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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 10.00 | ACUITE BB- | Stable | Assigned | - |
| Total Outstanding Quantum (Rs. Cr) | 10.00 | - | - |
| Total Withdrawn Quantum (Rs. Cr) | 0.00 | - | - |
| Rating Rationale |
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ACUITE has assigned its long term rating of 'ACUITE BB-' (read as ACUITE double B minus) on the Rs.10 Crore bank facilities of Pharmachem Industries Gujarat Private Limited (PIGPL). The outlook is 'Stable'.
Rationale for Rating The rating assigned reflects the extensive experience of management along with established track records and improvement in revenue in FY 2022 to Rs 108.38 crore as against Rs 47.83 crore in previous year. However, the above mentioned strengths are constrained by the stretched working capital cycle of the company along with low margins and average financial risk profile of the company. |
| About the Company |
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Gujarat based Pharmachem Industries Gujarat Private Limited was incorporated in 1995. The company is engaged in the business of manufacturing specialty chemicals. Currently the company is being handled by Mr. Bhaskar Mansukhlal Parekh, Mr. Chirag Bhaskar Parekh and Mr. Lalsingh Kanwal.
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| Analytical Approach |
| Acuité has considered the standalone business and financial risk profile of PIGPL to arrive at this rating. |
Key Rating Drivers
| Strengths |
| Established track record along with experienced management
The PIGPL has an establish track record of more than 27 years in the manufacturing of specialty chemicals.The Directors of the company Mr. Bhaskar Parekh, Mr.Chirag Parekh and Mr. Lalsing Kanwal has vast experience in the aforementioned line of business. The experience of the management has helped the company to maintain a longstanding relationship with its customers and suppliers. Acuite believes that PIGPL will continue to benefit from its experienced management alongwith longstanding relationship with customers and suppliers. Growth in scale of operations The company has registered a revenue of Rs.108.38 Crore in FY22 against Rs.47.83 Crore in FY21. In FY22 the sales have increased on an account of increased capacity from 250 tons to 500 tons on monthly basis. The company has faced slowdown in sales in FY 21 due to pandemic but on the other hand, company has registered exceptional EBITDA margin at 7.12% on an account of manufacturing of sanitization product on a contract basis. However, PIGPL earned low operating margins at 2.06% in FY22 due to fluctuation in raw material prices as compared to EBITDA margin at 4.14% in FY20. Currently, the company is running on 65% capacity and is aiming to increase its capacity to 95% in succeeding years. Further, company has achieved a turnover of around Rs.100.39 Crore till November. Acuite believes that revenue of the company may further improve going forward with an increased capacity utilization.
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| Weaknesses |
| Working capital intensive operations
The working capital operations of the company are intensive marked by gross current assets(GCA) days of 62 days in FY2022 against 67 days in FY2021.The decline in GCA Days are on account of decrease in inventory days from 51 days to 25 days which were high on an account of pandemic. Further, the creditor days of the company is at 118 days in FY2022 as against 102 days in FY2021 consists sundry creditors for capital goods for the sake of expansion. Acuite believes that working capital operations of the company may continue to remain intensive considering the nature of business. Moderate Financial Risk Profile The financial risk profile of the company is moderate marked by net worth of Rs.5.01crore in FY22 against Rs.4.19 crore in FY21 on an account of retention of profit in business. The total debt of the company in FY22 stood at Rs.11.50 Crore resulting in high gearing ratio of 2.30 times. Further the coverage indicators of the company remained average over the years with DSCR and ICR at 2.26 times and 4.93 times in FY22 respectively against 1.00 times and 1.58 times in FY21 respectively. Acuité expects that the debt coverage profile of the company will improve on the back of improved turnover and margins in the medium term. Volatility in Raw Material Prices The chemical industry is struggling with high volatility in raw material costs which can impact the margins and overall profitability of the company to an extent. However, the ability to pass on volatilities can help the company to mitigate this ongoing risk associated with the business. |
| Rating Sensitivities |
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| Material covenants |
| None. |
| Liquidity Position |
| Adequate |
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The liquidity profile of the company is adequate and marked by net cash accruals of Rs. 1.69 Crore against the debt repayment obligation of Rs.0.46 Crore in the same period. The company is expected to generate a net cash accruals under the range of Rs.2.5 Crore going forward against the maturing debt obligations in the range of Rs. 1.5 Crore during the same tenure. However, the current ratio of the company remains below unity at 0.74 times in FY 2022 as against 0.65 times in FY 2021. The company is having an overdraft facility against the inventories and book debts with an average utilisation at 70%.
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| Outlook: Stable |
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Acuité believes that PIGPL will maintain a ‘Stable’ outlook and will continue to derive benefit over the medium term due to its extensive experience of promoters, adequate financial risk profile and healthy revenue visibility due to new in-house structure set up by them. The outlook may be revised to ‘Positive’, if the company demonstrates substantial and sustained growth in its revenues from the current levels while maintaining its capital structure. Conversely, the outlook may be revised to ‘Negative’ if the company generates lowerthananticipated cash accruals, most likely due to significant debt-funded capex or any significant withdrawal of capital, thereby impacting its financial risk profile, particularly its liquidity.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 22 (Actual) | FY 21 (Actual) |
| Operating Income | Rs. Cr. | 108.38 | 47.83 |
| PAT | Rs. Cr. | 0.82 | 0.55 |
| PAT Margin | (%) | 0.76 | 1.16 |
| Total Debt/Tangible Net Worth | Times | 2.30 | 0.91 |
| PBDIT/Interest | Times | 4.93 | 1.58 |
| Status of non-cooperation with previous CRA (if applicable) |
| None |
| Any other information |
| None |
| Applicable Criteria |
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• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Entities In Manufacturing Sector:- https://www.acuite.in/view-rating-criteria-59.htm • Manufacturing Entities: https://www.acuite.in/view-rating-criteria-59.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm |
| Note on complexity levels of the rated instrument |
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In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuite’ s categorisation of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow patterns, number of counterparties and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Rating Criteria “Complexity Level Of Financial Instruments” on www.acuite.in.
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| Rating History : |
| Not Applicable |
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