Rating Rationale
December 08, 2020 | Mumbai
Valiant Organics Limited
'CRISIL A-/Positive' assigned to bank debt
 
Rating Action
Total Bank Loan Facilities Rated Rs.17.5 Crore
Long Term Rating CRISIL A-/Positive (Assigned)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has assigned its 'CRISIL A-/Positive' ratings to the long-term bank facilities of Valiant Organics Limited (VOL).
 
Positive outlook reflects VOL's strong business risk profile which remained resilient to Covid-19 pandemic. Company has achieved revenue of Rs.674.93 crore and profitability of 26.6% in fiscal 2020; further it has reported Rs 314.17 crore in H1 FY2021 while profitability continues to remain healthy at about 30%. The performance was supported by diversity in products, customers and geography and favourable raw material prices. The integrated operations, order backed sales, and pass on of volatility in raw material prices to customers, will continue to support VOL's business risk parameters. The company continues to undertake capex for capacity enhancement for introduction of new products and for backward integration; which will enable VOL to improve its operating efficiencies. The financial risk profile metrics continue to remain strong, with a robust networth of Rs 381.81 crore and low gearing of 0.36 time, as on March 31, 2020. Debt protection metrics are strong, with interest cover and net cash accruals to adjusted debt ratios (NCAAD) of 82.81 times and 0.94 time, respectively in fiscal 2020.
 
The ratings reflect VOL's established market position, moderate working capital cycle, healthy financial risk profile and sound operating efficiencies. These rating strengths are partially offset by VOL's exposure to volatile commodity prices and cyclicality in domestic end-user industries.

Analytical Approach

To arrive at the ratings on VOL, CRISIL has combined the business and financial risk profiles of VOL and its subsidiary Dhanvallabh Ventures LLP (DVLLP), which was previously a subsidiary of Amarjyot Chemical Limited (ACL). However, with VOL's acquisition of ACL, VOL has 65% ownership interest in DVLLP.

Please refer Annexure - Details of Consolidation, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description
Strengths
* Established market position backed by extensive experience of promoters: VOL's promoters have been engaged in the chemical intermediates business for over three decades which has enabled them to develop strong understanding of market dynamics, and establish healthy relations with customers and suppliers. VOL has a diversified business profile with diversity at product, geography, customer and end-use industry level. The established market position and global competitiveness is also reflected in a healthy operating income of Rs 674.93 crore in fiscal 2020; healthy topline growth at a CAGR of 90% over the last four fiscals due to the inorganic growth by way of acquisitions.
 
* Moderate working capital cycle: Working capital requirements are efficiently managed, reflected in gross current assets of 116 days as on March 31, 2020, driven by moderate inventory and receivables of 33 days and 72 days as on March 31, 2020.
 
* Healthy financial profile: VOL has a healthy networth of Rs. 381.81 crore as on March 31, 2020, backed by healthy revenue and operating margin. This supports the financial flexibility of the company. Supported by a strong networth and low dependence on external debt, the capital structure is comfortable with gearing and TOLTNW of 0.36 time and 0.70 time, respectively as on March 31, 2020. This is expected to remain comfortable going forward, despite on-going capex for capacity enhancement and backward integration. Robust debt-protection metrics, supported by healthy operating profitability and low dependency on external debt: Interest cover and NCAAD of 82.81 times and 0.94 time in fiscal 2020.
 
* Sound operating efficiencies: VOL has healthy operating efficiencies, reflected in healthy operating margin and return on capital employed (RoCE) of 26.6% and 41.5%, respectively in fiscal 2020. This is driven by integrated operations, high economies of scale and experienced management.
 
Weaknesses
* Exposure to volatile commodity prices: The prices of raw material inputs, which are derivatives of crude oil, are volatile, thus impacting profitability. The international market prices of raw materials follow the petrochemicals cycle. However, order-backed sales and pass on of volatility in raw material prices to customers, will continue to support VOL's operating profitability.
 
* Susceptibility to adverse changes in government regulations, and to cyclicality in domestic end-user industries: The inorganics chemicals business is highly susceptible to government regulations, and any unfavorable changes in policies can strain profitability. Hence, entities in this segment will also remain exposed to cyclicality in end-user industries over the medium term.
Liquidity Strong

Company has access to working capital limit of Rs 87.5 crore, which is utilized at around Rs 32 crore as of November 2020, thus leaving adequate cushion in bank lines. Net cash accruals are expected to be Rs 120-220 crore per fiscal, which will be more than adequate to cover repayments of Rs 13-27 crore per fiscal, over the medium term. Liquidity is also supported by cash and cash equivalents of Rs 4 crore, free FDs of Rs 3 crore and investments of Rs 25-26 crore as on March 31, 2020. Current ratio was 1.33 times as on March 31, 2020. Company did not avail 6-month moratorium.

Outlook: Positive

CRISIL believes VOL will continue to benefit from the extensive experience of its promoters, and established market position. VOL is expected to benefit from the on-going capex for capacity enhancement and backward integration.
 
Rating Sensitivity Factors:
Upward factors
* Sustenance of revenue growth while maintaining EBITDA above 25%, leading to higher than expected net cash accruals
* Improvement in financial risk profile
 
Downward factors
* Any sharp decline in scale of operations, or operating profitability margin below 18%, hence leading to lower net cash accrual
* Stretch in its working capital requirements thus weakening its liquidity & financial profile.

About the Company

Established in 1984 as Valiant Chemical Corporation and then later changed to Valiant Organics Limited (VOL) in 2005, the company is engaged in the business of manufacturing specialty chemicals. The company is promoted by Gogri family and is based out of Mumbai, Maharashtra. The company acquired Amarjyot Chemical Limited in March 2019.

Key Financial Indicators - Consolidated
As on / for the period ended March 31   2020 2019
Operating income Rs crore 674.93 692.30
Reported profit after tax Rs crore 140.53 121.25
PAT margins % 20.8 17.5
Adjusted Debt/Adjusted Net worth Times 0.36 0.31
Interest coverage Times 82.81 46.55

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL 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. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
Annexure - Details of Instrument(s)
ISIN Name of instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size
(Rs Cr)
Complexity
Levels
Rating Assigned
with Outlook
NA Working Capital Facility NA NA NA 7.5 NA CRISIL A-/Positive
NA  External Commercial Borrowings NA NA Sept-2024 10.0 NA  CRISIL A-/Positive
 
Annexure - List of entities consolidated
Names of Entities Consolidated Extent of Consolidation Rationale for Consolidation
Valiant Organics Limited 100% CRISIL has combined the business and financial risk profiles of VOL and its subsidiary Dhanvallabh Ventures LLP (DVLLP), which was previously a subsidiary of Amarjyot Chemical Limited (ACL). However, with VOL's acquisition of ACL, VOL has 65% ownership interest in DVLLP.
Dhanvallabh Ventures LLP
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  17.50  CRISIL A-/Positive    --    --    --    --  -- 
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
External Commercial Borrowings 10 CRISIL A-/Positive -- 0 --
Working Capital Facility 7.5 CRISIL A-/Positive -- 0 --
Total 17.5 -- Total 0 --
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
CRISILs Criteria for Consolidation
The Rating Process

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