CRISIL?s ratings on the bank facilities of Amsal Chem Pvt Ltd (Amsal Chem) continue to reflect Amsal Chem?s weak financial risk profile marked by small net worth and large working capital requirements; and small scale of operations. These rating weaknesses are partially offset by Amsal Chem?s established customer relationships and strong track record in the drug manufacturing business.

Outlook: Stable

CRISIL believes that Amsal Chem will continue to benefit from its established customer relationships and strong track record in the drug manufacturing business over the medium term. The outlook may be revised to ?Positive? if Amsal Chem scales up its operations without weakening its capital structure and maintains its profitability, or if the promoters infuse fresh equity into the company. Conversely, the outlook may be revised to ?Negative? if the company?s operations get disrupted by adverse regulatory changes, or if the company undertakes larger-than-expected, debt-funded capital expenditure (capex) programme in the medium term.

Update

Amsal Chem?s operations were adversely affected in 2010-11 (refers to financial year, April 1 to March 31) because of increased stringency in pollution control norms in Ankleshwar (Gujarat). The company?s common effluent treatment plant at the location of its manufacturing unit was forced to operate at reduced levels to adhere to the new discharge norms. As a result, like all chemical units in the vicinity, Amsal Chem also had to scale down its operations, leading to its capacity utilisation dropping to about 50 per cent in the second half of 2010-11 from about 80 per cent. Consequently, the company?s sales declined by about 13 per cent to an estimated Rs.430 million in 2010-11 from Rs.492.3 million in 2009-10. Its operating margin sharply declined to around 8 per cent in 2010-11 from 11 per cent in 2009-10 because of sub-optimal utilisation of capacities. To overcome the problem, Amsal Chem is setting up an in-house effluent treatment plant (ETP) at a cost ofabout Rs.10 million, funded by internal accruals; the plant is expected to commence operations in June 2011.

Amsal Chem?s profit after tax (PAT) and net sales for 2010-11 are estimated at Rs.13.6 million and Rs.430.0 million respectively; it reported a PAT of Rs.13.6 million on net sales of Rs.499.4 million for 2009-10.