Hindprakash Chemicals Pvt. Ltd. (erstwhile Hindprakash Tradelink Pvt. Ltd.)

Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 168.40 Crs. of Hindprakash Chemicals Pvt. Ltd. (erstwhile Hindprakash Tradelink Pvt. Ltd.)

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
	Previous	Present		Previous (23 Jul 2021)	Present
Fund Based	88.40	127.15	Long Term	BWR BBB+/Stable Reaffirmation	BWR BBB + /Stable Reaffirmation
	(22.00)	(22.00)	Short Term	BWR A2 Upgrade	BWR A2 Reaffirmation
	(7.00)	(7.00)
	(9.00)	(0.00)
	(5.50)	(5.50)
	(6.00)	(6.00)
	(2.50)	(2.50)
	(3.50)	(3.50)
Non Fund Based	40.00	41.25	Short Term	BWR A2 Upgrade	BWR A2 Reaffirmation
	(4.00)	(4.00)
	(0.75)	(0.75)
Grand Total	128.40	168.40	(Rupees One Hundred Sixty Eight Crores and Forty lakhs Only)

#Please refer to BWR website www.brickworkratings.com for definition of the ratings
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure

RATING ACTION / OUTLOOK

The company continues to benefit from the established market position in the chemical industry, experienced promoters, location advantage at Kandla Special Economic Zone, comfortable financial risk, and liquidity risk profile. The company also benefits from the funding support of the promoters in the form of unsecured loans. 

The ratings, however, are constrained by the exposure of the company’s profitability to volatility in raw material prices & forex rate, and the company’s presence in a highly competitive and fragmented nature of the chemical industry. The rating also considers the exposure to industry risk related to the requirement of continuous adherence to regulatory compliance to pollution control norms.

Outlook: Stable

The “Stable” outlook reflects BWR’s expectations that HCPL will maintain a stable business and credit profile supported by the company’s established presence in the chemical industry, comfortable financial risk profile, and stable demand outlook.

 

 

KEY RATING DRIVERS

Credit Strengths:

• Established market position and experienced promoters :

  The company has an established track record of operations of around three decades in the chemical industry.  HCPL is the flagship company of the Ahemdabad-based “Hindprakash group” engaged in manufacturing and trading various kinds of dye intermediates, multi-utility dyes, bulk chemicals, and textile auxiliaries for over three decades.  The group is promoted by Mr. Sanjay Prakash Mangal along with family members. The management of the company is handled by Mr. Sanjay Prakash Mangal and Mr. Santosh N. Nambiar who possess more than two decades of experience in the chemical trading and manufacturing business. The company has been able to diversify its product portfolio and establish strong relationships with customers as well as suppliers due to experienced promoters and management.

   

• Location-specific advantage :

  The company has two modern warehouses with a cumulative capacity of around 200000 sq. ft. and the same is located at Kandla Economic Zone, (KASEZ), Gandhidham, Gujarat.  The location of the warehouses provides easy access to transportation facilities along with bulk buying and timely delivery of goods. The location also provides a competitive advantage in terms of raw material procurement and proximity to major consumption centers including Maharashtra and Gujarat thereby considerably reducing the freight cost for the company. The company also undertakes quality testing at its laboratory to meet the quality requirements of its customers.

• Above average financial risk profile :

  The company’s financial risk profile is comfortable marked by modest tangible networth of Rs.107.75 crores as on 31st March 2022 and gearing of 1.05 times as compared to Rs. 93.54 crores and 0.59 times in the previous year. Further, the debt service coverage ratio is comfortable as the ISCR stood at 2.33 times and DSCR at 1.54 times in FY2022. The financial risk profile of the company is also supported by the unsecured loans from related parties to the tune of Rs. 25.84 crores as on 31st March 2022 which is subordinated to bank debt. The company is presently undertaking capital expenditure plans with estimated cost of Rs. 51.64 crores which is expected to funded through term loan of Rs. 27.50 crores and remaining Rs. 24.14 crores through internal accruals and unsecured loans from promoters. However, the capital expenditure plan is not expected to have any adverse impact on the company’s financial risk profile. 

  Going forward, the financial risk profile of the company is expected to remain comfortable with steady growth in net cash accruals and the absence of amajorly debt-funded capital expenditure plan over the near to medium term.

   

Credit Risks:

• Exposure to risk related to the requirement of continuous adherence to regulatory compliance to pollution control norms :

  The company presently derives the majority of its revenue i.e. around 99 percent only from the trading of dyes & intermediates hence the pollution control norms are not applicable to the company. However, the company plans to set up a unit for manufacturing chemicals by the end of FY2023. Hence the company’s operations shall be susceptible to risk related to the requirement of continuous adherence to regulatory compliance to pollution control norms. The company plans to apply for the pollution control certificate once the manufacturing unit is set-up. 

   

• Thin profitability margin and same is susceptibility to volatility in commodity prices and foreign exchange rate :

  The company has reported lean operating profit margin at 2.46 percent for FY2022 as against 2.30 percent in FY2021 mainly on account of trading nature of operation with limited value addition. Also, the prices of the key products offered by dyes & dyes intermediates, H-Acid, Parabase, Liquid chemicals, sulphur derivatives and other products are mainly derivatives of crude oil. Hence, the prices of the products are directly proportional to the international crude oil prices which makes the company’s profitability to volatility in crude oil prices. Further, the company sources its materials both from domestic as well as international market with asian countries being its major source of imports. Although the company exports its products to international market it is very small portion of the total sales.Hence, the company’s profitability is susceptible to adverse movement in foreign exchange rate in the absence of adequate hedging policy. However, the company undertakes 100 percent hedging of the foreign currency expsoure through forward contracts; thereby mitigating the rate fluctuation risk to a major extent. 

   

• Presence in a competitive and fragmented dye industry industry :

  The dye intermediate industry is highly fragmented with presence of large numbers of organised and unorganized players which has led to intense competition in the industry and limited bargaining power. 

   

ANALYTICAL APPROACH - Standalone

For arriving at its ratings, BWR has applied its rating methodology as detailed in the Rating Criteria detailed below(hyperlinks provided at the end of this rationale). BWR has principally relied upon the standalone audited financials up to FY22, publicly available information, and clarification/information provided by the Company.

RATING SENSITIVITIES

Going forward the Company’s ability to improve its scale of operations, profitability, and liquidity profile will be the key rating sensitivities.

Positive:

The rating may be upgraded if the company reports significant improvement in operating income and profitability while maintaining a comfortable liquidity position

Negative:

The rating may be downgraded if the company reports a significant decline in operating income and profitability leading to deterioration in debt coverage indicators and the liquidity profile of the Company.
The rating may be downgraded if the company does not complete the ongoing capital expenditure plan within the estimated cost and timeline resulting in deterioration of the company's financial risk and liquidity profile.

LIQUIDITY INDICATORS - Adequate

The company has reported a decline in net cash accruals from Rs.13.01 crores in FY 2021 to Rs. 11.99 crores in FY 2022 and against debt obligations of Rs. 4.60 crores for FY2022. The current ratio stood at 1.19 times as on 31st March 2022. Further, the company’s average working capital limit utilization stood at around 84 percent for the period from April 2022 to September 2022. The company has also applied for a term loan of Rs. 27.50 crores for CAPEX purposes and a cash credit of Rs.7.50 crores and is expected to be sanctioned by end of November 2022. The cash and cash equivalents stood at Rs. 6.08 crores as on 31st March 2022. Further, the company has a repayment obligation (including the proposed loan) of around Rs. 18.71 crores due over the next three years, and the same is expected to be met adequately through internal accruals. Also, the promoters of the company are expected to infuse funds in the form of unsecured loans to meet the ongoing capital expenditure and additional working capital requirements.  

 

ABOUT THE ENTITY

Hindprakash Chemicals Private Limited [Erstwhile Hindprakash Tradelinks Private Limited] (HCPL or “the Company”) was incorporated in 1972 with a registered office in Ahmedabad. The company is engaged in the trading of dyes, intermediates, auxiliaries, chemicals, etc. The company has a pan-India presence and is one of the largest stockists of multi-application dyes and intermediates with the strategic locational advantage of the SEZ warehousing unit at Kandla Special Economic Zone, Gandhidham Gujarat. 

The company has various international connections for procuring and supplying products to some of the big international players. HCPL has started two units i.e. SEZ Trading Unit and SEZ Warehousing unit at Kandla Special Economic zone(KASEZ), Gandhidham Gujarat. Further, the company has also opened a Branch in Ras Al Khaimah Free Trade Zone, UAE. 

The company mainly sells to textile processing companies and factories. HCPL also provides auxiliary services including sourcing, logistics, laboratory testing, etc. The company has undertaken to manufacture of a chemical LABSA used in soaps & detergents with an installed capacity of 18000 metric tonnes per annum. 

The company is promoted by Mr. Om Prakash Mangal and his son Mr. Sanjayprakash Mangal along with other family members. Further, the day-to-day operations of the company are being handled by Mr. Sanjayprakash O. Mangal and Mr. Santosh Narayan Nambiar among others. The management has more than two decades of experience in the chemical industry. 

The company is the flagship company of the Hindprakash group engaged in the chemical business for the last eight decades. The group has been in the chemical business for more than three decades and is one of the largest trading houses in the country for dyes intermediates, textile auxiliaries, bulk chemicals, and multi-utility dyes. 

 

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 21-22 (Audited)	FY 20-21 (Audited)
Operating Revenue	Rs.Crs.	823.89	843.09
EBITDA	Rs.Crs.	20.23	19.42
PAT	Rs.Crs.	10.98	3.89
Tangible Net Worth	Rs.Crs.	107.75	93.54
Total Debt/TNW	Times	1.05	0.59
Current Ratio	Times	1.19	1.26

KEY COVENANTS OF THE FACILITY RATED

The terms of sanction include standard covenants normally stipulated for such facilities.

STATUS OF NON-COOPERATION WITH PREVIOUS CRA

Not Applicable

ANY OTHER INFORMATION

Not Applicable

RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)

Facilities	Current Rating (2022)			2021		2020		2019
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating
Fund Based	LT	127.15	BWR BBB+/Stable (Reaffirmation)	23Jul2021	BWR BBB+Stable (Reaffirmation)	17Apr2020	BWR BBB+Stable (Reaffirmation)	11Feb2019	BWR BBB+Stable (Reaffirmation)
FB SubLimit	LT	NA	NA	NA	NA	17Apr2020	BWR A3 (Reaffirmation)	NA	NA
Fund Based	ST	0.00	NA	NA	NA	NA	NA	11Feb2019	BWR A3 (Reaffirmation)
FB SubLimit	ST	(22.00)	BWR A2 (Reaffirmation)	23Jul2021	BWR A2 (Upgrade)	NA	NA	NA	NA
FB SubLimit	ST	(7.00)	BWR A2 (Reaffirmation)	NA	NA	NA	NA	NA	NA
FB SubLimit	ST	(5.50)	BWR A2 (Reaffirmation)	NA	NA	NA	NA	NA	NA
FB SubLimit	ST	(6.00)	BWR A2 (Reaffirmation)	NA	NA	NA	NA	NA	NA
FB SubLimit	ST	(2.50)	BWR A2 (Reaffirmation)	NA	NA	NA	NA	NA	NA
FB SubLimit	ST	(3.50)	BWR A2 (Reaffirmation)	NA	NA	NA	NA	NA	NA
Non Fund Based	ST	41.25	BWR A2 (Reaffirmation)	23Jul2021	BWR A2 (Upgrade)	17Apr2020	BWR A3 (Reaffirmation)	11Feb2019	BWR A3 (Reaffirmation)
NFB SubLimit	ST	(4.00)	BWR A2 (Reaffirmation)	23Jul2021	BWR A2 (Upgrade)	NA	NA	NA	NA
NFB SubLimit	ST	(0.75)	BWR A2 (Reaffirmation)	NA	NA	NA	NA	NA	NA
Grand Total		168.40	(Rupees One Hundred Sixty Eight Crores and Forty lakhs Only)

Rating Advisory, as on 04Aug2022
Press Release, as on 04Aug2022
As more than 12 months have elapsed since the last rating, a rating advisory is issued to inform that it has not been possible to review the rating within the stipulated time, mainly due to the non-receipt of essential information required for review. The rating review exercise will be carried out in due course.

COMPLEXITY LEVELS OF THE INSTRUMENTS - Simple

BWR complexity levels are meant for educating investors. The BWR complexity levels are available at www.brickworkratings.com / download / ComplexityLevels.pdf. Investors queries can be sent to info@brickworkratings.com.

Hyperlink/Reference to applicable Criteria

• General Criteria
• Approach to Financial Ratios
• Trading Entities
• Short Term Debt

Analytical Contacts
Shashikala Umanath Hegde Senior Ratings Analyst Board : +91 22 2831 1426, +91 22 2831 1439 shashikala.h@brickworkratings.com	Vidya Shankar Principal Director - Ratings Board : +91 80 4040 9940 vidyashankar@brickworkratings.com
1-860-425-2742 | media@brickworkratings.com

SL.No.	Name of the Bank/Lender	Type Of Facilities	Long Term(Rs.Crs.)	Short Term(Rs.Crs.)	Total(Rs.Crs.)
1	Central Bank of India	Cash Credit - Sanctioned	16.00	_	16.00
	Sub-Limit (EPC/FBD) - Sanctioned		(2.50)
	Sub-Limit (ILC/FLC) - Sanctioned		(6.00)
2	Central Bank of India	Cash Credit - Proposed	_	_	0.00
3	Central Bank of India	Cash Credit - Proposed	7.50	_	7.50
4	Central Bank of India	Bank Guarantee - Proposed	_	1.25	1.25
5	Central Bank of India	GECL - Sanctioned	1.29	_	1.29
6	Central Bank of India	GECL - Sanctioned	0.63	_	0.63
7	Central Bank of India	ILC/FLC - Sanctioned	_	12.15	12.15
	Sub-Limit (Forward Contract / LER) - Sanctioned		(0.75)
8	Central Bank of India	ILC/FLC - Proposed	_	_	0.00
9	Punjab National Bank	ILC/FLC - Sanctioned	_	11.00	11.00
	Sub-Limit (Forward Contract limit / LER) - Sanctioned		(3.50)
10	Punjab National Bank	GECL - Sanctioned	3.23	_	3.23
11	Punjab National Bank	GECL - Sanctioned	3.50	_	3.50
12	Punjab National Bank	Term Loan - Proposed	27.50	_	27.50
13	Punjab National Bank	Cash Credit - Sanctioned	34.00	_	34.00
	Sub-Limit (EPC/FBD) - Sanctioned		(7.00)
	Sub-Limit (ILC/FLC) - Sanctioned		(22.00)
14	State Bank Of India (SBI)	Cash Credit - Sanctioned	30.00	_	30.00
	Sub-Limit (EPC/ FBD) - Sanctioned		(5.50)
	Sub-Limit (ILC/FLC) - Sanctioned		(0.00)
15	State Bank Of India (SBI)	Cash Credit - Proposed	_	_	0.00
16	State Bank Of India (SBI)	GECL - Sanctioned	2.20	_	2.20
17	State Bank Of India (SBI)	GECL - Sanctioned	1.30	_	1.30
18	State Bank Of India (SBI)	ILC/FLC - Sanctioned	_	16.85	16.85
	Sub-Limit (Forward Contract/ LER) - Sanctioned		(4.00)
19	State Bank Of India (SBI)	ILC/FLC - Proposed	_	_	0.00
Total			127.15	41.25	168.40
TOTAL (Rupees One Hundred Sixty Eight Crores and Forty lakhs Only)