India Ratings and Research (Ind-Ra) has assigned Camlin Fine Sciences (CFSL) a long-Term Issuer Rating of 'IND A'. The outlook is stable.
Ind-Ra has taken a consolidated view of CFSL and its subsidiaries for arriving at the ratings because of the strong and operating linkages between them. CFSL operates through two divisions - food ingredients and industrial ingredients. The company has a dominant market position in the global food grade antioxidants industry with a 45% market share. CFSL's exports accounted for 77% of its revenue in FY15.
The contribution of performance chemicals in the total revenue increased to 26% in FY15 from 15% in FY11 as CFSL developed technology for downstream products such as tertiary butyl catechol, guaiacol, mono-methyl ether hydroquinone, vanillin and veratrole.
CFSL's revenue grew at a CAGR of 34% through FY12-FY15 to Rs 5,583 million while EBITDA margins increased to 15.1% from 8.7%. The company's main raw material hydroquinone is manufactured by only four producers in the global market. During March 2011, CFSL acquired a leading hydroquinone producer - Borregaard, Italy S.P.A - for USD3.5m. This company is now known as CFS Europe. This acquisition enabled CFSL to achieve a regular supply of the raw material and technology to produce downstream products. During FY15, CFSL set up a blend facility for forward integration.
CFSL is planning to incur capex of Rs 1,900 million in FY16 and FY17 to set up capacities for the production of vanillin (6,000MT), hydroquinone (9,000MT) and catechol (6,000MT) at Dahej (SEZ). The capex will be 70% debt funded. The company is in the advance stage of tying up funds for this facility and this capex is likely to be completed by September 2017. According to the management, the EBITDA margins are likely to improve further to around 19% post this capex. The new facilities will be located close to its existing facility at Tarapur and help the company in lowering the freight cost incurred on procuring raw materials from its European subsidiary. Post the commencement of production of hydroquinone, CFSL will be able to sell hydroquinone manufactured at its European subsidiary in the open market instead of captive consumption. Also, the downstream product catechol is used in the production of guaiacol at the Tarpur facility which will be used to produce vanillin.
CFSL's average maximum fund-based and non-fund-based utilisation was 63% and 89%, respectively, for the 12 months ended April 2014. Cash flow from operations has been positive for the last four years due to the strong operating profitability, despite a long working capital cycle due to a long inventory holding period. Net working capital cycle was 176 days at FYE15 (FYE14: 136 days). Free cash flow was negative in the last two years and is likely to remain so due to the on-going capex.
