CRISIL has upgraded its ratings on the bank facilities of Ihsedu Speciality Chemicals Pvt Ltd (ISCPL) to ‘CRISIL BBB/Stable/CRISIL A3+’ from ‘CRISIL BB/Stable/CRISIL A4+’.

The upgrade follows the proposed merger of ISCPL with its parent, Jayant Agro-Organics Ltd (JAOL). In August 2011, JAOL purchased the Mitsui group’s entire equity stake in ISCPL, thereby making ISCPL its fully owned subsidiary. JAOL has extended financial support to ISCPL on a timely basis, and CRISIL expects that this support will continue till the entities get merged. The upgrade also factors in the commissioning of ISCPL’s sebacic acid manufacturing project in December 2011.

The ratings continue to reflect the Jayant group’s leadership position in castor oil and castor-oil-based derivatives business, supported by its promoters’ longstanding industry experience, and the group’s healthy operational efficiencies, aided by its integrated operations and healthy working capital management. These rating strengths are partially offset by the group’s moderate financial risk profile, marked by modest operating margins, volatile working capital requirements, high gearing and susceptibility to risks related to stabilisation of operations at ISCPL.

To arrive at its ratings, CRISIL has combined the business and financial risk profiles of JAOL, and JAOL’s wholly owned subsidiaries, Ihsedu Agrochem Pvt Ltd (IAPL), Ihsedu CoreAgri Services Pvt Ltd (ICSPL) and ISCPL, and Ihsedu Itoh Green Chemicals Marketing Pvt Ltd (IIGCMPL; JAOL’s joint venture with Itoh Oil Chemicals Co Ltd). The entities are collectively referred to as the Jayant group. This is because all the group entities have significant operational and financial linkages with each other. JAOL has provided corporate guarantees for the bank facilities of ISCPL and IAPL.

Outlook: Stable

CRISIL believes that the Jayant group will maintain its healthy market position in the castor oil and castor-oil-based derivatives business over the medium term, supported by expected stabilisation of operations at ISCPL. The outlook may be revised to ‘Positive’ if the group demonstrates a track record of stable operations at its sebacic acid plant, coupled with a significant improvement in its capital structure, over the medium term. Conversely, the outlook may be revised to ‘Negative’ if the group undertakes a larger-than-expected debt-funded capital expenditure (capex) programme or if its working capital requirements increase beyond expectations, thereby adversely impacting its capital structure.