Rating Rationale

Key Rating Drivers & Detailed Description

Strengths:

Established market position with a reputed and diversified clientele and moderate operating income: TIL’s business risk profile is supported by its established position in the domestic and international markets as it caters to various industries, such as polymers, agrochemicals, plastics, performance materials, coatings, pharmaceuticals, personal care, and flavours and fragrances, enabling it to withstand a downturn in any one end-user segment. Furthermore, overseas markets, including the US, South Korea and Europe, contribute ~85% to the company’s revenue. Operating income rose to Rs 657 crore in fiscal 2025 from Rs 587 crore in fiscal 2024 because of better volume offtake for specialty chemicals. The company also benefited from enhanced capacity amid steady demand for its products. It plans to diversify by adding non-chlorination products to its portfolio, resulting in steady revenue growth of 8-9% over the medium term, which will be monitorable.

Comfortable financial risk profile: Networth was strong at Rs 745 crore, while gearing was healthy at 0.05 time and total outside liabilities to tangible networth (TOLTNW) ratio at 0.34 time as on March 31, 2025. Debt protection metrics were robust, with interest coverage and net cash accrual to total debt (NCATD) ratio over 8.73 times and 2.68 times, respectively, for fiscal 2025. The company plans capital expenditure (capex) for diversifying its product portfolio, but the cost is yet to be ascertained. The financial risk profile should remain comfortable as the capex will be funded in a prudent mix of debt and internal cash accrual while the debt protection metrics are expected to remain comfortable over the medium term as benefits of the capex accrue.

Weaknesses:

Large working capital requirement with high customer concentration, and exposure to risks inherent in the chemical industry: Gross current assets (GCA) were at 171 days, driven by receivables and inventory of 58 days and 44 days, respectively, as on March 31, 2025. The company maintains inventory of 40-50 days for uninterrupted production as key raw materials are imported and there are only 1-2 suppliers for some of the raw materials. Also, it offers credit of 60-90 days to customers. Against this, the company receives credit of 45-60 days from suppliers.

Revenue from the top six customers accounted for 77% of total sales in fiscal 2025. This risk is mitigated to some extent by TIL’s longstanding relationships with these clients, which are market leaders in their respective fields. Also, TIL has a long-term take-or-pay supply agreement with customers. Additionally, the products are largely regulated in terms of quality, purity and efficacy, which ensures sticky relationships with customers. Also, supplier registration in regulated markets usually takes 1.0-1.5 years, which acts as an entry barrier. That said, revenue and profitability are susceptible to government policies regarding pollution control, hazardous products, or import and export of raw materials.

Susceptibility to volatility in raw material prices impacting operating efficiency and to cyclicality in the chemical segment: Most of the raw materials of TIL are susceptible to volatility in global crude oil prices. Therefore, the company’s profitability is exposed to any adverse movement in raw material prices as it can only be passed on to end customers with a lag. TIL’s operating margin fluctuated in the 12 quarters through the first quarter of fiscal 2026, leading to moderation in its return on capital employed (RoCE). The operating margin was 15.59% in fiscal 2025 and as well as in the first quarter of fiscal 2026, and is expected over 15% over the medium term with expected product diversification and entry into new markets. Moreover, the chemical industry is intensely competitive and dominated by large players with the top players accounting for close to 50% of the market share. Furthermore, the industry is susceptible to government regulations and cyclicality. Cyclical downturns or adverse changes in the demand-supply balance may result in lower realisations for chemical manufacturers.