CRISIL's ratings on Sud-Chemie India Pvt Ltd's (Sud Chemie India?s) short-term debt programme and bank facilities continue to reflect Sud Chemie India?s strong joint venture (JV) tie-up with Sud Chemie AG (SCAG), Germany, Sud Chemie India?s diversified customer profile, and strong financial risk profile marked by healthy cash flow generation and capital structure. These rating strengths are partially offset by the company?s large working capital requirements and its susceptibility to adverse changes in raw material prices and decline in demand from end-user industries.

Sud Chemie India continues to receive strong business support from its 50 per cent JV partner, SCAG. Sud Chemie India has benefited from being one of the low-cost manufacturers of high-quality catalysts within the SCAG group. Sud Chemie India?s revenues increased at a compound annual growth rate (CAGR) of around 30 per cent during the past five years, primarily because of the growth in export revenues from the SCAG group companies. The diversity in end-user customer profile also cushions Sud Chemie India from the impact of a downturn in any particular industry. CRISIL believes that Sud Chemie India?s revenue growth will be stable over the medium term because of sustained off-take by group companies, healthy growth in orders from the third parties, and strong growth in the company?s nascent trading operations in India.

Sud Chemie India?s has successfully maintained its strong capital structure in 2009-10 (refers to financial year, April 1 to March 31), with a low gearing of 0.02 times as on March 31, 2010, supported by healthy operating profitability which enables the company to fund its incremental working capital requirements and capital expenditure (capex) through internal accruals. Operating margin improved to 32.7 per cent in 2009-10 from 29.5 per cent in 2008-09. Debt protection metrics in 2009-10, too, were strong, supported by the low debt levels. The debt protection metrics are expected to remain strong over the medium term. CRISIL also expects Sud Chemie India to rely on internal accruals and existing liquid investments and cash balances for funding its incremental working capital requirements and capex. As on November 30, 2010 the company had liquid investments and unencumbered cash balances of close to Rs.630 million. CRISIL believes that Sud Chemie India?s cash accruals will remain healthy over the medium term; in the unlikely case of any financial exigency the company will be in a position to sell its investments to meet the shortfall.

However, Sud Chemie India?s operations continue to be highly working capital intensive. Furthermore, its margins remain susceptible to volatility in metal prices.

Outlook: Positive

CRISIL believes that Sud Chemie India will generate healthy cash accruals on the back of steady revenue growth and improvement in operating margin over the medium term. The company?s financial risk profile is expected to remain robust because of its strong liquidity and low gearing. The ratings may be upgraded if Sud Chemie India sustains its revenue growth while maintaining its operating profitability and capital structure. Conversely, the outlook may be revised to ?Stable? if the company undertakes a larger-than-expected debt-funded capex programme, thereby weakening its financial risk profile.