Rationale
While arriving at the
rating, ICRA has considered the consolidated financials of Jayant Agro-Organics
Limited (JAOL, parent entity), three of its subsidiaries, viz. Ihsedu Agrochem
Private Limited (IAPL), Ihsedu Coreagri Services Private Limited (ICSPL) and
Ihsedu Itoh Green Chemicals Private Limited (IIGCMPL), as well as JAOL's share
in the joint venture (JV) company, Vithal Castor Polyols Private Limited
(VCPPL), on account of substantial operational and financial linkages among
them. These entities are collectively referred to here as the Jayant Group or
the Group. The ratings assigned to JAOL takes into account the extensive
experience of the promoters of over five decades in the castor oil industry and
the Jayant Group's leadership position in the castor oil and castor oil-based
derivatives business. The ratings factor in the Group's diversified product
portfolio catering to several end-user industries and the strategic tie-ups
that the Group has with a few reputed global chemical companies, assuring
long-term volume. The ratings also factor in the healthy net worth and
comfortable capital structure of the Group at a consolidated level. The rating
is, however, constrained by the exposure of the Group's profitability to
volatility in commodity prices. ICRA notes that the Group reported a net operating
loss of ~Rs. 80 crore at a consolidated level in Q3 FY2020 mainly attributable
to sharp decline in castor prices. However, the commodity prices have
stabilised over the past 12 months and the Jayant Group has reported stable
profitability of 5-6% at a consolidated level over the said period. The ratings
also factor in the counter-party risk as some of its customers failed to honour
committed contracts in FY2020, though mitigated to some extent by the
cashagainst-documents policy and other measures adopted for majority of its
customers. The ratings also take into consideration the moderate working
capital intensity of the Group due to relatively high raw material inventory
and the risks related to competition from substitute products. The Stable
outlook reflects ICRA's expectations that while the consolidated revenue for
the Group would be impacted by the adverse impact of the Covid-19 pandemic in
FY2021, the same should improve rapidly, mainly supported by its leadership
position in the castor oil industry.
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