The reaffirmation of rating factors in the managerial, operational and financial support, Catasynth Speciality Chemical Private Limited (CSCPL) derives from its promoter group, which has an established presence in the chemical industry.

CSCPL is a subsidiary of Anthea Aromatics Private Limited (AAPL; 75% stake) and Solvay Speciality and Plastic Holding (Solvay; 25%).

Solvay is a wholly-owned subsidiary of Solvay SA, which is rated at Baa2/stable/P-2 by Moody’s. ICRA notes the slower than expected ramp up in operations due to delays in stabilisation of operations and extended disruption caused by a fire accident in a key product unit in April 2021. This led to the company reporting an OI of Rs. 31.0 crore and Rs. 23.4 crore in FY2021 and H1 FY2022, respectively, while continuing to make operating losses. Nonetheless, there has been some traction in capacity utilisation in recent months and the production unit for piperonal, which was impacted by the accident, is expected to start operations by the end of the current fiscal.

The company has also applied for insurance claims and received around Rs. 10 crore in H1 FY2022. ICRA will be monitoring the timing and quantum of insurance receipts. However, support from promoters in the form of unsecured loans, conversion of part of unsecured loans into equity and fresh equity infusion in the current fiscal have supported the operations and debt servicing. Further, the company has also refinanced the term loans and availed additional bridge loans and working capital facilities to provide liquidity cushion and support reconstruction activity.

ICRA expects CSCPL to benefit from the established customer and distribution network, the technological knowhow and the moderate financial strength of the Anthea Group. The patented manufacturing process of CSCPL’s products has been developed in-house by AAPL and the intellectual property has been licensed to CSCPL for use in perpetuity. Moreover, the rating also considers CSCPL having a sales and supply arrangement in place with Solvay, which provides comfort in terms of quality raw materials and marketing support.

The company’s strong linkage with its parents strengthens ICRA’s assumption that CSCPL will receive timely and adequate support (both financial and operational) from its parent as and when required.

The rating is, however, constrained by the nascent stage of the company’s operations and disruption caused by the fire accident and the risks related to stabilisation of operations as per expected parameters. ICRA notes that the company’s credit profile hinges on timely stabilisation and requisite support from its parent, in case of any cash flow mismatches.

The rating also remains constrained by the vulnerability of profit margin to fluctuation in raw material prices, foreign currency exchange rates and competition from the large established national and international players. Achieving healthy capacity utilization levels with commensurate returns, through desired scaling up to a reasonable size, would remain a key sensitivity factor.