Phychem’s Kotak covenants require approval for debt and control changes

Phychem Technologies Limited’s Kotak covenants require prior bank approval for further borrowing against assets securing Kotak facilities and for changes in shareholding, directorship, partnership or ownership. The conditions accompanied Rs 4.9035 crore of disclosed Kotak-linked balances as of March 31, 2026, including Rs 4.5575 crore of secured facilities.

What do Phychem’s Kotak covenants require for further borrowing?

Phychem must obtain Kotak Mahindra Bank Ltd’s prior permission before raising further loans or availing facilities against assets offered as security for the bank’s facilities. The covenant applies to the facilities disclosed at March 31, 2026, including cash credit, working-capital demand loans and a working-capital term loan. It does not say that all additional borrowing is prohibited; it makes approval necessary when the proposed funding is secured against the relevant assets.

The condition has a wide potential asset base because Kotak’s primary security includes an exclusive charge over Phychem’s existing and future current assets and movable fixed assets. Current assets generally include assets expected to be converted into cash or used in operations within a year. Specified Kotak facilities also have exclusive equitable mortgages over three properties in Nashik and Jalgaon, according to the March 31, 2026 disclosure.

Further working-capital facilities, whether secured or unsecured, must remain within the overall working-capital requirement assessed by Kotak. Working capital is funding used for operating needs such as inventory and receivables. Accordingly, access to additional operating funding depends not only on the availability of security but also on Kotak’s assessment and its prior permission where secured assets are involved.

Which ownership and management changes need Kotak approval at Phychem?

Phychem must secure Kotak’s prior permission for any change in shareholding, directorship, partnership or ownership. The disclosed clause does not give a percentage threshold for a shareholding change, nor does it distinguish promoter and non-promoter transactions. The condition therefore extends beyond a narrowly defined transfer of control.

Phychem must also keep Kotak informed of events likely to have a substantial effect on stock, production, sales or profits, and of senior-management changes. The disclosure specifically lists labour problems, changes in godown location, power cuts, cases against the borrower and developments in associate concerns. It also requires details of additions or deletions of associate or sister concerns and proposed remedial measures.

Small Industries Development Bank of India, or SIDBI, has a separate ownership-related restriction on its two secured term loans. During SIDBI loan assistance, a major management change involving a transfer of ownership or shares needs SIDBI’s prior permission. SIDBI’s two loans had combined balances of Rs 88.28 lakh on March 31, 2026, compared with the Rs 4.9035 crore sum of Kotak-linked balances disclosed by Phychem.

How concentrated are Phychem’s disclosed borrowings with Kotak?

Kotak-linked facilities represented Rs 4.9035 crore of Phychem’s Rs 5.9062 crore in disclosed balances at March 31, 2026, or about 83%. The comparison includes secured loans, an unsecured Kotak business loan and loans from directors and relatives. Kotak’s concentration arises principally from working-capital facilities rather than only from an asset-finance term loan.

The three on-demand Kotak balances were Rs 2.3573 crore of cash credit, Rs 1.50 crore of non-revolving working-capital demand loan and Rs 60 lakh of one-time working-capital demand loan. The working-capital term loan had a balance of Rs 10.02 lakh and is repayable in 59 equated monthly instalments, or EMIs, of Rs 96,000 after a 23-month moratorium. The separate unsecured business loan carried an 11.35% interest rate and a balance of Rs 34.60 lakh.

The remaining disclosed balances were spread across SIDBI, HDFC Bank Ltd and director-and-relative loans. SIDBI’s expansion loan and solar rooftop project loan totalled Rs 88.28 lakh, while HDFC’s car loan balance was Rs 6.30 lakh. Loans from Ulka Umakant Savadekar and Vijaya Nivrutti Savdekar totalled Rs 5.69 lakh and were repayable on demand.

What banking and reporting conditions accompany Kotak’s facilities?

Phychem must route its entire banking, including deposits, foreign-exchange business and bill business, only through Kotak where it operates on a sole-banking basis. The disclosure does not state whether Phychem currently has a sole-banking arrangement. If that condition applies, it governs the channels used for collections, deposits and the foreign-exchange transactions relevant to Phychem’s export and import activity.

Kotak has a first right of refusal to enter Phychem’s working-capital banking arrangement for incremental requirements arising from expansion, modernisation or diversification. A first right of refusal gives Kotak the stated first opportunity to enter such an arrangement; the disclosure does not say it guarantees additional funding. The provision becomes relevant if Phychem pursues one of those programmes and needs incremental working capital.

Kotak may review credit facilities if Phychem’s internal or external rating is downgraded. Phychem must submit a quarterly unhedged foreign-currency exposure, or UFCE, declaration from an authorised signatory and an annual statutory-auditor certificate under Reserve Bank of India guidelines. It must also provide, at least annually, a certificate that borrowed funds were used for the purposes for which they were obtained.

How do these constraints sit beside Phychem’s recent financial results?

Phychem reported revenue from operations of Rs 56.4653 crore in FY 2025-26, compared with Rs 50.3032 crore in FY 2024-25 and Rs 46.9693 crore in FY 2023-24. Earnings before interest, tax, depreciation and amortisation, or EBITDA, increased to Rs 6.0866 crore in FY 2025-26 from Rs 4.3687 crore in FY 2024-25. EBITDA margin rose to 10.78% from 8.68% over the same period.

Finance costs increased to Rs 1.0462 crore in FY 2025-26 from Rs 88.23 lakh in FY 2024-25 and Rs 62.44 lakh in FY 2023-24. Profit after tax rose to Rs 4.0890 crore in FY 2025-26 from Rs 2.8417 crore a year earlier. These results do not alter the lender conditions, which continue to link additional secured funding and incremental working-capital arrangements to Kotak’s stated approvals and assessment.

Manufacturing generated Rs 52.2931 crore, or 92.61%, of FY 2025-26 sales of Rs 56.4653 crore. Trading generated Rs 4.0565 crore, or 7.18%, while services generated Rs 11.58 lakh, or 0.21%. Phychem identifies raw-material availability, customer demand, supply-chain disruption, foreign-exchange movements and implementation of expansion plans as factors affecting operations and potentially its working-capital needs.

Conclusion

Phychem’s Kotak covenants mean that the significance of the Rs 4.9035 crore of disclosed Kotak-linked balances goes beyond the reported amount. Kotak’s security over current assets and movable fixed assets, alongside mortgages for specified facilities, supports rights concerning further secured borrowing, ownership and leadership changes, banking flows and incremental working-capital arrangements.

The next disclosed matters to watch are any expansion, modernisation or diversification programme that creates incremental working-capital demand, and any change in shareholding, directorship, partnership or ownership. Phychem’s quarterly UFCE declarations, annual statutory-auditor certificate, annual end-use certificate and any Kotak facility review following a rating downgrade are continuing obligations under the disclosed conditions.