­Acuité has consolidated the financial and business risk profile of Krishna Speciality Chemicals Private Limited (KSCPL) and Protech Shine & Care LLP (PSCL), referred to as Krishna Group. The same is on account of common management, significant financial linkages in terms of corporate guarantee and unsecured loan given by Krishna Speciality Chemicals towards Protech Shine & Care LLP.

­Experienced management and strong association with reputed clientele
The group has an operational track record of more than 25 years in the chemical industry and the directors of the group Mr. Arun Lal Agarwal, Mr. Sanjay Agarwal, Mr. Sandeep Agarwal and Mr. Aditya Agrwal has more than two decades of experience in this industry. This has helped the group to establish a healthy relationship with its customers. The group caters to reputed clientele mostly from the cement industry such as Ambuja Cement Limited, ACC Limited, JK Lakshmi Cement Ltd, Ultratech Cement Limited, NU Vista Limited among others. The group also supplies chemicals to Paradeep Phosphates Limited and started supplying wall putty and paint to JK Lakshmi Cement Limited from April 2020 onwards. Acuité believes that the group will benefit from the experience of the management in the chemical industry in developing healthy relationships with its customers and suppliers. Further, the group will also benefit from its reputed clientele to mitigate the counter party risk.

Improving scale of operations coupled with stable profitability margin
The revenue of the group has significantly improved to Rs.167.86 crore in FY2022 (Prov.) as compared to Rs.116.17 crore in the previous year. This significant improvement in top-line is mainly on account of increase in capacity utilisation by Krishna Speciality Chemicals Pvt Limited (KSCPL) during FY2022 (Prov.) over FY2021 on account of high demand from the cement industry during the period. Further, the revenue of the group has also improved on account of a sharp increase in price realisation per unit in FY2022 (Prov.) as compared to the previous year, backed by increase in raw material price during the period. The group has earned Rs. 79.89 crore till 30th September 2022 (Prov.). Acuité believes, the group will maintain its top line at healthy level going forward backed by growing demand of speciality chemicals in the domestic market coupled with low competition from the organised sector.

The operating profitability margin of the group stood stable at 9.14 per cent in FY2022 (Prov.) as compared to 9.25 per cent in the previous year. This slight deterioration in operating profitability on account of increase in price of raw material globally. Going forward, Acuité believes that the group will be able to improve its operating profitability margin on account of low competition from the organised sector leads to high bargaining power of the group. The net profitability margin of the group also stood comfortable at 6.75 per cent in FY2022 (Prov.) as compared to 4.28 per cent in the previous year.

Comfortable financial risk profile
The financial risk profile of the group is marked by moderate net worth, comfortable gearing and strong debt protection metrics. The net worth of the group stood moderate at Rs.61.70 crore in FY 2022 (Prov.) as compared to Rs 50.00 crore in FY2021. This improvement in networth is mainly due to the retention of profit during FY2022 (Prov.). Acuite has considered Rs.16.82 crore of unsecured loan as quasi capital, as the same amount is subordinated to bank debt. The gearing of the group stood at 0.52 times as on March 31, 2022 (Prov.) when compared to 0.45 times as on March 31, 2021. Interest coverage ratio (ICR) is strong and stood at 4.21 times in FY2022 (Prov.) as against 3.16 times in FY2021. The debt service coverage ratio (DSCR) of the group also stood comfortable at 2.63 times in FY2022 (Prov.) as compared to 1.89 times in the previous year. The net cash accruals to total debt (NCA/TD) stood healthy at 0.40 times in FY2022 (Prov.) as compared to 0.35 times in the previous year. Going forward, Acuité believes the financial risk profile of the group will remain comfortable on account of steady net cash accruals and no major debt funded capex plan over the near term.

­Working capital intensive nature of operation –
The working capital management of the group is marked by high gross current asset (GCA) days of 123 days in FY2022 (Prov.) as compared to 150 days in the previous year. The inventory days of the group stood comfortable at 17 days in FY2022 (Prov.) as compared to 41 days in the previous year. The debtor days of the group also stood comfortable at 39 days in FY2022 (Prov.) as compared to 51 days in the previous year. However, this high GCA days mainly emanates from the high other current asset in FY2022 (Prov.), which mainly consisting of loans and advances to related parties, advance tax paid, advance for raw materials, GST receivables and among others. Acuité believes any further elongation in working capital would be a key rating sensitivity factor.

Significant non-core investments adversely impact the liquidity profile and increase dependence on external debt –
The group has sizeable non-core investments in group entities and other corporates of Rs. 32.02 crore as on 31^st March 2022 (Prov.) as against of Rs.14.63 crore in the previous year. The group has been regularly investing in group companies yielding negligible return and increasing reliance on external debt. Going forward, any incremental investments leading to increased short term debt would be monitored by Acuite and hence Debt/Adjusted Networth beyond unity could have a downward bias in the rating.