Detailed Rationale

CRISIL Ratings has reaffirmed its ratings on the non-convertible debentures, fixed deposits, and commercial paper programme of BASF India Ltd (BASF India) at ‘CRISIL AAA/Stable/CRISIL A1+’.

 

During fiscal 2024, revenue remained flat, despite healthy volume growth on account of new product launches and better product mix, but partially constrained by decline in product prices. Among the segments, agricultural solutions and surface technologies grew at a healthy clip of ~12% and ~16%, respectively, while the materials segment witnessed ~7% growth in fiscal 2024. Chemical and industrial solutions witnessed degrowth, thereby constraining the overall increase in revenue. Over the medium term, stable realisations and ramp-up of revenue from new product launches are expected to support revenue growth.

 

Operating margin improved to 6.7% in fiscal 2024 from 5.1% in fiscal 2023 due to moderating raw materials prices, especially in the agricultural solutions, materials and industrial segments. Over the medium term, stabilisation in key crude oil-linked input prices, which form major part of the raw material cost, will help maintain margin at current levels.

 

The healthy business risk profile is complemented by a strong financial risk profile and liquidity. Networth and total outside liabilities to tangible net worth ratio stood at Rs 3,223 crore and 1.23 times, respectively, as on March 31, 2024, against nil debt. Reliance on external debt is expected to remain negligible as the company’s annual cash accrual will be sufficient to meet modest capital expenditure (capex) plans and working capital requirement. 

 

Working capital cycle is prudently managed; bulk of the traded inventory is order-backed and receivables are stable. Liquidity is further supported by unutilised bank limit of Rs 1,268 crore and cash and equivalent of Rs 623 crore as on March 31, 2024.

 

The ratings continue to reflect the improving business risk profile of BASF India, and CRISIL Ratings expectation regarding the strong operational and financial support from BASF SE (‘A-/Stable/A2’ by S&P Global Ratings). These strengths are partially offset by susceptibility of profitability to inherent risks in the crop protection sector and volatility in crude prices and foreign exchange (forex) rates.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of BASF India and its wholly owned subsidiary, BASF India Coatings Pvt Ltd, due to operational similarities and financial linkages. CRISIL Ratings has also factored in the potential support expected from its parent, BASF SE. Also, CRISIL Ratings believes the company will receive timely support from its parent for debt servicing, as seen in the past. The parent holds 73.33% stake in BASF India, and provides operational, technical and financial support. Besides, the company’s working capital limit has been carved out from the parent’s global lines of credit.

 

Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

Adequate business risk profile, supported by diverse revenue streams: Business risk profile is supported by a diversified revenue profile and established position in six key segments: agricultural solutions (14% of revenue in fiscal 2024), materials (30%), nutrition and care (21%), industrial solutions (16%), chemicals (12%%) surface technologies (6%) and Others (1%). Products cater to various end-user industries, including automotive, personal and home care, agriculture, footwear, pharmaceuticals, petrochemicals, and refining. The diversified revenue streams mitigate the impact of cyclicality and competitive pressures in any particular business segment.

 

Strong business and financial assistance from the parent: The company receives strong operational as well as product support from BASF SE, one of the world’s leading chemical companies. High level of integration between the parent and the Indian arm reflects synergies arising from similar businesses. CRISIL Ratings believes that the parent will extend timely, need-based financial support in case of pressure on cash flows, and support financing of any large capex, if incurred. The company received external commercial borrowings to fund its Dahej (Gujarat) expansion (currently repaid) in the past, and the parent also rearranged the repayment terms when cash generation was impacted.

 

Strong financial risk profile: Networth improved on the back of steady and healthy accretion to reserve and stood at Rs 3,223 crore as of March 2024. The company remained debt-free, and utilisation of working capital limit was minimal at ~0.5% for the six months ended June 30, 2024. In the absence of any large capex planes and prudent working capital management, the company’s financial risk profile and all the key debt protection indicators are expected to remain strong over the medium term. Unutilised bank limit and cash and bank balance of Rs 623 crore as on March 31, 2024, will continue to aid liquidity. Given its strong liquidity profile, BASF India also extends support to other BASF group entities in India through intercorporate deposits (ICD); as on March 31, 2024, the total ICD outstanding was Rs 545 crore.

 

Weaknesses:

Exposure to volatility in crude and forex rates: Operating margin in the key business segments of BASF India depends on crude prices as its raw materials are crude derivatives. Most of the inputs are sourced from group companies outside India. Profitability is also vulnerable to adverse movement in the US dollar and Euro against the rupee, despite hedging. Moreover, the company earns a low margin on few traded products.

 

Exposure to risks inherent in the crop protection sector: The domestic crop protection segment is affected by irregular monsoon and volatility in farm income. The sector is also subject to specific registration processes in different countries and various environmental rules and regulations. This has an impact on BASF India’s agricultural-solutions business, which is a key revenue contributor.

Liquidity: Superior

CRISIL Ratings expects the annual cash accruals to remain over Rs 700 crore over the medium term (Rs 720 crore in fiscal 2024). Cash balance stood at Rs 623 crore as on March 31, 2024, and working capital limit of around Rs 1,268 crore remain mostly unutilised. Liquidity is also aided by the expectation of strong financial support extended by the parent, as observed in the past.

 

ESG profile

The environment, social, and governance (ESG) profile of the company supports its already strong credit risk profile.

  

Key ESG highlights:

 

• The company’s commitment to ESG will play a key role in enhancing stakeholder confidence, given its access to domestic and/or foreign capital markets.
• The BASF group, at the global level, has set a target to reduce greenhouse gas (GHG) emissions by 25% by 2030 from its 2018 baseline and achieve net zero emissions by 2050. It plans to achieve this by switching to renewable energy source and adopting new technologies.
• BASF India’s scope 1 and 2 emission intensity has reduced by 40% to ~2.3 t CO2E per crore of revenue in fiscal 2024 from ~3.8 tCO2E in fiscal 2023.
• Lost time injury frequency rate for workers stood at 0.32 time and was nil for employees in fiscal 2024.
• The company’s governance structure is characterised by ~38% of its board comprising independent directors, two women directors, and extensive financial disclosures. 

Outlook: Stable

CRISIL Ratings believes that BASF India is likely to continue to benefit over the medium term from its diversified revenue profile and improving market scenario. Financial risk profile is expected to remain healthy. BASF India is expected to continue benefitting from the strong parent support. The rating will also remain sensitive to any changes in the credit profile of BASF SE.

Rating Sensitivity Factors

Downward Factors

• Substantial weakening of operating profitability to below 2.5-3% impacting cash generation
• Large, debt-funded acquisition or capex weakening the debt metrics
• Downgrade in the rating of BASF SE by S&P Global Ratings
• Change in expectations regarding support from the parent

About the Company

BASF India, a 73.33% subsidiary of BASF SE, is the flagship company of the BASF group in India. The parent began operations in India after acquiring RA Cole Pvt Ltd (a manufacturer of expanded polystyrene), which was renamed BASF India in September 1967. The portfolio of BASF SE comprises six segments: chemicals, materials, industrial solutions, surface technologies, nutrition and care and agricultural solutions.

Key Financial Indicators^

As on/for the period ended March 31	Unit	2024	2023
Revenue from operations	Rs crore	13785	13655
Profit after tax (PAT)	Rs crore	563	403
PAT margin	%	4.1	3.0
Adjusted debt/adjusted networth	Times	0.00	0.00
Interest coverage	Times	27.7	43.5

^CRISIL Ratings adjusted numbers have been referred to in this entire rating rationale.

Any other information: Not Applicable

Annexure - Details of Instrument(s)

ISIN	Name of Instrument	Date of Allotment	Coupon Rate (%)	Maturity Date	Issue Size (Rs.Cr)	Complexity Levels	Rating Assigned with Outlook
NA	Commercial paper*	NA	NA	7-365 days	750	Simple	CRISIL A1+
NA	Non- convertible debentures*	NA	NA	NA	20	Simple	CRISIL AAA/Stable
NA	Fixed Deposit	NA	NA	NA	NA	Simple	CRISIL AAA/Stable

*Yet to be issued