
* Weakened operating performance resulting in sustained decline in operating profitability below 4%
* Decline in support from or downgrade in rating of Solvay SA.

About the Company

SSIPL, incorporated in 2005, is a wholly owned subsidiary of Solvay SA, Belgium, and manufactures specialty polymers. Its plant at Panoli is an integrated facility for manufacturing monomers and polymers. It is the Solvay group's largest plant worldwide for PEEK polymers. The ongoing project of Sulphones is at the same location. SSIPL also houses the group's global R&D centre at Vadodara.

About Solvay SA
Incorporated in 1863 in Belgium, Solvay SA is an international chemicals company with presence in 61 countries. It is one of the largest chemical companies of Europe. The group had sales of EUR 11 billion for 2016 with earnings before interest, tax, depreciation, and amortisation (EBIDTA) margin of 20%. It has over 24,500 employees across the world and manufacturing facilities at 124 locations and 21 R&D centres. The group derives 90% of its revenue from businesses in which it is among the top three global leaders.

Key Financial Indicators
Particulars Unit 2019 2018
Revenue Rs crore 817 831
Profit after tax (PAT) Rs crore -2 8
PAT margins % -0.29 1.0
Adjusted debt/ adjusted networth Times 0.50 0.18
Interest coverage Times 5.40 7.21
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 Long Term Bank Loan Facility NA NA Aug-23 350.0 CRISIL AA/Stable
NA Cash Credit & Working Capital demand loan* NA NA NA 45.0 CRISIL AA/Stable
*interchangeable with other fund based and non -fund based facilities
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  395.00  CRISIL AA/Stable      28-03-19  CRISIL AA/Negative  17-04-18  CRISIL AA/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 & Working Capital demand loan* 45 CRISIL AA/Stable Long Term Bank Facility 350 CRISIL AA/Negative
Long Term Bank Facility 350 CRISIL AA/Stable -- 0 --
Total 395 -- Total 350 --
*Interchangeable with other fund based and non -fund based facilities
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Chemical Industry
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support
Mapping global scale ratings onto CRISIL scale

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