Rating Rationale
February 16, 2024 | Mumbai
Dharmaj Crop Guard Limited
Ratings upgraded to 'CRISIL BBB+/Stable/CRISIL A2'
 
Rating Action
Total Bank Loan Facilities RatedRs.155.05 Crore
Long Term RatingCRISIL BBB+/Stable (Upgraded from 'CRISIL BBB/Stable')
Short Term RatingCRISIL A2 (Upgraded from 'CRISIL A3+')
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 the bank facilities of Dharmaj Crop Guard Ltd (DCGL) to ‘CRISIL BBB+/Stable/CRISIL A2’ from ‘CRISIL BBB/Stable/CRISIL A3+’.

 

The rating upgrade reflects a belief that the business and financial risk profiles of DCGL will continue to strengthen, driven by significant increase in revenue and profitability and raising of capital through initial public offering (IPO). Revenue grew 35% (on-year) to Rs 530 crore in fiscal 2023, backed by increasing branded sales, expanding distributor network and geographic presence foraying into the business-to-consumer segment. The company also manufactures and sells general insect and pest control chemicals for Public Health and Animal Health protection. Revenue grew to an estimated Rs 414 crore during the first half of fiscal 2024, from Rs 358.81 crore in the first half of fiscal 2023, while the operating margin improved to 12.0% from 10.5%. Further, the project has been completed and ramp up of the operations will remain a key monitorable.

 

The ratings also factor in comfortable financial risk profile, reflected in high networth of Rs 318.42 crore and low gearing of 0.16 time as on March 31, 2023, which are expected at more than Rs 350 crore and 0.10-0.11 time, respectively, as on March 31, 2024, due to sustained accretion to reserve and gradual debt repayment. Capital structure is likely to improve further, in the absence of any large, debt-funded capital expenditure (capex). Liquidity is adequate, backed by low bank limit utilisation, sufficient accrual to meet debt obligation, unencumbered cash and cash equivalents and unsecured loans extended by the promoters.

 

The ratings consider extensive experience of the promoters in the agricultural (agro)-chemicals industry, diversified product portfolio, wide customer base, established distribution network and strong financial risk profile. These strengths are partially offset by exposure to large working capital requirement, intense competition and inherent risks in the industry.

Key Rating Drivers & Detailed Description

Strengths:

  • Extensive experience of the promoters, diversified product portfolio, wide customer base and established distribution network: The promoters have more than two and half decades of experience in the agro-chemicals industry; their strong understanding of market dynamics and healthy relationships with suppliers and customers should continue to support the business.

 

The company manufactures a wide variety of pesticides, weedicides, fungicides, herbicides and has an active portfolio of over 190 products, thereby catering to a wide customer base including bulk consumers, retailers and export customers; exports contribute to 5-10% of the revenue. The company also has a distribution network of over 4,800 distributors/dealers spread across the country. Revenue increased at a compound annual growth rate of 29% during the past three fiscals and grew 35% (on-year) to Rs 530 crore in fiscal 2023; revenue is estimated at Rs 414 crore for the first half of fiscal 2024, against Rs 358.81 crore during the corresponding period of the previous fiscal.

 

  • Healthy financial risk profile: The capital structure has been strong owing to controlled reliance on external borrowing. Networth stood high at Rs 318.42 crore, with gearing of 0.16 time and total outside liabilities to adjusted networth ratio of 0.36 time as on March 31, 2023. Debt protection metrics were robust, with interest coverage ratio of 21.05 times and net cash accrual to total debt ratio of 49% for fiscal 2023.

 

Weaknesses:

  • Large working capital requirement: Gross current assets have been sizeable at 100-196 days for the past three fiscals and were 196 days as on March 31, 2023, driven by debtors of 51 days, inventory of 55 days and cash and cash equivalent of Rs 125.44 crore (as fixed deposits). However, the working capital is majorly supported by creditors of 47 days.

 

  • Exposure to intense competition and inherent risks in the agro-chemicals industry: 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 also limit the pricing power with customers. Furthermore, given the rapid scale up in operations, ability of the company to manage its business sustainably amid the competitive pressure will be a key monitorable.

Liquidity: Adequate

Liquidity improved post the IPO due to fresh net proceeds of Rs 216 crore, resulting in lower reliance on external debt and project funding. Cash accrual is projected at more than Rs 35 crore per annum, against yearly debt obligation of Rs 8-9 crore over the medium term; the surplus cash will aid financial flexibility. Bank limit utilisation has been low, at 17% for the 12 months through December 2023. Current ratio stood healthy at 3.27 times on March 31, 2023. Low gearing and comfortable networth should support liquidity.

Outlook: Stable

DCGL will continue to benefit from the extensive experience of the promoters, established relationship with clients, improving cash accrual and strong financial risk profile.

Rating Sensitivity factors

Upward factors:

  • Steady revenue growth per annum while maintaining operating margin above 13%, leading to higher-than-expected cash accruals.
  • Sustenance of comfortable financial risk profile with significant improvement in the working capital cycle.

 

Downward factors:

  • Decline in revenue and operating margin dropping below 7%, resulting in lower-than-expected cash accruals.
  • Any large, debt-funded capex or a further stretch in the working capital cycle.

About the Company

DCGL, incorporated in 2015, manufactures agrochemicals such as pesticides, insecticides, herbicides and fungicides at its facility in Ahmedabad, Gujarat. On December 8, 2022, the company was listed on the Bombay Stock Exchange and the National Stock Exchange. Mr Ramesh R Talavia and Mr Jaman Talavia are the promoters.

Key Financial Indicators

Particulars

Unit

2023

2022

Revenue

Rs crore

535.24

395.00

Profit after tax (PAT)

Rs crore

20.82

28.69

PAT margin

%

3.89

7.26

Adjusted debt/adjusted networth

Times

0.16

0.44

Interest coverage

Times

21.05

17.71

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 the instrument Date of
Allotment		 Coupon
Rate (%)		 Maturity
Date		 Issue size
(Rs. Crore)		 Complexity
Level		 Rating assigned
with outlook
NA Cash credit& NA NA NA 22.75 NA CRISIL BBB+/Stable
NA Cash credit NA NA NA 30 NA CRISIL BBB+/Stable
NA Foreign exchange forward NA NA NA 7.35 NA CRISIL A2
NA Term loan^ NA NA Mar-2029 50 NA CRISIL BBB+/Stable
NA Term loan% NA NA Mar-2029 40 NA CRISIL BBB+/Stable
NA Proposed Fund-Based Bank Limits NA NA NA 4.95 NA CRISIL BBB+/Stable

& Includes export packing credit (EPC) sublimit of Rs 15 crore, pre-shipment credit in foreign currency (PCFC) sublimit of Rs 15 crore, bank guarantee sublimit of Rs 1 crore, working capital demand loan (WCDL) sublimit of Rs 9 crore.

^ Capex letter of credit (LC) sublimit of Rs 50 crore.

% Capex LC sublimit of Rs 25 crore

Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities ST/LT 155.05 CRISIL BBB+/Stable / CRISIL A2   --   -- 29-12-22 CRISIL A3+ / CRISIL BBB/Stable 10-08-21 CRISIL BBB-/Stable / CRISIL A3 --
      --   --   -- 09-02-22 CRISIL BBB-/Positive / CRISIL A3   -- --
      --   --   -- 25-01-22 CRISIL BBB-/Positive / CRISIL A3   -- --
      --   --   -- 18-01-22 CRISIL BBB-/Positive   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 30 State Bank of India CRISIL BBB+/Stable
Cash Credit& 22.75 HDFC Bank Limited CRISIL BBB+/Stable
Foreign Exchange Forward 7.35 HDFC Bank Limited CRISIL A2
Proposed Fund-Based Bank Limits 4.95 Not Applicable CRISIL BBB+/Stable
Term Loan^ 50 HDFC Bank Limited CRISIL BBB+/Stable
Term Loan% 40 State Bank of India CRISIL BBB+/Stable
&  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
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
Understanding CRISILs Ratings and Rating Scales

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