| Long track record of operation and experienced management
The promoters of the group belong to the Jhunjhunwala group better known as BDJ Group, they have a business record of over 85 years, and have experience in various industries like glass, glassware, chemicals. The directors Mr Anirudh Jhunjhunwala and Mr Anuj Jhunjhunwala are already running two zinc oxide manufacturing units at Howrah, West Bengal under M/s J.G Chemicals Pvt Ltd, of which the first unit was established in the year 1975 and the second unit was added 9 years ago. In the year 2011 they have started another unit i.e. BDJ Oxides Private Limited with same line of operation of manufacturing of zinc oxides. The group has a long presence in this sector and has established a healthy relationship with customers for more than a decade.
Healthy scale of operation coupled with stable profitability margin
The revenue of the group stood healthy at Rs.632.04 crore in FY2022 (Prov.) as compared to Rs.447.33 crore in the previous year. The revenue of the group has increased significantly on account of overall improvement of the demand for zinc oxides from tyre and pharmaceuticals industry. Further, the revenue of the group has improved due to increase in average realisation per unit during FY2022 over FY2021. Acuité believes that the group would sustain in the growth trajectory due to the ongoing demand in the market and well established presence in the eastern part of the country. The operating profitability margin of the group stood healthy at 10.56 per cent in FY2022 (Prov.) as compared to 10.51 per cent in the previous year. This slight improvement in the operating profitability margin is on account of decrease in raw material price during the period. Further, the operating profitability margin of the group has improved significantly during FY 2021 to 10.51 per cent from 5.93 per cent in the previous year. This significant increase in the operating profitability was due to the decrease in raw material price coupled with decrease in certain overhead expenses. Going forward, Acuité believes that the operating profitability margins of the group will remain healthy on account of steady demand for zinc oxides.
Locational advantages
The unit of BDJ Oxides Pvt Ltd has been set up in Attivaram region of Andhra Pradesh. South India is an auto ancillary hub. The company is enjoying locational advantage and also catering to the regular demand from different tyre companies. Also other two units of JG Chemicals Pvt Ltd have been set up in Howrah, West Bengal, which basically caters to the tyre manufacturer units in western part of the country. Apart from this, the group has also catering to the different pharmaceutical industry, ceramic industry, glass industry among others.
Strong financial risk profile
The financial risk profile of the group is marked by healthy net worth, low gearing and strong debt protection metrics. The net worth of the group stood healthy at Rs.156.29 crore in FY 2022 (Prov.) as compared to Rs 119.52 crore in FY2021. This improvement in networth is mainly due to the retention of profit during FY2022. The gearing of the group stood at 0.60 times as on March 31, 2022 (Prov.) when compared to 0.68 times as on March 31, 2021. This further improvement in gearing is mainly on account of improvement in networth and repayment of long term debt coupled with moderate utilization of working capital facility during FY2022 (Prov.). Interest coverage ratio (ICR) is strong and stood at 8.59 times in FY2022 (Prov.) as against 7.58 times in FY2021. The debt service coverage ratio (DSCR) of the group also stood strong at 5.15 times in FY2022 (Prov.) as compared to 4.53 times in the previous year. The net cash accruals to total debt (NCA/TD) stood comfortable at 0.47 times in FY2022 (Prov.) as compared to 0.37 times in the previous year. Going forward, Acuité believes the financial risk profile of the group will remain strong on account of steady net cash accruals and no major debt funded capex plan over the near term.
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| Working capital management
The working capital intensive nature of operation of the group is marked by high gross current asset (GCA) days of 127 days in FY2022 (Prov.) as compared to 148 days in the previous year. The inventory holding period of the group stood moderate at 47 days in FY2022 (Prov.) as compared to 44 days in the previous year. The debtor days of the group stood moderate at 56 days in FY2022 (Prov.) as compared to 73 days in the previous year. The high GCA days of the group has also emanates from the high other current asset of Rs.31.90 crore in FY2020, which mainly consists of advances for goods and services, statutory deposits, advance tax paid and among others. Moreover, the group has utilized ~73 per cent of its working capital facility for the last six months ended April 2022. Acuité believes that the ability of the company to manage its working capital operations efficiently will remain a key rating sensitivity.
Susceptibility of margins to fluctuations in raw material prices
The metal industry is highly cyclical, which further leads to fluctuation in the major raw material i.e. zinc scrap. Moreover the overall level of demand and prices for zinc scrap has seen a fluctuating trend since last few years. BDJ group sales and its margins remain susceptible to fluctuations in raw material prices.
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