CRISIL has downgraded its ratings on the bank facilities of Chemspec Chemicals Pvt. Ltd. (Chemspec) to ‘CRISIL BBB-/Stable/CRISIL A3’ from ‘CRISIL BBB/Stable/CRISIL A3+’.

The downgrade reflects expectation of pressure on Chemspec’s debt protection metrics because of significant increase in its debt levels as a result of increase in its working capital requirement, its ongoing capital expenditure (capex) programme and a decline in its operating margin. Gearing increased to 1.17 times as on March 31, 2011 from 0.66 times a year ago; gearing was 1.21 times as on September 30th, 2011. Operating margin declined to 6.4 per cent in 2010-11 (refers to financial year, April 1 to March 31) from 10.7 per cent in 2009-10; operating margin was 7.6 per cent in the first half of 2011-12. The decline in operating margin has been primarily due to increase in raw material costs.

The ratings continue to reflect Chemspec’s established position as a supplier to leading fast-moving consumer good (FMCG) companies, and limited but established product portfolio. These rating strengths are partially offset by Chemspec’s highly working-capital-intensive operations and vulnerability of its profitability to volatility in raw material prices.