By Mitali Dalvi

India Ratings and Research (Ind-Ra) has downgraded Camex Limited’s Long-Term Issuer Rating to ‘IND BB-’ 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

Fund-based working capital limits

-

-

-

INR145

IND BB-/Stable/IND A4+

Long-term rating downgraded; Short-term rating affirmed

Non-fund-based working capital limits

-

-

-

INR100

IND A4+

Affirmed

Analytical Approach: Ind-Ra continues to take a consolidated view of Camex Limited and its 100% subsidiary Camex HK Limited as both companies operate in the same line of business.

The downgrade reflects deterioration in Camex’s EBITDA margins in FY21 and its gross coverage declining below 2x in 6MFY22, thereby breaching the negative sensitivities.

KEY RATING DRIVERS

The downgrade reflects a contraction in Camex’s EBITDA margin to 1.95% in FY21 (FY20: 2.68%) owing to an increase in the cost of traded goods and forex currency fluctuation. The company’s absolute EBITDA deteriorated to INR29.31 million in FY21 (FY20: INR35.35 million) and its return on capital employed stood flat at 5%. Ind-Ra expects the margin to continue to be modest due to the increasing prices of trading goods (dyes, chemicals, aluminium and steel scrap). In 6MFY22, the margin further contracted to 1.01% (6MFY21: 1.02%) due to a further increase in the cost of goods to 92.04% (6MFY21: 91.3%).

The ratings factor in Camex’s weak credit metrics. The company’s gross interest coverage deteriorated to 1.37x in 6MFY22 (FY21: 4.25x; FY20: 4.16x) due to an increase in interest expenses to INR5.18 million (INR6.89 million; INR8.49 million,6MFY21: INR1.01 million). The company’s gross interest coverage marginally improved yoy in FY21 owing to a decrease in interest expenses, due to low utilisation of working capital limits during the year. The net leverage (total adjusted net debt/operating EBITDA) deteriorated to 6.21x in FY21 (FY20: 0.92x) due to the infusion of unsecured loans from group company; however, these unsecured loans were fully repaid by 30 September 2021. The unsecured loans are interest bearing and Camex avails and repays the unsecured loans, as per its requirement. Ind-Ra expects the credit metrics to continue to be weak due to modest profitability.

The ratings factor in Camex's continued small scale of operations. The consolidated revenue increased to INR1,501.69 million in FY21 (FY20: INR1,319.20 million), owing to increased domestic sales of trading nature. Camex commenced an additional trading segment of metals (aluminum and steel scrap) in FY21, and the same contributed 26.62% to total revenue. In 6MFY22, Camex booked revenue of INR704.92 million (6MFY21: INR508.28 million). Ind-Ra expects FY22 revenue to be in line with FY21. Camex’s standalone revenue increased to INR1,425.34 million in FY21 (FY20: INR1,225 million). Its margin contracted to 1.93% in FY21 (FY20: 2.59%) and the absolute EBITDA to INR27.45 million (INR31.78 million). The gross interest coverage improved to 4.6x in FY21 (FY20: 4.02x) and net leverage to 6.61x (1.02x).

Liquidity Indicator - Stretched: The cash flow from operations turned negative to INR140.51 million in FY21 (FY20: INR106.66 million) on account of an increase in working capital requirement, leading to the free cash flow turning negative to INR142.55 million (INR104.45 million). The working capital days elongated to 76 days in FY21 (FY20: 67 days) due to an increase in receivable days to 102 (85). The company’s cash and cash equivalents were low at INR3.88 million at FYE21 (FYE20: INR4.33 million). The peak average utilisation of fund-based working capital limits were 52.83% and non-fund-based working capital limits were 71.44% for 12 months ended September 2021. Camex did not avail of the Reserve Bank of India-prescribed moratorium over March-August 2020. Currently, Camex does not have any term loans and no major debt-led capex plans in the near term.

The ratings, however,  remain supported by the company’s managing director’s experience of more than three decades in the chemicals industry.


RATING SENSITIVITIES

Negative: A decline in the EBITDA margins, leading to the interest coverage sustaining below 1.5x in FY22 and further deterioration in liquidity position, on a sustained basis would be negative for the ratings.

Positive: An improvement in the scale of operations along with the EBITDA margins, and improvement in liquidity position, on a sustained basis, would be positive for the ratings.


COMPANY PROFILE

Camex incorporated in 1989 is promoted by Chandraprakash Chopra and family. The company is engaged in the manufacturing and trading of reactive dyes, intermediates, pigments and speciality chemicals used in the textile industry. In FY21, Camex commenced the trading of aluminum and scrap steel.

FINANCIAL SUMMARY

Particulars (Consolidated)

6MFY22

FY21

FY20

Revenue (INR million)

704.92

1,501.69

1,319.20

EBITDA (INR million)

7.10

29.31

35.35

EBITDA margin (%)

1.01

1.95

2.68

Gross interest coverage (x)

1.37

4.25

4.16

Net leverage (x)

-

6.21

0.92

Source: Camex, Ind-Ra


RATING HISTORY

Instrument Type

Current Rating/Outlook

Historical Rating/Outlook/Rating Watch

Rating Type

Rated Limits (million)

Rating

8 October 2020

11 February 2020

18 September 2019

Issuer rating

Long-term

-

IND BB-/Stable

IND BB/Stable

IND BB+/RWN

IND BB+/Stable

Fund-based working capital limits

Long-term/Short-term

INR145

IND BB-/Stable/IND A4+

IND BB/Stable/IND A4+

IND BB+/RWN/IND A4+/RWN

IND BB+/Stable/IND A4+

Non-fund-based working capital limits

Short-term

INR100

IND A4+

IND A4+

IND A4+/RWN

IND A4+


COMPLEXITY LEVEL OF INSTRUMENTS

Instrument Type

Complexity Indicator

Fund-based working capital limits

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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Applicable Criteria

Analyst Names

  • Primary Analyst

    Mitali Dalvi

    Analyst
    India Ratings and Research Pvt Ltd Wockhardt Towers, 4th Floor, West Wing, Bandra Kurla Complex, Bandra East,Mumbai - 400051
    022 40356133

    Media Relation

    Ankur Dahiya

    Manager – Corporate Communication
    +91 22 40356121