By Bhavana Mhavarkar

India Ratings and Research (Ind-Ra) has upgraded Visen Industries Limited’s (VIL) Long-Term Issuer Rating to ‘IND BBB-’ from ‘IND BB+’. The Outlook is Stable. The instrument-wise rating actions are as follows:

Instrument Type

Date of Issuance

Coupon Rate (%)

Maturity Date

Size of Issue (million)

Rating/Outlook

Rating Action

Term loan*

-

-

February 2026

INR818 (increased from INR750)

IND BBB-/ Stable

Upgraded

Non-fund-based working capital limits#

-

-

-

INR4,000 (reduced from INR4,150)

IND A3

Upgraded


*The term loan amount also includes Emergency Credit Line Guarantee Scheme 2.0 limits

#Includes an INR500 million of fund-based limits as a sub-limit of the non-fund-based working capital limit

Analytical Approach: Ind-Ra continues to take a consolidated view of VIL and its wholly owned Dubai-based subsidiary, Visen Polymers FZE (VP – Dubai site), to arrive at the ratings, due to their integrated nature of operation.

The rating upgrade reflects a stronger-than-expected recovery in volumes post COVID-19 and the better-than-expected profitability margins during 11MFY21, along with the likelihood of sustained recovery, basis stable crude oil prices, leading to the improved margins and credit profile, while improving the company’s overall liquidity position.

KEY RATING DRIVERS

Expected Revenue Growth supported by Improved Capacity Utilisation: The company reported a revenue of INR9,190 million during 11MFY21 (FY20: INR11,855 million), owing to around 10% yoy growth in revenue to INR3,319.8 million in 3QFY21. During the initial lockdown phase, the company could operate at only 33% (as of 1QFY21) of the capacity due to labour shortage and the unavailability of raw material from few sources; however, a gradual recovery has been seen July 2020 onwards and the domestic plant wise utilisation levels improved to around 75% of its yoy production over September 2020-February 2021 (the Dubai plant operated at 38%), supported by the market recovery as well as the pent-up demand from end-user segments such as paints.

VIL operated at 60% of its total capacity in FY20, up from 47%-57% earlier, owing to the ramping up of operations at its Chennai plant (FY20: 80%; FY19: 58%). The company usually requires end product approvals from its customers for bulk production; the same was underway until FY19 for Dubai based plant; hence, it was under-operating below 36% of its production capacity till FY19. However, in July 2019, the Dubai plant received end product approvals from its prominent customers; hence, an improvement in the production capacity utilisation was seen during FY20 (FY20: 42%; FY19: 31% of production capacity). Ind-Ra believes VIL is likely to have operated at a lower combined capacity utilisation of 50%-55% during FY21, due a weaker capacity utilisation of 46% during 1HFY21. Ind-Ra expects the capacity utilisation to grow to 60%-65% in FY22, basis sequential growth in capacity utilisation to 59% in 3QFY21, which is likely to sustain over the near term. The company's revenue base is also likely to grow about 15% yoy in FY22 with the improving pricing trend.

Sequential Improvement in Margins, likely to Sustain over the Near Term: VIL’s EBITDA margin improved to 15% in 11MFY21 (1HFY21: 10.1%, FY20: 3.7%, FY19: 2.2%), owing to the margins of 22.6% generated during 3QFY21, due to an increasing trend in the prices of end products and an improvement in the profitability of the Dubai operations. The prices of various raw materials such as styrene monomer, butyl acrylate as well as the average realisations of end products have bottomed out from May 2020, leading to a sequential growth in profitability during 2QFY21 and 3QFY21. The company’s margins were supported by the temporary inventory gains of about INR100 million to INR150 million during 9MFY21.

Improved Credit Metrics likely to Remain Moderate: VIL’s consolidated interest coverage (EBITDA/interest expenses) ratio improved to 3.4x during 11MFY21 (FY20: 1.0x, FY19: 0.8x), owing to increased EBITDA (11MFY21: INR1,380 million; FY20: INR439 million; FY19: INR272 million) due to reduced operating expenses and inventory gains. The net leverage (net adjusted debt/EBITDA) ratio is likely to have remained below 2.5x during FY21 (FY20: 5.3x) owing to improved operating profits. VIL is planning an exit from the Carlyle group (held a 31.2% stake in VIL at end-January 2021) by raising debt at its Dubai subsidiary. Ind-Ra will continue to monitor VIL’s debt position and credit metrics post the materialising of the event. The credit metrics are likely to improve further over the short term, due to an improvement in the profitability margins, along with a recovery in revenue; however, they are likely to remain moderate due to the company’s share buyback plans over the medium term.

Liquidity Indicator - Adequate: VIL’s average working capital utilisation was 75% during the 12 months ended February 2021. The company's net working capital cycle remained negative due to the high creditor days of 124 in FY20 (FY19: 137). VIL mostly uses non-fund-based limits in the form of letters of credit. The company’s receivables days increased to around 99 during 11MFY21 (FY20: 61); however, with the March 2021-month end collections, Ind-Ra expects, the receivable days to have reduced to around 70-75 at FYE21.

The company did not avail the Reserve Bank of India-prescribed restructuring in 3QFY21 due to a sharp recovery in operational performance. It has fully repaid the short-term loans/funded interest term loan availed on account of the moratorium obtained over March-August 2020. Furthermore, the company received liquidity support in the form of Emergency Credit Line Guarantee Scheme 2.0 COVID-19 loans of INR119.6 million for a tenor of 48 months, the repayment of which will start from March 2022. The company had scheduled repayment obligations of INR182 million in FY21 and INR327 million in FY22, as compared to the cash and cash equivalents of INR29 million at end-February 2021; the cash flow from operations is likely to be around INR550 million during FY22. With the improved EBITDA, VIL’s debt service coverage ratio is likely to be around 1.2x over FY22-FY23.

Crude Price Volatility Risk: The company's margins remain susceptible to fluctuations in raw material prices as they are crude oil derivatives. Generally, VIL enters into contracts with customers that stipulate price escalations based on the previous month’s raw material prices. Thus, VIL has a limited ability to pass on the fluctuations in raw material prices to end customers in case of a sharp increase in raw material prices.

Established Market Presence; Geographical Diversification: VIL has a vintage of 35 years in the Indian emulsion polymer industry, along with established ties with suppliers and customers. The company has been able to obtain repeat orders from large customers such as Asian Paints Limited, Berger Paints India Ltd, Jotun Paints and Kansai Nerolac Paints Limited. With the addition of plants in Chennai and Dubai, VIL has become one of the largest players in the Indian emulsion polymer industry, with a geographically diversified presence.

Standalone Financials: At a standalone level, the company’s EBITDA margins improved substantially to 13.9%, owing to favourable raw material prices (FY20: 1.6%; FY19: 2.1%, FY18: 4.7%) during 11MFY21. The interest coverage also improved to 3.5x (FY20: 0.5x; FY19: 0.8x) and the annualised net leverage improved to around 1.6x (7.6x; 6.5x) in 11MFY21. The company had cash & cash equivalent of INR2 million at end-11MFY21 (FYE20: INR24 million) with a gross debt of INR1,663 million (INR1,154 million). The increase in debt levels was to fund the growing working capital gap.


RATING SENSITIVITIES

Positive: A ramp-up in the operations, along with an improvement in the profitability and the overall liquidity position with the gross interest coverage being sustained above 3x, could lead to a positive rating action.

Negative: Developments that could, individually or collectively, lead to a negative rating action include:

-        any strain on the liquidity position, or a decline in the EBITDA margin, resulting in sustained deterioration in the credit metrics with the gross interest coverage reducing and sustaining below 2x

-        any unforeseen debt-funded capex or expansion in the working capital cycle leading to a substantial increase in the overall debt level without a commensurate rise in the profitability.


COMPANY PROFILE

Incorporated in 1985 and promoted by Vijay Nair, VIL manufactures polymer emulsions and trades industrial chemicals. The company has plants in Silvassa (60,000 metric tons per annum (mtpa)), Jammu (50,000mtpa), Tarapur (10,000mtpa), Chennai (60,000mtpa) and Dubai (120,000mtpa).

CONSOLIDATED FINANCIAL SUMMARY:

Particulars

11MFY21

FY20

FY19

Revenue (INR million)

9,190

11,855

12,884

EBITDA (INR million)

1,380

439

272

EBITDA margin (%)

15

3.7

2.1

PAT (INR million)

496

-84

-341

EBITDA interest coverage (x)

3.4

1.0

0.8

Net adjusted debt/EBITDA (x)

1.6*

5.3

9.3

Source: VIL, Ind-Ra, *annualised



RATING HISTORY

Instrument Type

Current Rating

Historical Rating/Outlook/Rating Watch

Rating Type

Rated Limits (million)

Rating/ Outlook

22 October 2020

15 April 2020

5 April 2019

11 January 2018

Issuer rating

Long-term

-

IND BBB-/Stable

IND BB+/Stable

IND BBB-/RWN

IND BBB/ Negative

IND BBB/Stable

Term loan

Long-term

INR818

IND BBB-/Stable

IND BB+/Stable

IND BBB-/RWN

IND BBB/ Negative

IND BBB/Stable

Non-fund-based working capital limits

Short-term

INR4,000

IND A3

IND A4+

IND A3/RWN

IND A2

IND A2



COMPLEXITY LEVEL OF INSTRUMENTS

Instrument Type

Complexity Indicator

Term loans

Low

Non-fund-based working capital limits

Low

 
For details on the complexity levels of the instruments, please visit https://www.indiaratings.co.in/complexity-indicators.

 

SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings. 

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

ABOUT INDIA RATINGS AND RESEARCH

About India Ratings and Research: India Ratings and Research (Ind-Ra) is India's most respected credit rating agency committed to providing India's credit markets accurate, timely and prospective credit opinions. Built on a foundation of independent thinking, rigorous analytics, and an open and balanced approach towards credit research, Ind-Ra has grown rapidly during the past decade, gaining significant market presence in India's fixed income market. 

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Analyst Names

  • Primary Analyst

    Bhavana Mhavarkar

    Senior Analyst
    India Ratings and Research Pvt Ltd Wockhardt Towers, 4th floor, West Wing Plot C-2, G Block. Bandra Kurla Complex Bandra (East), Mumbai 400051
    022 40356167

    Media Relation

    Ankur Dahiya

    Manager – Corporate Communication
    +91 22 40356121