Case Study 5 - Specialty Chemicals Manufacturer

  • Company Profile: Mid-sized specialty chemicals manufacturer, ₹750 crore revenues.
  • Repackaged strengths: long-term contracts, R&D intensity, export stability.
  • Trained promoters on sector-focused communication with CRA analysts.
Annual turnover
₹ 500 Cr
Strong EBITDA margin
0 %

Background

A mid-sized specialty chemicals manufacturer with revenues of ₹750 crore was seeking a formal credit rating to access term loans for capacity expansion. The company had strong financials — EBITDA margins above 18%, Debt/Equity at 0.9x, and DSCR around 1.6x. However, its business was niche, with a highly customized product portfolio catering mainly to pharmaceutical intermediates and export markets.

Challenge – First CRA Experience

The promoters approached a leading generalist CRA known for large corporate ratings. Unfortunately, the analytical team was less familiar with the specialty chemicals sub-sector. While the company’s numbers were solid, the CRA applied generic manufacturing benchmarks. Key strengths like Long-term contracts with pharma MNCs, High entry barriers due to technology licensing and Export-driven revenue stability were under-appreciated. The CRA issued a BBB– rating, barely investment grade, citing sector cyclicality and “limited scale compared to large chemical players

The company engaged us for a shadow rating exercise to understand the gap. Our analysis concluded that the issue wasn’t with business fundamentals but with CRA selection and sectoral understanding.

  • We Prepared a detailed sector benchmarking note highlighting how specialty chemicals differ from bulk chemicals, including higher margins and stronger customer stickiness.
  • We Identified two CRAs with specialized sector expertise, including one with a strong pharma/chemicals practice.
  • We repackaged business strengths into a CRA-friendly presentation, emphasizing long-term contracts, high R&D intensity, and export linkages.
  • We trained management on effectively communicating sector nuances to CRA analysts.

Outcome – Desired Rating Achieved

When the company approached the sector-specialist CRA with our support:

EBITDA stability, export contracts, and technology licensing were recognized as rating strengths.

Customer concentration was acknowledged but mitigated by long-term contracts.

Financial flexibility and liquidity metrics were given due weight.

This time, the company was assigned an A– rating, two notches higher than before. The stronger rating enabled them to secure ₹200 crore of term loans at 125 bps lower cost and positioned them favorably for potential IPO

Key Takeaway

Choosing the right rating agency is as important as financial performance. CRAs differ in sectoral expertise, methodology emphasis, and analytical perspective. Our well-planned advisory team helps identify which CRA is most aligned to a company’s business model, ensuring that strengths are properly recognized and the best possible rating outcome is achieved.

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