Credit Rating of Kohinoor Chemicals Limited
Credit Rating of Kohinoor Chemicals Limited
Credit Rating of Kohinoor Chemicals Limited
Submitted to
Avijit Mallik
Lecturer
Institute of Business Administration, University of Dhaka
Course: Financial Information Analysis (F409)
Submitted by
Avijit Mallik
Lecturer
Institute of Business Administration
University of Dhaka, Dhaka
Sir
As per your instructions for producing a report as a requirement for our undergraduate course
Financial Information Analysis (F409) I would like to present this report titled “CREDIT RATING
OF KOHINOOR CHEMICALS LTD.” This report has been formulated based on data from the
Annual Report of Kohinoor Chemicals Ltd. and other secondary sources. Without your permission,
this report will not be revealed nor reproduced for any other purpose.
I hope this report has met all your requirements and I would like to thank you for letting us work
on this topic.
Thank You
Kidwa Arif
Roll: ZR-01
BBA 25th
i
Table of Contents
Executive Summary ....................................................................................................................... iv
1.0 Introduction ............................................................................................................................... 1
1.1 Company Overview .............................................................................................................. 1
1.2 Objectives ............................................................................................................................. 1
1.2.1 Broad Objective ............................................................................................................. 1
1.2.2 Specific Objectives ........................................................................................................ 1
2.0 Methodology ............................................................................................................................. 2
2.1 Data Collection ..................................................................................................................... 2
2.2 Scope ..................................................................................................................................... 2
2.3 Limitations ............................................................................................................................ 2
3.0 Credit Rating ............................................................................................................................. 3
3.1 Quantitative Credit Rating .................................................................................................... 3
3.1.1. Multiple Regression Analysis ....................................................................................... 3
3.1.2 Calculation of Quantitative Credit Rating ..................................................................... 5
3.2 Qualitative Credit Rating ...................................................................................................... 5
3.2.1 Industry Analysis ........................................................................................................... 5
3.2.2 Product Portfolio .......................................................................................................... 12
3.2.3 Keys To Success .......................................................................................................... 17
3.2.4 Company Size and Ownership Structure ..................................................................... 18
3.2.5 Accounting Quality ...................................................................................................... 20
3.2.6 Management Quality .................................................................................................... 21
3.2.7 Qualitative Rating ........................................................................................................ 23
3.3 Final Credit Rating .............................................................................................................. 24
4.0 Conclusion .............................................................................................................................. 24
References ..................................................................................................................................... 25
Appendix ....................................................................................................................................... 27
Appendix 1 ................................................................................................................................ 27
Table of Tables
ii
Table 1: Numerical Values Corresponding To Credit Rating ........................................................ 4
Table 2: Ratios and Credit Rating of Companies ........................................................................... 4
Table 3: The Intercepts and Variables After Conducting Multiple Regression Analysis............... 5
Table 4: Quantitative Credit Rating of Kohinoor Chemicals Ltd ................................................... 5
Table 5: Porter's Five Forces: Rivalry Among Firms ..................................................................... 7
Table 6: Porter's Five Forces: Threat of New Entrants ................................................................... 8
Table 7: Porter's Five Forces: Threat of Substitutes ....................................................................... 8
Table 8: Porter's Five Forces: Bargaining Power of Buyers ........................................................... 9
Table 9: Porter's Five Forces: Bargaining Power of Suppliers ..................................................... 11
Table 10: Major Products of Kohinoor Chemicals Ltd. ............................................................... 16
Table 11: Key to Success of Kohinoor Chemicals Ltd ................................................................. 18
Table 12: Indicators to Understand Company Size ...................................................................... 19
Table 13: Balance at 30 June 2019 for Statement of Equity......................................................... 21
Table 14: Qualitative Rating Calculation ..................................................................................... 24
Table 15: Regression Statistics ..................................................................................................... 27
Table 16: ANOVA Table .............................................................................................................. 27
Table 17: Regression Analysis...................................................................................................... 27
Table 18: Regression Analysis...................................................................................................... 28
iii
Executive Summary
This report tried to find the Credit Rating of Kohinoor Chemicals Ltd. using secondary data. The
rating calculation has been divided into two main parts: Quantitative and Qualitative.
The Quantitative Analysis has been done by doing a multiple regression analysis of thirteen
companies of relevant industries. Since not enough industries in the FMCG sector were
available, the Pharmaceutical and Chemical Industry companies were also utilized. The ratios
used for the multiple regression analysis were Return on Equity, Return on Average Assets,
Debt-Equity Ratio, Current Ratio, Operating Profit Margin and Net Profit Margin. The numerical
value of the quantitative credit rating came out to be 13.76.
The qualitative rating was given based on six factors: i) Industry Analysis, ii) Product Portfolio
iii) Keys To Success, iv) Company Size and Ownership Structure v) Accounting Quality and vi)
Management Quality. The ratings given on these factors were subjective and the numerical value
of the final Qualitative Rating came out to be 16.406.
The final rating, which was an average of the quantitative and qualitative rating came out to be
15.803 or A. Since the actual credit rating of Kohinoor Chemicals Ltd. was not available, it was
not possible to verify the accuracy of this rating. However, the best possible procedures were
ensured.
iv
1.0 Introduction
The purpose of credit rating is to determine if a company shall be able to fulfill its financial
obligations. This paper looks into both the quantitative and qualitative aspects of Kohinoor
Chemicals Ltd. and formulates a credit rating.
1.2 Objectives
1
2.0 Methodology
2.2 Scope
The scope of this report is confined to the Fast Moving Consumer Goods (FMCG) industry of
Bangladesh. However, the quantitative portion also used data from the Chemical and
Pharmaceutical Industry and those can be included in the scope as well.
2.3 Limitations
❏ The Annual Reports used were those of 2019. Thus, they might not reflect the recent
scenario of the companies.
❏ The Post Covid-19 situation could not be properly depicted due to lack of data. However,
the industry analysis part has some discussion on it.
❏ The quality of the qualitative discussion could have been better if it were possible to
collect some primary data from employees of Kohinoor Chemicals Ltd.
2
3.0 Credit Rating
The multiple regression analysis has been done based on the credit ratings of 13 relevant
companies. Due to maintaining the accuracy of a multiple regression, it is important to put in as
many inputs as possible. However, the only listed companies relevant to Kohinoor Chemicals
Ltd. were Marico Ltd., ACME Laboratories Ltd. and Keya Cosmetics. For this reason, the other
companies chosen were from the Pharmaceutical and Chemical sector. While these companies
do not produce similar products as those of Kohinoor Chemicals Ltd., they were all listed under
the “Pharmaceuticals & Chemicals” sectors. Thus, they were picked for the multiple regression.
The purpose of Credit Rating is to rate a company or a person based on their capabilities to fulfill
their financial commitments, which are debts in most cases. The six following ratios have been
selected keeping this in mind.
Return on Average Assets (ROA): This ratio indicates how profitable a company is compared
to its average assets. It is a good indicator to understand the long term sustainability of a
company.
Return on Equity (ROE): The return on equity shows how effectively a company is utilizing
the funds supplied by the shareholders. It can help the debtors understand the efficiency of the
company.
Debt Equity Ratio (D/E): This ratio indicates a company’s financial leverage. A company with
too high debt-equity ratio might not be able to pay off further debts.
Current Ratio (CR): The current ratio is an important indicator for debtors because it shows
how much debt a company can pay off with its liquid/current assets.
Net Operating Margin (Op. Margin) and Net Profit Margin (Net Margin): These two ratios
are good indicators to understand the profitability of the company.
3
3.1.1.3 Credit Rating Values
The following table shows the numerical values corresponding to the rating of the CRISIL
values.
Credit Numerical
Rating Rating
AA+ 19
AAA 20
A 15
AA+ 19
AAA 20
A 15
A- 14
A- 14
A 15
AA 18
A 15
A- 14
A+ 16
Table 1: Numerical Values Corresponding To Credit Rating
The ratios and credit rating of the companies have been found first to run the regression.
Op. Net Credit
Name of Company ROA ROE D-E CR Margin Margin Rating
GlaxoSmithKline(GSK) Bangladesh Ltd. 0.11 0.25 2.47 1.29 0.22 0.14 A
Reckitt Benckiser (Bangladesh) Ltd. 0.18 0.84 3.7 1.04 0.14 0.08 AAA
ACME Laboratories Ltd 0.04 0.08 0.32 0.93 0.125 0.088 A
Marico Bangladesh Ltd. 0.44 1.55 2.51 1.25 0.295 0.23 AAA
Square Pharmaceuticals Ltd. 0.162 0.173 0.07 0.129 0.28 0.273 AAA
ACI Chemicals Ltd 0.0142 0.0382 0.931 1.29 0.076 0.025 A
Keya Cosmetics Ltd. 0.37 0.086 1.2748 2.9243 0.3539 0.1603 A-
Beacon Pharmaceuticals Ltd. 0.0242 0.0395 0.613 2.03 0.069 0.0252 A-
Ambee Pharmaceuticals Ltd. 0.0084 0.058 0.31 0.875 0.069 0.65 A
Beximco Pharmaceuticals Ltd. 0.061 0.1017 0.825 1.04 0.222 0.133 AA
Orion Pharmaceuticals Ltd. 0.0286 0.0501 0.76 2.93 0.12 0.101 A
Silco Pharmaceuticals Ltd. 0.0632 0.0828 0.01 5.56 0.1616 0.177 A-
FAR Chemical Industries Ltd. 0.024 0.032 0.058 2.758 0.241 0.172 A+
After that a regression analysis was run to find the following values to be used to determine the
Quantitative Credit Rating.
4
Description Coefficients
Intercept 14.89911779
ROA -12.88844342
ROE 4.587264281
D-E -0.040469371
CR -0.686949489
Op. Margin 16.17386667
Net Margin -0.368502918
Table 3: The Intercepts and Variables After Conducting Multiple Regression Analysis
5
the Personal Care and Household Care categories. A Porter’s Five Forces based on this industry
has been discussed below.
6
Switching Costs Non-Existent Switching cost Low
since FMCG products are low
volume and low prices.
7
Table 6: Porter's Five Forces: Threat of New Entrants
8
Switching Costs Since consumers buy in low Low
volume, switching costs are
negligible
Volume per Buyer Each buyer does not buy many Low
units of product.
9
Variable Description Decision
10
globally. ("Bangladesh | Chemicals |
Import | from all Countries | 2015 |
WITS | Data", 2015)
While Kohinoor Chemicals Ltd. have a wide variety of products, this report does the competitor
analysis of the top three products which consist of 89% of all sales done by Kohinoor Chemicals.
This has been shown in the table in section 3.2.2 Loan Portfolio.
Toilet Soap: In the toilet soap category, Unilever Bangladesh holds 43% market share with their
brands Lux and Lifebuoy. Kohinoor Chemicals Ltd., Keya Cosmetics and Lily Cosmetics hold
10% market share each. The top selling brand of Kohinoor Chemicals Ltd. is Sandalina.("FMCG
Industry Review of Bangladesh", 2019)
11
3.2.1.3 Industry Risk Factors
The Porter’s Five Forces and the Competitor Analysis have pointed out the following industry
risks
❏ The industry growth might be hindered due to the decrease in consumer purchases due to
the Covid-19 pandemic.
❏ Due to low differences among products, consumers can easily switch to other companies.
❏ Multinational companies like Unilever and Marico are dominant compared to local
companies like Kohinoor Chemicals Ltd.
❏ The Covid-19 pandemic might affect the supply of raw materials.
3.2.1.4 Rating
Based on the analysis, we see that the FMCG Industry is highly competitive and ruled by large
multinationals. Moreover, it might see a declining growth due to the pandemic. Thus the final
rating has been determined to be A or 15 in numerical value.
12
2 Tibet Ball Soap Washing Soap
13
7 Tibet Meditated Hair Oil Hair Oil
14
12 Tibet Luxury Talcum Powder Body Powder
15
17 Beautina Hair Oil Hair Oil
Apart from these, Kohinoor Chemicals also have a number of other products ranging from
toothpastes to toilet cleaners. Thus, it can be said that their product portfolio is vast and
diversified. However, to understand if that is true, this report looks into their revenue
16
shares.("KOHINOOR CHEMICAL COMPANY (BANGLADESH) LTD. : Shareholders Board
Members Managers and Company Profile | MarketScreener", 2019)
3.2.2.1 Rating
As we can see, Kohinoor Chemicals has a very diversified product portfolio. This is a good
indication since it means that if one fails, the other can balance it out. However, despite having
so many products, a majority portion of its revenue stream depends on the top few products.
Keeping these in mind, the qualitative rating for this section is A+ or 16.
17
Key to Description Credit Numerica
Success Rating l Value
Market Kohinoor Brands have made a position among the lower AA- 17
Position income segment in the rural areas. This loyal consumer
base is a source of sustainable revenue.
Thus, the average numerical value from these ratings is, 17.5.
18
Total Assets 1934.13 1899.457 -1.79%
As we can see, the Net Sales, Net profit, Operating Profit and Shareholder’s equity have all
increased. This is positive for the company. However, both total assets and current assets have
declined. This might show a decrease in the company size. However, since the value of total
current liabilities have also decreased and at a much higher rate, the company should not be in
financial trouble due to the decrease in Assets. Regardless, the decline in Assets might be an
indicator that the company isn’t growing.
The ownership structure shows that a comparatively low portion of the shares belong to the
public which shows that the board of directors have faith in the company.
The determined rating for this section is A+ or 16.
19
3.2.5 Accounting Quality
The size of the report is 95 pages which is moderate compared to the 172-page annual report of
its competitor Marico Bangladesh Ltd. The information available is also moderate. All necessary
financial information is available but some information which were disclosed in the Marico
Report was not disclosed here. An example is that there was no discussion on their management
procedures.
The rating for this section is A+ or 16.
3.2.5.2 Auditing
The independent auditing was done by S.F.Ahmed and Co. Chartered Accountants. They have
concluded the following from their reporting:
❏ They managed to obtain all necessary information
❏ Proper Books were maintained according to law
❏ The values in the Balance Sheet and Income Statement were coherent with the books of
accounts and returns.
❏ The expenses incurred where for the company’s business
Since their audit report has been fairly flawless, the rating is AA+ or 19.
20
financial ratios, ordinary shares information and other data. The last two pages showed the
graphical representation of important indicators and the value added statement.
The value added statement is an important voluntary disclosure which shows the value the
company added among its various stakeholders. The stakeholders mentioned here are employees,
the national exchequer and the shareholders of the company.
Statement of Equity: The final balances in the Statement of Changes in Equity have been
displayed in the table below.
Information in Notes: The annual reports had sufficient information in the Notes section of the
annual report which properly identify all the important aspects of their accounting.
The financial reporting has been satisfactory for Kohinoor Chemicals Ltd. Thus, their rating is
AA- or 17.
3.2.5.4 Rating
3.2.6.1 Planning
Kohinoor Chemicals Ltd. looks to solve the ever growing demand of cosmetics and personal care
products. However, their main competitor is the multinational company Unilever which has a
21
strong position in the market. Kohinoor Chemicals Ltd. deals with this competition by offering
their product to the lower income customers in rural areas by providing door to door marketing
services.
Kohinoor Chemicals seems to have found a sustainable source of revenue. However, it is also
not commendable that they have decided to target the market not captured by bigger
multinationals instead of trying to capture market share from them. Keeping these in mind, their
rating is A+ or 16.
3.2.6.2 Organizing
The organizational capability can be reflected in the successful company performance. After
coming to IPO in 1988, the company did not raise any fund by any sort of Repeated Public
Offering, Right Issue or Direct Listing. To ensure the sustainability of the organization, it has
risk management policies and it has a periodic monitoring system to mitigate the identified risks.
The risks which are taken into consideration are: i) Industry ii) Regulatory iii) Market, iv)
Operation v) Legal vi) Exchange Rate and vii) Potential Changes in Global and National
Policies.
They have a satisfactory organizational efficiency and have thus been rated A+ or 16.
3.2.6.3 Staffing
Since there was no information on the staffing process of Kohinoor Chemicals Ltd., this report
looks into the secondary source to understand the staffing process of Kohinoor Chemicals
Ltd.("Strategic Human Resource Planning System of KOHINOOR CHEMICAL CO. (BD) Ltd -
The Lawyers & Jurists", 2018)
Kohinoor Chemicals Ltd. plans staff depending on two ways: Need Basis and Growth Basis.
They also have a succession planning process but the process is not published and done at
discretion of management. However, this might increase the chance of unethical practices during
promotions. Thus, their rating here is A or 15.
22
3.2.6.4 Directing
The retirement and re-appointment of directors is governed by the Articles of Association, the
Companies Act 1994. In order to comply with the Act, at least one-third of the directors retire in
every Annual General Meeting.
Their directing procedures are satisfactory and are compliant to necessary laws. Thus, their
rating is AA- or 17.
3.2.6.5 Controlling
The Directors have appointed S.F. Ahmed and Co. as the Statutory Auditors in accordance with
the Companies Act 1994. Moreover, in compliance with the Bangladesh Securities and Exchange
Commission’s notification No. BSEC/CMRRCD 2006, Poddar and Associates have been
appointed the compliance auditors. Controlling procedures are also satisfactory and have been
rated AA- or 17
3.2.6.6 Rating
Factor Numerical
Rating
Industry 15
Analysis
Product 16
Portfolio
Keys To 17.5
Success
Company Size 16
and Structure
Accounting 17.33
Quality
Management 16.2
Quality
23
Qualitative 16.34
Rating
Table 14: Qualitative Rating Calculation
15.279 or A
4.0 Conclusion
Kohinoor Chemicals Ltd. is a company which has been thriving for about six decades. Thus, the
A Credit Rating might seem too low. However, in the recent past, various multinational
companies have been dominant and they have been taking away Kohinoor Chemical Ltd.’s
market share, which has resulted in this comparatively low rating.
There is no publicly available Credit Rating for Kohinoor Chemicals Ltd. and thus this rating
could not be judged. However, all proper procedures have been followed and it can be assumed
that this has been as accurate as possible under the scope of this report.
24
References
11TH BEST BRAND HONORS THE MOST LOVED BRANDS OF BANGLADESH. (2019).
Retrieved 15 June 2020, from http://bbf.digital/11th-best-brand-award
ARGUS Credit Rating Services Ltd. (2019). Retrieved 16 June 2020, from
http://www.acrslbd.com/rating-reports
Bangladesh | Chemicals | Import | from all Countries | 2015 | WITS | Data. (2015). Retrieved 12
June 2020, from
https://wits.worldbank.org/CountryProfile/en/Country/BGD/Year/2015/TradeFlow/Import/P
artner/all/Product/28-38_Chemicals#
Credit Rating Information & Services Limited (CRISL). (2019). Retrieved 17 June 2020, from
https://www.crislbd.com/
National Credit Ratings Limited (NCRBD). A Credit Rating Agency of Bangladesh -. (2019).
Retrieved 17 June 2020, from http://www.ncrbd.com/rating-
resources.php?nId=34&pId=34&nName=Rating%20Resources
25
Rating Rationale of Marico Ltd. (2020). Retrieved 17 June 2020, from
https://www.crisil.com/mnt/winshare/Ratings/RatingList/RatingDocs/Marico_Limited_May
_24_2019_RR.html
Rating Reports | Emerging Credit Rating Ltd. (2020). Retrieved 17 June 2020, from
https://emergingrating.com/index.php/rating-reports/
Strategic Human Resource Planning System of KOHINOOR CHEMICAL CO. (BD) Ltd - The
Lawyers & Jurists. (2018). Retrieved 16 June 2020, from
https://www.lawyersnjurists.com/article/strategic-human-resource-planning-system-
kohinoor-chemical-bd/
26
Appendix
Appendix 1
Regression Statistics
Multiple R 0.875366861
R Square 0.766267141
Adjusted R Square 0.532534283
Standard Error 1.631244524
Observations 13
Table 15: Regression Statistics
ANOVA
df SS MS F Significance F
Regression 6 52.34194012 8.723656686 3.27838861 0.087107967
Residual 6 15.96575219 2.660958698
Total 12 68.30769231
Table 16: ANOVA Table
Lower Upper
Description Lower 95% Upper 95% 95.0% 95.0%
Intercept 10.34180735 19.54077779 10.34180735 19.54077779
ROA -33.49569696 8.616681849 -33.49569696 8.616681849
ROE 0.230962895 10.35483292 0.230962895 10.35483292
D-E -1.806262811 1.459913223 -1.806262811 1.459913223
27
CR -1.581921567 0.20742916 -1.581921567 0.20742916
Op. Margin -6.705775607 38.55114398 -6.705775607 38.55114398
Net Margin -8.411550366 7.516773027 -8.411550366 7.516773027
Table 18: Regression Analysis
28