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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 0.70 | ACUITE BB+ | Stable | Assigned | - |
| Bank Loan Ratings | 7.32 | ACUITE BB+ | Stable | Reaffirmed | - |
| Bank Loan Ratings | 4.87 | - | ACUITE A4+ | Assigned |
| Bank Loan Ratings | 21.82 | - | ACUITE A4+ | Reaffirmed |
| Total Outstanding Quantum (Rs. Cr) | 34.71 | - | - |
| Total Withdrawn Quantum (Rs. Cr) | 0.00 | - | - |
| Rating Rationale |
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Acuité has reaffirmed and assigned the long-term rating of ‘ACUITE BB+’ (read as ACUITE double B plus) and the short-term rating of ‘ACUITE A4+’ (read as ACUITE A four plus) on the Rs. 34.71 crore bank facilities of Satyam Pharma Chem Private Limited (SPPL). The outlook is 'Stable'.
Reason for Reaffirmation The rating reaffirmation takes into account the qualified and experienced management, long track record of operations and reputed clientele with sustained operational performance expected in the future. SPPL’s ability to improve its scale of operations while maintaining its profitability will remain a key rating sensitivity. Going forward the company has plans to upgrade its product portfolio and increase more amount of exports in order to achieve higher sales. The aforesaid factors are underpinned by the competitive industry in which the company is operating alongwith the forex risk associated. The company's ability to improve it's operational performance with sustained profitability will remain key monitorable. |
| About the Company |
| SPPL incorporated in the year 1981, promoted by Mr. Navin J. Khokhani is engaged in manufacturing a wide range of inorganic metal based specialty chemicals such as acetates (salts of acetic acid), compounds (manganese), bismuth, selenium and among others which are caterer to industries such as Petrochemicals, Ceramics, Textiles, Pharmaceuticals and among others. It is an ISO 9001:2008 certified entity and has its manufacturing facility located at Rabale, Navi Mumbai. |
| Analytical Approach |
| Acuité has considered the standalone financial and business risk profile of SPPL to arrive at the rating. |
Key Rating Drivers
| Strengths |
| >Experienced management and established track record of operations SPPL is engaged in manufacturing a wide range of inorganic metal based specialty chemicals. It has an established operational track record of four decades. It is promoted by Mr. Navin J. Khokhani who possesses more than four decades of experience in the speciality chemicals industry. He is supported by his son Mr. Samit Khokhani and its qualified team of senior management in managing its business operations. The extensive experience of the promoters has enabled SPPL to establish a healthy relationship with its customers and suppliers. Acuité believes that SPPL will continue to benefit from its experienced management and established track record of operations. >Reputed clientele and Improved revenue while maintaining its profitability margins. SPPL has established long term relations with Reliance Industries Limited (39 years), Indian Oil Corporation (15 years), Kansai Nerolac Paints Ltd (10 years) BASF (15 years) and others. It is engaged in manufacturing research based customised products for these clients. This enables the company to benefit from repeat orders from its customers.The company reported revenues of Rs.74.19 crore for FY2022 as against Rs.30.35 crore for FY2021. The increase in revenue is on the account of the increase in volume of sales. The company has recorded revenue of Rs 41.08 crore till Sept 2022 . The operating margin of the company however stood low at 11.92 percent in FY2022 as against 16.72 percent in FY2021 since the raw materials were consumed more and therefore the cost of purchasing it was comparatively higher during the said period which has now improved to 15.58 percent in H1 of FY2023. Further, the company achieved higher net profit margin of 4.82 percent in FY2022 as against 2.65 percent in FY2021.The PAT margin of the company stood at 7.81 percent in H1 of FY2023. The company plans to introduce new range of products by next year and upgrade its existing product portfolio in order to increase more amount of exports for which its at a approval stage. >Moderate Financial risk profile SPPL’s financial risk profile is moderate marked by net worth of Rs. 20.50 as on 31 March 2022 as against Rs.16.92 crore as on 31 March, 2021.The improvement is on the account of accretion of reserves. The gearing (debt-equity) stood low at 0.98 times as on 31 March, 2022 as against 1.33 times as on 31 March, 2021. The total debt of Rs.20.06 crore as on 31 March, 2022 consists of long term bank borrowings of Rs.5.60 crore, unsecured loans from promoters of Rs.8.59 crore and short term working capital limit of Rs.5.87 crore. The interest coverage ratio stood comfortable at 3.36 times for FY2022 as against 2.18 times for FY2021 as against 3.67 times for FY2020. The DSCR stood at 2.20 times for FY2022 as compared to 1.05 times for FY2021 .The Net Cash Accruals to Total debt stood at 0.26 times as on FY2022 and 0.10 times for FY2021. The Total outside liabilities to Tangible net worth(TOL/TNW) stood at 1.91 times in FY2022 as against 1.97 times for FY2021. Acuité believes that SPPL’s financial risk profile is expected to improve on the back of its improving operating performance and no plans of significant debt funded capex plans. >Working capital management The company’s working capital operations are Efficient as compared to the previous year marked by Gross Current Assets (GCA) of 90 days for FY2022 as against 159 days for FY2021. This is primarily on account of well inventory management .The inventory days stood low at 34 days in FY2022 as against 88 days in FY2021. There is seen an improvement in companies debtors and creditors cycle as well. The debtors day stood at 51 days in FY2022 as against 88 days in FY2021 whereas the creditors stood at 122 days in FY2022 as against at 172 days in FY2021. The company offers credit period of upto 30 days to its domestic customers and upto 90 days to some of its export customers. On the other hand, it enjoys credit period of upto 90 days from its domestic suppliers and upto 180 days from its import suppliers. |
| Weaknesses |
| >Foreign exchange risk SPPL imports metals from China & Hongkong which constitutes ~69 percent of total purchases while other chemicals such as acids are purchased locally. Also it exports ~40 percent of its sales to Brazil, Mexico and Finland. The profitability of the company is exposed to fluctuation in the product prices as the same constitutes a significant portion of the total sales. The prices of the commodity fluctuate and are highly dependent on the demand and supply scenario in the global market. Hence, the margins of the SPPL are exposed to volatility in the foreign exchange rate. However the company tries to mitigate this risk using forward contracts. >Competitive and fragmented industry The inorganic chemicals industry is highly fragmented with the presence of both modest sized and large players across various product categories. SPPL is also a moderate sized player thereby limiting its bargaining power and susceptibility to pricing pressure is also higher compared to well-established and larger players. However, the company's presence of over four decades in the industry has enabled it to partially offset competitive pressures. Further, it undertakes regular research and development to improve its product offerings. This will help the company in improving its competitive position. |
| Rating Sensitivities |
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>Improving business risk profile and profitability >Efficient working capital management >Cyclicality associated with end-users of the industry and maintaining adequate liquidity. |
| Material covenants |
| None |
| Liquidity Position |
| Adequate |
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The company’s liquidity profile is adequate marked by adequate net cash accruals against its maturing debt obligations. The firm generated cash accruals of Rs. 5.15 Cr in FY2022 as against maturing debt obligation of 0.82 Cr in the same period . The firm maintains unencumbered cash and bank balances of Rs. 0.16 crore as on March 31, 2022 . Acuité believes that the liquidity of the SPPL is likely to remain adequate over the medium term on account of healthy cash accruals its debt obligations. |
| Outlook: Stable |
| Acuité believes that the outlook on SPPL's rated facilities will remain ‘Stable’ over the medium term on account of its promoter's extensive experience, moderate financial risk profile and established operational track record. The outlook may be revised to 'Positive' in case of substantial and sustained growth in revenue and profitability. Conversely, the outlook may be revised to negative in case lower than improvement in scale of operations or any elongation in working capital cycle leading to moderation in liquidity profile. |
| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 22 (Actual) | FY 21 (Actual) |
| Operating Income | Rs. Cr. | 74.19 | 30.35 |
| PAT | Rs. Cr. | 3.57 | 0.80 |
| PAT Margin | (%) | 4.82 | 2.65 |
| Total Debt/Tangible Net Worth | Times | 0.98 | 1.33 |
| PBDIT/Interest | Times | 3.36 | 2.18 |
| 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 • 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 |
| 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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