January 10, 2025

Aether Industries Limited: Ratings reaffirmed; rated amount enhanced

Summary of rating action
Previous Rated Current Rated
Instrument* Amount Amount Rating Action
(Rs. crore) (Rs. crore)
[ICRA]A+ (Stable); reaffirmed and assigned for enhanced
Long term - Fund-based - Cash credit 48.00 246.00
amount

Short term – Non-fund based - Letter

29.80 - -
of credit/Bank guarantee
Short term – Non-fund based –
(Interchangeable) Letter of credit/ - (246.00) [ICRA] A1; reaffirmed and assigned for enhanced amount
Bank guarantee
Long-term/Short-term - Fund
55.00 - -
based/Non-fund based

Total 132.80 246.00

*Instrument details are provided in Annexure-I

Rationale
The reaffirmation of the ratings of Aether Industries Limited (AIL) favourably factors in its track record in the speciality
chemicals business, the experience of its promoters, its strong R&D capabilities, a well-spread out product mix and a diversified
customer base comprising reputed companies in the domestic and export markets. The ratings also factor in the consistent
revenue growth posted by the company along with a healthy margin profile, with the operating margin remaining in the range
of 22-29% over the last few years owing to its well-differentiated product portfolio.

ICRA notes that a fire broke out on November 29, 2023, due to a blast in a storage tank. Plant 2 of site 2 was majorly damaged.
The Gujarat Pollution Control Board (GPCB) had issued a closure notice for the facility. In January 2024, the GPCB then revoked
the closure order for the unaffected areas and since then majority of the plant has become operational. The company has filed
a claim of Rs. 100 crore with its insurer, of which it has received an on-account payment of Rs. 21 crore against the loss of
assets.

ICRA also notes that AIL is a market leader in some of the products it deals in. Moreover, the company has raised sizeable
equity in the last two years (including the latest QIP of Rs. 750 crore in June 2023) to fund its growth and capex requirements.
This equity raise has also enabled the company to retire its debt, translating into strong capital structure and debt protection
metrics. However, over the last few months, the working capital requirements are being met by availing working capital
borrowings. The company is also planning another QIP that will help it fund its future capex requirements as well as meet the
regulatory requirements regarding promoter shareholding.
The company plans to add new products and expand the capacities of the existing product base, which is likely to provide a
thrust to the operating income as well as profit generation and keep the credit profile comfortable. ICRA also notes the new
tie-ups announced by the company with reputed counterparties for a few products, which will ensure a healthy top line
growth, going forward.
While the company’s performance is susceptible to volatility in raw material prices and foreign exchange rates, its ability to
pass on the input cost fluctuations to some extent mitigates the risk. The company also remains exposed to foreign currency
exchange fluctuations as well as changes in the regulatory environment.
Moreover, the ratings remain constrained by the elevated working capital intensity of operations because of the high inventory
and receivable levels, which in a high-growth scenario, results in a blockage of sizeable capital for the company. While the

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 working capital intensity has moderated in the current fiscal, it remains to be seen whether this trend can be sustained. The
company is also undertaking a heavy capex programme, which involves capacity expansion of the existing products as well as
manufacturing of new products with high growth potential. The timely completion of the planned capex within estimated costs
and scaling up of the capacity utilisation will remain the key monitorable.

The Stable outlook reflects ICRA’s opinion that the credit profile of the company will remain comfortable in the medium term,
aided by an expected growth in the scale and earnings profile and its established presence in the industry. Further, the
company has raised sizeable equity which will fund the capex and is likely to result in strong credit metrics, even as the working
capital intensity remains elevated.

Key rating drivers and their description

Credit strengths
Established market presence and long-standing relationships with a diversified customer base - AIL’s products find
application across diverse end-user industries such as pharmaceuticals, agrochemicals, material sciences, coatings, high
performance photography, additives, and oil & gas. It has an established market position due to its long-term relationships
with customers like UPL Limited, Bajaj Healthcare Limited, Polaroid Film GmbH & Polaroid Film BV, Sun Pharmaceutical
Industries Limited and others. Continuous R&D has helped the company manufacture products using multiple chemistries and
technologies, thus diversifying its product portfolio and end-user industries and contributing materially to the revenue growth.
Further, for many of its key products, AIL is the only large-scale manufacturer in India, which gives it a competitive advantage
over other players and strengthens its market position. The business risk profile is expected to improve over the medium term,
supported by growth in revenues and sustained operating margins. The company clocked a revenue of ~Rs. 378.81 crore with
an operating margin of ~25.6% in H1 FY2025.

Differentiated portfolio of market-leading products - AIL has over 28 products. Around 50 more products are under R&D, with
20-22 of them intended for large-scale manufacturing and the remaining for contract research and manufacturing services
(CRAMS). It is the sole manufacturer in India and the largest manufacturer in the world by volume for certain products, which
reflects its leadership position in the industry. It has announced new tie-ups/associations with companies like H.B. Fuller, Saudi
Aramco Technologies Company, Novoloop, Seqens Group and also entered into an agreement with an EV car company for the
supply of additives for battery electrolytes. These tie-ups indicate the company’s strong R&D and product development
capabilities.

Strong R&D capabilities - AIL has strong in-house research and development capabilities. Its investments in R&D have given it
a leading market position in certain products. It spends 7-7.5% of its revenue on R&D and the same is likely to continue. The
R&D spend increased in FY2024, which was on account of expansion of the R&D facility and a pilot plant and lower revenues
owing to the fire incident, adjusted for that the R&D expenses as a percentage of the total revenues were around 9%.

Strong and consistent financial performance, led by healthy profitability and comfortable credit metrics - The revenue and
profitability in FY2024 were affected by excessive inflow of Chinese imports as well as by the fire that broke out at the
company’s site 2. The company has no long-term debt and has raised substantial equity of ~Rs. 1,530 crore over the last 2-3
years to fund its capex and repay its long-term debt. Going forward, the net debt to OPBDITA is expected to remain low in the
absence of any major debt, as the planned capex is likely to be funded by equity infusion as well as internal accruals.

Credit challenges
High working capital intensity due to elevated inventory and receivable levels - The working capital intensity has remained
high owing to the elevated receivables and inventory levels. AIL’s inventory days have increased significantly as the company
needs to maintain sufficient inventory for some critical raw materials which are imported. A wider product basket and the high
work-in-progress of its manufacturing operations have also resulted in elevated inventory levels. AIL enjoys a credit period of
90-120 days from its suppliers and offers 90-120 days to its customers. The debtor days went up to 142 days in FY2024. The

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 inventory levels have also increased in the current fiscal, translating into an elevated working capital cycle. The working capital
intensity moderated to some extent in H1 FY2025 and is expected to moderate further with the increase in the proportion of
contract manufacturing. However, the trend remains to be seen.

Exposure to foreign exchange and raw material price volatility - AIL’s margins remain vulnerable to the volatility in raw
material prices for key intermediates and chemicals. It has significant dependence on China for some key raw material
procurements (42-45% of imports are from China), whose prices have been volatile over the last few quarters. AIL is also
exposed to the adverse movement in foreign currency rates. However, as exports drive nearly 70% of its revenues, there is
some natural hedge on its imports.

Environmental and Social Risks

Environmental considerations - The industry in which the company operates and the products it deals with involves the
handling of hazardous and inflammable materials. The company has ensured that the required process control, safety
equipment and infrastructure are in place, as per the global safety standards. These risks are somewhat mitigated by the
company’s track record of environmental compliance and strong operational capabilities. Further, most of its plants are zero
liquid discharge. Also, the company has installed a 16-MW solar power plant and plans to enhance the renewable power
capacity to fulfil its entire captive power requirements.

Social considerations - The company is also exposed to social risks related to responsible production, human capital, health,
and safety issues.

Liquidity position: Adequate

AIL’s liquidity position is expected to remain adequate with cash balances of around Rs. 508.05 crore as on September 30,
2024, and cushion in working capital limits. The cash balance includes Rs. 750-crore funds raised as equity in June 2023, a
portion of which remains unutilised as on date. At present, this amount is maintained as fixed deposit. However, it will be
utilised for the company’s sizeable capex plans, going forward.

Rating sensitivities
Positive factors – The rating could be upgraded in case of a significant scale-up in the company’s revenues and earnings along
with an improvement in the working capital cycle.

Negative factors – The rating could be revised downwards if there is a sustained pressure on AIL’s revenue and profitability.
Moreover, a consistently high working capital cycle and further elongation in the same will have an adverse impact on the
company’s liquidity position and trigger a downward rating revision. Moreover, any time or cost overruns in the ongoing capex
as well as delay in ramp-up can weigh on the rating.

Analytical approach

Analytical Approach Comments

Corporate Credit Rating Methodology

Applicable rating methodologies
Rating Methodology - Chemicals

Parent/Group support Not applicable

Consolidated. For arriving at the ratings, ICRA has combined the business and financial risk
profiles of Aether Industries Limited (AIL) and its wholly-owned subsidiary, Aether Speciality
Consolidation/Standalone
Chemicals Limited, as the entities are owned and managed by the same promoters and are
involved in related sectors

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 About the company
AIL is a specialty chemical manufacturer in India focused on producing advanced intermediates and specialty chemicals
involving complex and differentiated chemistry and technological core competencies. The business was started in 2013 with a
vision to create a niche in the global chemical industry and have a creative approach towards chemistry, technology and
systems that would lead to sustainable growth. In the first phase of the development through fiscal 2017, the company focused
on building the team, infrastructure and the R&D centred around building the core competencies.

Key financial indicators (audited/Provisional)

FY2023 FY2024 H1FY25*

Operating income 654.4 599.5 378.8
PAT 130.4 82.5 64.7
OPBDITA/OI 29.0% 22.3% 25.6%
PAT/OI 19.9% 13.8% 17.1%

Total outside liabilities/Tangible net worth (times) 0.1 0.2 0.2

Total debt/OPBDITA (times) 0.1 1.4 1.1

Interest coverage (times) 37.2 15.7 21.1
PAT: Profit after tax; OPBDIT: Operating profit before depreciation, interest, taxes and amortisation; Amount in Rs. crore; * Limited audited report
Note: All financial ratios as per ICRA’s calculation

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

Rating history for past three years

Current (FY2025) Chronology of rating history for the past 3 years
Amount FY2025 FY2024 FY2023 FY2022
Instrument rated
Type
(Rs. Date Rating Date Rating Date Rating Date Rating
crore)
[ICRA]A+; rating
10-Jan- [ICRA]A+ 06-Dec-
watch with negative - - - -
Long 2025 (Stable) 2023
Cash credit 246.00 implications
term
10-Apr- [ICRA]A+ 04-Oct-
[ICRA]A+ (Stable) - - - -
2024 (Stable) 2023
10-Jan-
(Interchange Short [ICRA]A1 - - - - - -
(246.00) 2025
able) LC/BG term
- - - - - - - -

10-Apr- 06-Dec- [ICRA]A1; rating

[ICRA]A1 watch with negative - - - -
Short 2024 2023
LC/BG - implications
term 04-Oct-
- - [ICRA]A1 - - - -
2023
[ICRA]A+; rating
Long- watch with Negative
Fund-based [ICRA]A+
term/S 10-Apr- 06-Dec- Implications
/Non-fund - (Stable)/ - - - -
hort 2024 2023 /[ICRA]A1; rating
based [ICRA]A1
term watch with negative
implications

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 Current (FY2025) Chronology of rating history for the past 3 years
Amount FY2025 FY2024 FY2023 FY2022
Instrument rated
Type
(Rs. Date Rating Date Rating Date Rating Date Rating
crore)
04-Oct- [ICRA]A+ (Stable)
- - - - - -
2023 /[ICRA]A1
Note - Amount in Rs. crore

Complexity level of the rated instruments

Instrument Complexity Indicator
Long term - Fund-based - Cash credit/PCFC Simple
Short term – Non-fund based – (Interchangeable) Letter of
Very Simple
credit/Bank guarantee

The Complexity Indicator refers to the ease with which the returns associated with the rated instrument could be estimated.
It does not indicate the risk related to the timely payments on the instrument, which is rather indicated by the instrument’
credit rating. It also does not indicate the complexity associated with analysing an entity’s financial, business, industry risks or
complexity related to the structural, transactional or legal aspects. Details on the complexity levels of the instruments are
available on ICRA’s website: Click Here

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 Annexure I: Instrument details
Date of Amount rated
ISIN Instrument name Coupon rate Maturity Current rating and outlook
issuance (Rs. crore)
NA Cash credit NA NA NA 246.0 [ICRA]A+ (Stable)
NA (Interchangeable) LC/BG NA NA NA (246.0) [ICRA]A1
Source: Company

Please click here to view details of lender-wise facilities rated by ICRA

Annexure II: List of entities considered for consolidated analysis

Company name Ownership Consolidation approach

Aether Speciality Chemicals Limited 100% Full consolidation
Source: Company

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 ANALYST CONTACTS
Girishkumar Kadam Prashant Vasisht
+91 22 6114 3441 +91 12 4454 5322
[email protected] [email protected]

Ankit Jain Himani Sanghvi

+91 12 4454 5865 +91 79 6923 3048
[email protected] [email protected]

RELATIONSHIP CONTACT
L. Shivakumar
+91 22 6114 3406
[email protected]

MEDIA AND PUBLIC RELATIONS CONTACT

Ms. Naznin Prodhani
Tel: +91 124 4545 860
[email protected]

HELPLINE FOR BUSINESS QUERIES

+91-9354738909 (open Monday to Friday, from 9:30 am to 6 pm)

[email protected]

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Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited Company,
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