CRISIL upgrades ratings on KLJ Polymers & Chemicals
By: ICN Bureau
Last updated : March 06, 2018 8:18 pm
CRISIL has upgraded its ratings on the bank facilities of KLJ Polymers & Chemicals Ltd (KLJ Polymer, part of the KLJ group) to "˜CRISIL A/Stable/CRISIL A1' from "˜CRISIL A-/Stable/CRISIL A2+' and has assigned its "˜CRISIL A/Stable' to KLJ Po
CRISIL has upgraded its ratings on the bank facilities of KLJ Polymers & Chemicals Ltd (KLJ Polymer, part of the KLJ group) to "˜CRISIL A/Stable/CRISIL A1' from "˜CRISIL A-/Stable/CRISIL A2+' and has assigned its "˜CRISIL A/Stable' to KLJ Polymer's term loan facility.
The rating upgrade reflects CRISIL's belief that the KLJ group will maintain its improved financial profile, especially its financial flexibility, driven by the expected continuation of its strong cash accruals. The group's cash accruals are expected to remain strong over the medium term, despite the impact of the recent sharp rupee depreciation, driven by strong revenue growth momentum. The KLJ group registered strong cash accruals of Rs.1060 million in 2010-11 (refers to financial year. April 1 to March 31), improving from Rs.870 million in 2009-10, and were better than CRISIL's expectations. This has been driven by the group's strong growth in revenues of 43 per cent while it maintains its healthy operating margin at 11 per cent. The strong growth in its revenues and cash accruals has been driven by the group's ramp up in the trading business and also because of leveraging its strong ties with principal suppliers and customers in its manufacturing business. The KLJ group has maintained its strong revenue growth in the first five months of the current year, while maintaining its profitability margin. The upgrade also reflects CRISIL's belief that the financial support from the chemicals business to the promoters' real estate ventures will remain limited at around Rs.900 million over the medium term.
The ratings reflect the KLJ group's leadership in the plasticizer business with a good position in the compounding and trading industry, above-average operating efficiencies driven by port-based facilities, and strong relationships with suppliers, and its healthy financial risk profile marked by strong net worth, low gearing and comfortable debt protection metrics. These rating strengths are partially offset by the KLJ group's susceptibility to volatility in raw material prices and in the value of the Indian rupee, and working-capital-intensive operations.
For arriving at its ratings, CRISIL has combined the business and financial risk profiles of KLJ Plasticizers Ltd (KLJ Plasticizers), KLJ Organic Ltd (KLJ Organic), including those of its subsidiary KLJ Organic (Thailand) Ltd, KLJ Polymer, KLJ Resources Ltd (KLJ Resources), Silvassa Plast (merged with KLJ Plasticizer with effect from April 01, 2011), and KLJ Polyalloys (closed with effect from April 01, 2011), collectively referred to as the KLJ group. This is because all the entities have common promoters and management, are in the same line of business and have strong business and financial linkages. CRISIL has also factored in the funding support of up to Rs.900 million that may be provided by the group's chemical business to its real estate business. CRISIL, however, has not consolidated the KLJ group's promoters' real estate business in this rating exercise, as it is unrelated to the group's core chemicals business. Moreover, the KLJ group's management has a policy of not leveraging the chemicals business beyond a limit to fund its promoters' real estate business. Any additional funding support from the chemical business to the real estate business may lead to pressure on the group's credit risk profile.
CRISIL believes that the KLJ group will maintain its leadership in the plasticizer business, and its above-average operating efficiencies, over the medium term. The group's financial risk profile is expected to remain healthy during this period, supported by low gearing, strong net worth and comfortable debt protection measures. The outlook may be revised to "˜Positive' if the KLJ group reports higher-than-expected cash accruals because of ramp up in revenues and profitability while it limits its exposure to real estate ventures. Conversely, the outlook may be revised to "˜Negative' if there is more-than-expected pressure on the KLJ group's cash accruals because of volatility in raw material prices and foreign exchange rates, or if the group's capital structure weakens because of more-than-expected cash outflows to the real estate business.
First Published : October 18, 2011 12:00 am