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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 30.00 | - | ACUITE A3 | Reaffirmed |
| Bank Loan Ratings | 5.00 | ACUITE BBB- | Stable | Reaffirmed | - |
| Total Outstanding Quantum (Rs. Cr) | 35.00 | - | - |
| Total Withdrawn Quantum (Rs. Cr) | 0.00 | - | - |
| Rating Rationale |
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Acuité has reaffirmed the long term rating of ‘ACUITE BBB-’ (read as ACUITE triple B minus) and the short term rating of ‘ACUITE A3’ (read as ACUITE A three) on the Rs. 35.00 crore bank facilities of Chemtrade Overseas Private Limited (COPL). The outlook is 'Stable'.
Rationale for rating reaffirmation The rating reaffirmation takes into account COPL’s moderate financial risk profile along with the company’s experienced management and established track record of operations. The rating is however constrained by the company’s stagnant operating performance on a year-on-year basis, moderately working capital intensive operations and susceptibility of profitability margins to volatility in raw material prices along with intense competition. Ability of the company to improve its scale of operations while maintaining profitability and any further deterioration in the working capital cycle will remain a key rating sensitivity factor. |
| About the Company |
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COPL was initially established as a proprietorship firm in 1992 and the constitution was changed to private limited company in November 2007. The company is based out of Mumbai and is engaged in trading and import of chemicals and solvents used in several industries like pharmaceuticals, petrochemicals, and paints among others.
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| Analytical Approach |
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Acuité has considered the standalone business and financial risk profiles of COPL to arrive at the rating.
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Key Rating Drivers
| Strengths |
| Experienced management and established track record of operations
COPL has an established presence since 1992 in the chemical industry. The company is promoted by Mr. Jatin B. Shah & Mr. Ashish K. Shah who are second generation entrepreneurs with an experience of around three decades in the chemical and solvents trading business. The promoters are being supported by its team of experienced professionals in managing day to day operations of COPL. The extensive experience of the promoters has enabled COPL to establish a healthy relationship with its customers and suppliers. Acuité believes that COPL will continue to benefit from its experienced management and established track record of operations. Moderate financial risk profile
Financial risk profile of COPL is moderate marked by moderate networth, low gearing and comfortable debt protection metrics. The networth of the company has marginally improved to Rs.43 Cr as on 31 March, 2022 (Provisional) as against Rs.41 Cr as on 31 March, 2021 on account of moderate accretion to reserves. The gearing (debt-equity) has remained low at 0.14 times as on 31 March, 2022 (Provisional) as against 0.20 times as on 31 March, 2021 on account of absence of any long term debt. The gearing of the company is further expected to remain low over the medium term on account of absence of any debt funded capex plans in the future. The total debt of Rs.6 Cr as on 31 March, 2022 (Provisional) consists of only unsecured loans from directors. The interest coverage ratio and DSCR both stood high at same level of 3.23 times for FY2022 (Provisional) as against 2.12 times and 1.85 times for FY2021 on account of absence of any debt repayment obligation. The Net Cash Accruals to Total debt stood high at 0.66 times for FY2022 (Provisional) as against 0.32 times for FY2021. The Total outside liabilities to Tangible net worth stood marginally improved to 3.22 times for FY2022 (Provisional) as against 3.25 times for FY2021. Acuité believes that the financial risk profile of COPL will remain moderate over the medium term on account of low debt levels vis-à-vis moderate tangible net worth and comfortable debt protection metrics. |
| Weaknesses |
| Stagnant operating performance
COPL’s revenue has been stagnating around Rs.600 Cr. It has reported revenues of Rs.556 Cr for FY2022 (Provisional) as against Rs.572 Cr in FY2021 and Rs.610 Cr in FY2020. This de-growth in revenue over the last 3 years is due to change in company's strategy to focus more on improving the operating and net profit margins and dealing with clients with better terms. The operations of the company were also somehow affected due to lockdown imposed in the first wave of pandemic. The products traded by the company were only sold in the domestic market during FY2021 & FY2022 and were not exported during the same period due to economic crisis of the countries like Sri Lanka & Bangladesh to which the products were earlier exported upto FY2020. The operating margin of the company has marginally declined to 1.01 percent in FY2022 (Provisional) as against 1.04 percent in FY2021 whereas the net profit margin of the company has improved to 0.71 percent in FY2022 (Provisional) as against 0.42 percent in FY2021 on account of decrease in the interest cost. For the current year FY2023, as on August 2022, COPL has reported lower revenue of Rs.172 Cr and going forward from Q3 onwards, company has plans to commence with the export sales to countries like China, Middle East, Thailand, USA amongst others which will help in scaling up the overall revenue for FY2023 in line with FY2022. Acuité believes that COPL's ability to improve its scale of operations while maintaining profitability in near to medium term will remain a key rating sensitivity factor. Working capital intensive operations
The operations of COPL are moderately working capital intensive marked by its Gross Current Assets (GCA) of 115 days for FY2022 (Provisional) as against 104 days for FY2021. This is primarily on account of its receivable days which stood elongated at 85 days in FY2022 (Provisional) as against 74 days in FY2021. On the other hand, inventory cycle of the company stood marginally improved at 25 days in FY2022 (Provisional) as against 29 days in FY2021 while the creditors cycle stood elongated at 90 days in FY2022 (Provisional) as against 82 days in FY2021. Acuité believes that any further deterioration in the working capital cycle will remain a key monitorable. Highly competitive industry and susceptibility of margins to volatility in raw material prices
The chemical trading industry is a highly fragmented industry and presence of large number of organised and unorganised players has created high competition in the industry. COPL faces competition from large players as well as numerous players in the unorganised segment. Also, on account of its trading nature of business, the entry barriers are low thereby leading to stiff competition for players like COPL. Further, operating and profitability margins are expected to remain susceptible to fluctuations in the raw material prices of traded chemicals. The company is also exposed to forex risk as company is also involved into export and import of certain products. |
| Rating Sensitivities |
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| Material covenants |
| None |
| Liquidity position - Adequate |
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COPL has adequate liquidity position marked by adequate net cash accruals (NCA) to its no maturing debt obligations. The company generated cash accruals in the range of Rs.2 Cr to Rs.4 Cr during FY2020 to FY2022 (Provisional) against no repayment obligation during the same period. Going forward the NCA are expected of upto ~Rs.3 Cr for period FY2023-FY2024 against no repayment obligation for the same period. The working capital operations of the company are moderately intensive marked by its gross current asset (GCA) days of 115 days for FY2022 (Provisional) as against 104 days for FY2021 on account of elongated receivables cycle during the same period. The average bank limit utilization for 6 months’ period ended August 2022 stood low at ~49 percent. Current ratio stands at 1.37 times as on 31 March 2022 (Provisional). The company has maintained cash & bank balance of Rs.0.16 Cr in FY2022 (Provisional).
Acuité believes that the liquidity of COPL is likely to remain adequate over the medium term on account of adequate cash accruals against no maturing debt obligations. |
| Outlook: Stable |
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Acuité believes that COPL will maintain 'Stable' outlook over the medium term on account of its experienced management with established track record of operations and moderate financial risk profile. The outlook may be revised to 'Positive' in case of significant and sustained growth in revenue and profitability while effectively managing its working capital cycle and keeping the debt levels moderate. Conversely, the outlook may be revised to 'Negative' in case of lower than expected growth in revenue or deterioration in the financial and liquidity profile most likely as a result of higher than envisaged working capital requirements.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 22 (Provisional) | FY 21 (Actual) |
| Operating Income | Rs. Cr. | 555.66 | 572.44 |
| PAT | Rs. Cr. | 3.96 | 2.42 |
| PAT Margin | (%) | 0.71 | 0.42 |
| Total Debt/Tangible Net Worth | Times | 0.14 | 0.20 |
| PBDIT/Interest | Times | 3.23 | 2.12 |
| Status of non-cooperation with previous CRA (if applicable) |
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| Any other information |
| None |
| Applicable Criteria |
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• Trading Entitie: https://www.acuite.in/view-rating-criteria-61.htm • Default Recognition: https://www.acuite.in/view-rating-criteria-52.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm |
| Note on complexity levels of the rated instrument |
| https://www.acuite.in/view-rating-criteria-55.htm |
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