Rating Rationale
July 04, 2023 | Mumbai
BASF India Limited
Ratings Reaffirmed
 
Rating Action
Fixed DepositsCRISIL AAA/Stable (Reaffirmed)
Rs.20 Crore Non Convertible DebenturesCRISIL AAA/Stable (Reaffirmed)
Rs.750 Crore Commercial PaperCRISIL A1+ (Reaffirmed)
The common independent director on CRISIL Ratings Limited and BASF India Limited boards did not participate in the rating process or in the meeting of the rating committee, when the rating for securities of BASF India Limited was discussed. This rating was also not discussed in the meeting of CRISIL Ratings’ Board of Directors.
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

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

 

BASF India’s business risk profile will continue to benefit from its diverse revenue streams and operational support from the parent, BASF SE (rated ‘A/Negative/A1’ by S&P Global Ratings [S&P]).

 

During fiscal 2023, revenue increased by 4% over the previous fiscal driven by volume growth and partially constrained by moderating prices. Agricultural solutions, surface technologies and nutrition and care business segments grew more than 11% in fiscal 2023.

 

Operating margins (Operating profit before depreciation, interest and taxes) moderated to 5% in fiscal 2023 from 7.1% in fiscal 2022 due to carryforward of high cost inventory. The chemical and material segments were majorly impacted because of falling commodity prices.

 

The business risk profile is complemented by a strong financial risk profile and liquidity. Networth and total outside liabilities to tangible networth (TOLTNW) ratio stood at Rs 2,698 crore and 1.42 times, respectively, as on March 31, 2023, against nil debt. Reliance on external debt will likely remain nil as the company’s annual cash accrual will be sufficient to meet modest capital expenditure (capex) plans and working capital requirement.  BASF India manages its -working capital cycle prudently; bulk of the traded inventory is order backed and receivables are stable.

 

Liquidity is further supported by minimally utilised bank limit of around Rs.1500 crore. Besides, as demonstrated amply in the past, CRISIL believes support from the parent will be forthcoming in case of any exigencies.

 

The ratings continues to reflect CRISIL Rating’s expectation of strong operational and financial support from BASF SE and BASF India’s improving business risk profile. These are partially offset by susceptibility of profitability to inherent risks in the crop protection sector and volatility in crude prices and foreign exchange rates.

Analytical Approach

CRISIL Ratings has factored in support expected from the parent, BASF SE. Also, CRISIL Ratings believes BASF India will, in case of exigencies, receive timely support from its parent for timely debt servicing, as seen in the past. The parent holds 73.33% stake in BASF India, and provides operational, technical and financial support. Moreover, the working capital lines have been carved out from the parent’s global lines of credit.

Key Rating Drivers & Detailed Description

Strengths:

  • Adequate business risk profile, supported by diverse revenue streams: The business risk profile remains healthy supported by a diversified revenue profile and established position in six key business segments: agricultural solutions (13% of revenue in fiscal 2023), materials (28%), nutrition and care (20%), industrial solutions (17%), chemicals (15%)  and surface technologies (5%). Products cater to various end-user industries, including automotive, personal and home care, agriculture, footwear, pharmaceuticals, petrochemicals, and refining. The diversified revenue streams mitigates the impact of cyclicality and competitive pressures in any particular business segment.

 

  • Strong business and financial assistance from the parent, BASF SE: The company receives strong operational and product support from BASF SE, one of the leading chemical players in the world. High level of integration between the parent and the Indian arm reflects synergies arising from similar businesses. CRISIL Ratings believes the parent will extend timely, need-based financial support in case of pressure on cash flow, and also support financing of large capex, if undertaken. The company undertook external commercial borrowing (ECB) to fund expansion of its Dahej plant (currently repaid), and the parent also rearranged the repayment terms when cash generation was impacted.

 

  • Improving financial risk profile: The financial risk profile of BASF India improved in fiscal 2023. Backed by steady accretion to reserve, networth improved to reserves and stood at Rs 2,698 Crore as on March 31, 2023. The company remains debt free as on March 31, 2023 and had minimal working capital utilisation to the tune of 14% for the 12 months through March  2023. Unutilised bank lines  and cash and bank balance stood at Rs 367 crore as on March 31, 2023.

 

Weaknesses:

  • Susceptibility to volatility in crude and forex rates: Operating margin in key business segments of BASF India depends on crude prices as raw materials are crude derivatives. Most of the raw materials are sourced from group companies outside India. Profitability is also vulnerable to movement of the US dollar and Euro against the Rupee, despite hedging, and 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

Cash balance stood at Rs367 crore on March 31, 2023 and working capital lines of around Rs 1500 crore remain mostly unutilised Besides, the company is expected to generate healthy accruals over the medium term. Liquidity is also aided by expectation of strong financial support extended by the parent, as observed in the past.

 

ESG Profile

CRISIL Ratings believes that BASF India’s Environment, Social, and Governance (ESG) profile supports its already strong credit risk profile.

 

The chemicals sector has a high impact on the environment because of the high greenhouse gas (GHG) emissions and high hazardous waste generation by its core operations. The sector has a social impact because of its large workforce, impact on health and wellbeing of its workers and local community on account of its nature of operations.

 

BASF India Ltd has continuously focused on mitigating its environmental and social impact. 

 

Key ESG highlights:

  • ESG disclosures of the company are evolving and it is in the process of strengthening the disclosures going forward
  • BASF has a goal to reduce their GHG emissions worldwide by 25%by 2030 compared with 2018. The company also aims to achieve net zero carbon dioxide  emissions by 2050.
  • The Company’s manufacturing site at Mangalore is meeting its power demand through renewable solar energy, which has helped to reduce carbon dioxide emission.
  • By 2030, the company aims to increase the proportion of women in leadership positions at BASF worldwide to 30%.
  • Its governance structure is characterised by 50% of its Board comprising independent directors, presence of investor grievance redressal mechanism.

 

There is growing importance of ESG among investors and lenders. The Company’s commitment to ESG principles will play a key role in enhancing stakeholder confidence, given its high share of market borrowings in  overall debt and access to domestic and foreign capital markets.

Outlook: Stable

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

Rating Sensitivity factors

Downward factors

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

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 & Care and Agricultural Solutions.

Key Financial Indicators^

As on/for the period ended March 31

Unit

2023

2022

Revenue from operations

Rs crore

13645

13111

Profit After Tax (PAT)

Rs crore

403

595

PAT Margins

%

3.0

4.5

Adjusted debt/adjusted net worth

Times

0.00

0.00

Interest coverage

Times

52.05

46.06

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

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN

Name of Instrument

Date of

Allotment

Coupon

Rate (%)

Date of

Redemption

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

Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper ST 750.0 CRISIL A1+   -- 10-08-22 CRISIL A1+ 26-07-21 CRISIL A1+ 23-09-20 CRISIL A1+ CRISIL A1+
      --   -- 30-06-22 CRISIL A1+   -- 03-04-20 CRISIL A1+ --
      --   -- 23-06-22 CRISIL A1+   -- 30-01-20 CRISIL A1+ --
      --   -- 05-05-22 CRISIL A1+   --   -- --
Fixed Deposits LT 0.0 CRISIL AAA/Stable   -- 10-08-22 CRISIL AAA/Stable 26-07-21 F AAA/Stable 23-09-20 F AAA/Stable F AAA/Stable
      --   -- 30-06-22 CRISIL AAA/Stable   -- 03-04-20 F AAA/Stable --
      --   -- 23-06-22 CRISIL AAA/Stable   -- 30-01-20 F AAA/Stable --
      --   -- 05-05-22 F AAA/Stable   --   -- --
Non Convertible Debentures LT 20.0 CRISIL AAA/Stable   -- 10-08-22 CRISIL AAA/Stable 26-07-21 CRISIL AAA/Stable 23-09-20 CRISIL AAA/Negative CRISIL AAA/Stable
      --   -- 30-06-22 CRISIL AAA/Stable   -- 03-04-20 CRISIL AAA/Watch Negative --
      --   -- 23-06-22 CRISIL AAA/Stable   -- 30-01-20 CRISIL AAA/Stable --
      --   -- 05-05-22 CRISIL AAA/Stable   --   -- --
All amounts are in Rs.Cr.

                                                                                                                  

Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Chemical Industry
CRISILs criteria for rating fixed deposit programmes
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

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