By Shivani Suvarna

India Ratings and Research (Ind-Ra) has assigned Yasho Industries Limited (YIL) a Long-Term Issuer Rating of ‘IND BBB’. 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

-

-

March 2026

INR423.54 (outstanding as of March 2021)

IND BBB/Stable

Assigned

Fund-based limits

-

-

-

INR1100

IND BBB/Stable/IND A2

Assigned

Non-fund-based limits

-

-

-

INR405

IND A2

Assigned

KEY RATING DRIVERS

Diversified Product Portfolio, Geographical Presence: YIL has 160 products in its portfolio, catering to the food antioxidants (14 products), aroma chemicals (35), rubber accelerators (64), lubricant additives (24) and specialty chemicals (23) segments. Of these, rubber accelerator and aroma chemicals contribute around 60% to YIL's revenue. Aroma chemicals and food antioxidants are highly competitive segments and offer low margins. Therefore, the company plans to enhance the revenue contribution of the other three segments, which generate an EBITDA of 18%-25%, from the existing levels of 55%. The management expects this share to increase to 65% in the near term.

Apart from sales to the domestic market, YIL exports its products to 42 countries across Europe, America, Middle East and Asia. Exports account for around 55% of the company’s total sales. YIL plans to increase its export exposure in the future.

Experienced Promoters: The promoter of the company has more than three decades of experience in the chemicals industry. Parag Jhaveri, the managing director of the company, and Yayesh Jhaveri, director, who oversee the day-to-day operations of the company, have experience of more than two decades in the industry.

Liquidity Indicator - Adequate: YIL's average utilisation of fund-based limits was 84% and that of non-fund-based limits was 73% for the 12 months ended February 2021. The working capital cycle elongated to 157 days in FY20 (FY19: 113 days), largely due to an increase in the inventory days to 129 (100). The company has a policy of maintaining around 2-3 months of inventory in hand. YIL's cash flow from operations declined to INR101.42 million in FY20 (FY19: INR363.2 million) due to unfavourable changes in the working capital cycle. Its free cash flow turned negative at INR178.2 million in FY20 (FY19: INR24.97 million) owing to the capex of INR279.6 million incurred for capacity expansion. In FY21, the company prepaid one of its term debts of INR110 million through its internal accruals. YIL had availed of the Reserve Bank of India-prescribed debt moratorium from March-May 2020 from one of its bankers. 

Medium Scale of Operations; Increasing Capacities to Drive Revenue Growth: YIL’s revenue fell 12.6% yoy to INR2,970.63 million in FY20, mainly due to a decrease in realisations during the year, primarily led by the demand-supply dynamics in the industry. Moreover, the sales volume declined marginally to 6,388 metric tonnes per annum (mtpa) in FY20 (FY19: 6,412mtpa).  In addition, the downturn in the automobile industry had resulted in lower demand in the rubber and lubricant segments.

Since FY18-FY19, YIL's capacity utilisation has been higher than 90%. Therefore, the company has been incurring capex to augment its capacity, which stood at 9,200mtpa in FY20 (FY18: 5,500mtpa). One of the units, with a capacity of 1,200mtpa, was commissioned at end-FY20 and the management expects its operations to ramp up completely from FY22. The benefits of the capex and a growth of 27.4% yoy in the sales volume to 2,180mtpa in 3QFY21 are likely to have helped the company’s revenue grow by an estimated 20.17% yoy to INR3,570 million in FY21.Ind-Ra believes that the complete ramping up of additional capacities would drive the company’s revenue growth in the future. 

Profitability Susceptible to Fluctuations in Raw Material Prices; To be Supported by Shift to High-Margin Segments: YIL’s margins are susceptible to sharp volatility in raw material prices, which are crude-based derivates and are affected by the demand-supply dynamics in the industry. The EBITDA margin rose to an average12.98% in FY20 (FY19: 10.79%) due to a decrease in costs, resulting from de-bottlenecking at its plants and increased penetration in the high-margin rubber, lubricant and specialty chemical segments. Moreover, the benefit of the decline in raw materials was not fully passed on to the customers. The ROCE was 14% in FY20 (FY19: 15%). YIL recorded a margin of 12.92% in 9MFY21; the company expects the margin to have improved on a yoy basis to 16% in FY21 on account of increased demand from the rubber and lubricant segment in 2HFY21. Over the long term, Ind-Ra expects the increased share of high-margin segments in the revenue to partially mitigate the impact of fluctuations in raw material prices.

Modest Credit Metrics: The net leverage (net adjusted debt/EBITDA) of the company deteriorated marginally to 4.36x (FY19: 4.08x) owing to an increase in short-term debt. The interest coverage (EBITDA/gross interest expense) improved to 2.49x in FY20 (FY19: 2.32x) on account of an increase in the absolute EBITDA to INR385.72 million (INR366.96 million). The metrics are likely to have improved in FY21 due to the likely improvement in the absolute EBITDA and prepayment of debt, with net leverage falling below3.5x and the interest coverage exceeding 2.5x. Ind-Ra expects the leverage to see a gradual improvement over the medium term, largely because of the complete ramp-up of the new unit in FY22, the pre-payment of debt and absence of any debt-led capex plans.

Exposed to Industry Cyclicality and Forex Risks: The automobile industry, which is the end-user for the rubber and lubricant segments, is highly cyclical and any slowdown in the sector could affect YIL’s profitability. As articulated in Ind-Ra's chemical outlook, companies catering to the auto, textiles and construction sectors and in the certain bulk commodities space are likely to witness a slow recovery cycle throughout FY22. However, YIL’s presence in other segments could partly mitigate this risk.

YIL is also exposed to forex risks, as exports constitute 55%-60% of its sales, and imports account for 50%-60% of its overall raw material costs. As informed by the management, the company partially hedges its exposure when required. However, the agency believes this might not be always sufficient to protect margins in the event of any sharp currency fluctuations. 


RATING SENSITIVITIES

Positive: A substantial increase in the scale of operations, leading to the interest coverage exceeding 3.5x, while maintaining the liquidity would be positive for the ratings.  

Negative: Further elongation in the working capital cycle or the interest coverage remaining below 2.5x would be negative for the ratings.


COMPANY PROFILE

Incorporated in 1985, YIL manufactures various chemicals such as aroma chemicals, food antioxidants, rubber chemicals, lubricant additives and specialty chemicals. It has a portfolio of 160 products. Vinod Jhaveri is the promoter of the company.

 

FINANCIAL SUMMARY

Particulars

FY20

FY19

Revenue (INR million)

2,970.63

3,400.59

EBITDA (INR million)

385.76

366.97

EBITDA margin (%)

12.9

10.7

Interest coverage (x)

2.49

2.32

Net leverage (x)

4.36

4.08

Source: YIL, Ind-Ra



COMPLEXITY LEVEL OF INSTRUMENTS

Instrument Type

Complexity

Term loan

Low

Fund-based limits

Low

Non-fund-based limits

Low

 

For details on the complexity level 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. 

Ind-Ra currently maintains coverage of corporate issuers, financial institutions (including banks and insurance companies), finance and leasing companies, managed funds, urban local bodies and project finance companies. 

Headquartered in Mumbai, Ind-Ra has seven branch offices located in Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad, Kolkata and Pune. Ind-Ra is recognised by the Securities and Exchange Board of India, the Reserve Bank of India and National Housing Bank. 

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For more information, visit www.indiaratings.co.in.

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Applicable Criteria

Analyst Names

  • Primary Analyst

    Shivani Suvarna

    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
    +91 22 40356172

    Media Relation

    Ankur Dahiya

    Manager – Corporate Communication
    +91 22 40356121