| Dharmaj Crop Guard Limited | ||||||
| Ratings upgraded to 'CRISIL BBB/Stable/CRISIL A3+' | ||||||
| Rating Action | ||||||
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| 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 upgraded its ratings on bank facilities of Dharmaj Crop Guard Limited (DCGL) to ‘CRISIL BBB/Stable/CRISIL A3+’ from ‘CRISIL BBB-/Positive/CRISIL A3’.
The ratings upgrades reflect improvement in business risk profile and strengthened financial risk profile backed by raising of capital through IPO. The revenue of company grew by y-o-y 30% to Rs 395 crore in FY22 backed by increasing branded sales, expanding distributor network and geographic presence and rising exports. The growth momentum continued during 4MFY23 with estimated revenue of Rs 221 crore. The operating margin also improved from 10.5% in FY21 to 11.7% in FY22. During 4MFY23, company estimated operating margin of 12.5%.
The shares of company were listed on BSE and NSE as on December 8, 2022, and raised Rs 251.15 crore via IPO, out of which Rs 216 crore were primary. Out of the proceeds, Rs 105 crore are expected to be utilized for capacity expansion, Rs 45 crore are expected to be utilized for incremental working capital requirements and balance towards general corporate purpose. Subsequently DCGL's reliance on bank borrowing (both incremental working capital and ongoing project funding) is expected to reduce significantly. Subsequently, DCGL’s financial profile continue to strengthen and project risk reduced to great extent (especially funding risk), however, successful completion of project and timely achievement of COD without cost overrun remain key monitorable.
The ratings reflect extensive industry experience of DCGL's promoters in the agro-chemicals industry, diversified product portfolio, wide customer base and established distribution network, moderate working capital cycle and strengthening financial profile. These strengths are partially offset by risk associated with the ongoing project implementation, exposure to intense competition and inherent risks in the agro-chemicals industry. |
Key Rating Drivers & Detailed Description Strengths:
The promoters have an experience of over two and half decades in agro chemicals industry. This has given them an understanding of the dynamics of the market and enabled them to establish relationships with suppliers and customers. This is reflected in the rapid scale up in operations in past. The revenue of company grew at CAGR of 59% during past 5 years ended FY22 with y-o-y growth of 30% to Rs 395 crore in FY22. Till July 2022, company estimated revenue of Rs 221 crore.
DCGL has healthy capital structure with net worth of Rs 83 crore and controlled reliance on external borrowings yielding with gearing of 0.4 times and total outside liabilities to adj tangible networth (TOL/ANW) of 1.62 times as on March 31, 2022. The reliance of DCGL on working capital bank borrowing and ongoing project are expected to remain lower post IPO and capital structure expected to strengthen over the medium term. DCGL debt protection measures are also comfortable with interest coverage and net cash accrual to total debt (NCATD) ratio are at 17.7 times and 92% for fiscal 2022. DCGL debt protection measures are expected to remain at similar level over medium term.
The company manufactures a wide variety of pesticides, weedicides, fungicides, herbicides, and has an active portfolio of over 190 products. A diverse product portfolio has enabled the company to establish a wide customer base including bulk consumers, retailers and export customers. Further, company has a distribution network of around 3700 distributors/dealers spread across country. Company also derives 5-10% of its revenue from exports.
Gross current assets were at 100-150 days over the three fiscals ended March 31, 2022. The GCA days were 142 days as on March 31, 2022 driven by debtor of 80 days and inventory of 66 days. However, large portion of working capital requirement is being met through creditors of 108 days.
Weaknesses:
DGCL has taken up around Rs 172 crore greenfield capital expansion for backward integration into manufacturing of technicals. The capex is spread through 2 years to fiscal 2023 and shall be funded through Rs 105 crore from IPO proceeds and remaining through internal accruals. The project exposes DGCL to associated risks, such as time or cost overrun, technology obsolesce, and stabilisation and ramp up in operations post completion. Progress in project implementation and subsequent ramp up, stabilization remains a rating sensitivity factor.
The domestic agro-chemicals industry remains vulnerable to ban on products by the government and erratic monsoons. Further, presence of spurious pesticides and insecticides, could endanger the brand equity of players and damage crop production. Intense price and product competition among local players and multinational corporations (MNCs), further limits the bargaining power with customers. Also given the rapid scale up in operations, the ability of company to manage its business sustainably needs to be observed, in this competitive industry. |
Liquidity: Adequate The liquidity profile of DCGL expected to improve post IPO due to fresh net proceeds of Rs 216 crore resulting in lower reliance on external bank lines and project funding. The company generated healthy cash accruals against moderate repayment obligations. The bank lines are moderately utilised, having controlled working capital cycle and healthy financial flexibility. The company generate accruals of Rs 34 crore in fiscal 2022 covering the repayment obligation over 8 times. Its accruals are expected to be over Rs 40 crore annually over next couple of fiscals, covering the repayment 8-11 times and providing cushion for working capital and capex funding. Current ratio are healthy at 1.44 times on March 31, 2022. Low gearing and comfortable net worth support its financial flexibility. |
Outlook: Stable CRISIL Ratings believe DCGL continue to derive benefit from extensive experience of its promoter, established relationships with clients, improving cash accruals and strengthened financial risk profile post raising of capital through IPO and subsequently lower reliance on external borrowing for project funding. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company DCGL was incorporated in 2015. It is engaged in manufacturing of agrochemicals such as pesticides, insecticides, herbicides, fungicides, etc. It has manufacturing facility located in Ahmedabad- Gujarat and promoted by Mr. Ramesh R. Talavia and Mr. Jaman Talavia. On December 8, 2022, company was listed on Bombay Stock Exchange and the National Stock Exchange. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
& - Includes EPC sublimit of Rs. 15 cr, PCFC sublimit of Rs. 15 cr, Bank guarantee Sublimit of Rs. 1 cr, WCDL sublimit of Rs. 9 cr. ^ - Capex LC sublimit of Rs. 50 cr. % - Capex LC sublimit of Rs.25 cr |
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 29-Dec-22 in line with the lender-wise facility details as on 18-Jan-22 received from the rated entity.
& - Includes EPC sublimit of Rs. 15 cr, PCFC sublimit of Rs. 15 cr, Bank guarantee Sublimit of Rs. 1 cr, WCDL sublimit of Rs. 9 cr.
^ - Capex LC sublimit of Rs. 50 cr.
% - Capex LC sublimit of Rs.25 cr
Criteria Details
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