Detailed Rationale

CRISIL Ratings has revised its rating outlook on the long term bank facilities of Excel Industries Limited (EIL) to ‘Positive’ from 'Stable' while reaffirming the long term rating at ‘CRISIL A+’. The rating on the short-term bank facilities has been reaffirmed at ‘CRISIL A1’.

 

The ratings continue to reflect a strong business risk profile, backed by an established market position in the DETC segment; presence in diversified end-user industries, customer segments, and geographies; and a strong financial risk profile because of healthy networth and debt protection metrics. These strengths are partially offset by high product concentration and exposure to risks in the agrochemical business.

 

The outlook revision is based on improvement in the business risk profile supported by better product diversity, through increasing proportion of specialty chemicals and polymers divisions. Sustained revenue growth leading to improved business diversity coupled with continued strong financial risk profile may result in a rating upgrade.

 

Revenue is expected to grow by ~45-50% in fiscal 2022 aided by a low base of FY21, and improvement in both volumes & realisations across product segments. Further, planned capacity expansions have been completed in Q4FY22, which will also help drive the growth going forward. In an effort to reduce dependence on DETC, EIL has been diversifying into other business segments focussed towards specialty chemicals, including pharma intermediates and polymers. This will benefit business risk profile over the medium term and also shield the company from any adverse commodity price fluctuations.

 

EIL’s revenue and operating margin improved to Rs. 813 crore and  20.1%, respectively, during the first nine months through December 31, 2021 vis-à-vis Rs 531 crore and 15.5%, respectively, in the corresponding period last fiscal owing to strong demand scenario and higher realisations enjoyed in the agrochemical and specialty chemicals segments. Realisations in some of the key products in agrochemical and specialty segment increased owing to pass through of rise in price in Yellow Phosphorous, which is a key raw material for the company.  Revenues in fiscal 2021 remained flattish at Rs. 750 crores owing to the pandemic induced lockdowns as well as disruption in manufacturing activities in the Roha plant on account of cyclones.

 

CRISIL Ratings also notes that risks associated with any ban on chlorpyrifos, a key agrochemical produced using DETC, will remain key monitorables over the medium term given its considerable contribution to Excel’s revenue. CRISIL Ratings believes that any decision to ban chlorpyrifos is likely to be implemented in a phased manner considering the wide usage of the chemical both in the domestic as well as global markets. Further, EIL has also been reducing its DETC exposure for use of chlorpyrifos by focussing on DETC sales to non-chlorpyrifos segments and have also diversified into specialty and environmental product segments. These measures, besides partially mitigating this risk will also lead to improvement in business risk profile over the medium term.

 

Company’s financial risk profile remains strong marked by healthy networth estimated at over Rs. 950 core as on March 31, 2022 and nil to minimum debt on the balance sheet. With steady improvement in cash accruals and no major debt funded capex plans, reliance on external debt is expected to remain low over the medium term. This, coupled with growing scale and improving profitability should lead to further improvement in financial risk profile over the medium term.

Analytical Approach

For arriving at its ratings, CRISIL Ratings has combined the business and financial risk profiles of Excel and its wholly owned subsidiaries, Kamaljyot Investments Ltd and Excel Bio Resources Ltd. Goodwill worth Rs 18.85 Cr on acquisition Visakhapatnam plant of Netmatrix Crop Care Limited (NMCCL) has been amortised for 5 years starting fiscal 2020.

 

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:

• Diversified revenue across end-user industries, customer segments, and geographies: The company started as an agrochemical intermediate manufacturer and has expanded its product portfolio over the years by leveraging its process chemistry capabilities in other segments, such as performance and speciality chemicals, polymer additives, and pharma inputs. Performance and speciality chemicals cater to diverse segments, such as soaps and detergents, water treatment, and paints and coating. The company has also entered the polymer additives and pharmaceutical inputs segments to diversify revenue and reduce dependence on agrochemicals.

 

• Strong financial risk profile: Capital structure remain strong marked by healthy networth of over Rs. 950 crore expected as on March 31, 2022, due to steady accretion to reserves over the years and minimal debt. Absence of any large, debt-funded capex and prudent working capital management will enable low reliance on bank funding. Hence, the capital structure and debt protection metrics should remain strong over the medium term with Total Outside Liabilities to total Networth (TOL/TNW) expected at 0.25-0.3 times over the medium term. This coupled with growing scale and improving profitability should lead to further improvement in financial risk profile over the medium term.

 

Weaknesses:

• High product concentration in revenue: DETC had about 36% share in overall revenue in the nine months ending December 2021, which exposes the company to product concentration risk. DETC finds application in making chlorpyrifos (CPP) and Profenofos, which are agrochemical technicals used in making pesticides. Out of the two, use of CPP is under review by the Central Insecticides Board. However, currently only ~50% of DETC sales are used for CPP, and this contribution is on a declining trend, which partially offsets the product concentration risk. Further, contribution from non-agrochemicals segments which is on a rising trend,(currently at 45% of revenues in 9MFY22 visa-vis 34% of overall sales in fiscal 2018) is expected to reduce the concentration risk going forward. Any adverse regulatory decision or significant decline in prices of DETC may have a material impact on the performance of the company and will be a key monitorable.

 

• Exposure to risks inherent in the agrochemicals business: Revenue and profitability are susceptible to any unfavourable impact of government policies with respect to pollution control, product toxicity, or import and export of raw materials. The agrochemicals revenue is also susceptible to vagaries of the monsoon. Though increasing focus on other segments should result in a more diversified revenue profile and provide some cushion, revenue and profitability will be linked to these risks as a large part of income is derived from agrochemical intermediaries.

Liquidity: Strong

Company had cash surplus of Rs 75 crore as of 30 Sep, 2021. Further, annual cash accruals are expected to be in the range of Rs 180-200 crore per fiscal in fiscals 2022 to 2024, against negligible term debt obligation. Cash surplus and internal cash accrual would be more than sufficient to fund company’s regular capex plans and working capital requirement. The company also has access to Rs 65 crore of unutilised fund based bank limits.

Outlook: Positive

CRISIL Ratings believes that Excel’s credit profile could strengthen driven by sustained revenue growth and operating efficiency in the polymer and specialty chemicals business leading to a more diversified revenue profile. Its financial risk profile is expected to remain strong, driven by steady revenue growth, healthy debt protection metrics and cash accruals over the medium term.

Rating Sensitivity factors

Upward factors

• Sustained revenue growth at 10-12% CAGR, with material diversification in revenue profile; increase in share from specialty chemical/ pharma/ polymer divisions
• Sustenance of a healthy financial risk profile and improvement in liquidity

 

Downward factors

• Sustained decline in revenue and operating margin reducing to below 16%
• Larger-than-expected, debt-funded capex or working capital requirement, increasing the gearing.

About the Company

Incorporated as a private limited company in 1960, Excel was reconstituted as a public limited company in 1971. Following the demerger of its crop protection business from its former associate, Excel Crop Care Ltd, Excel began manufacturing chemical intermediaries used in agrochemicals, commodity polymers, engineering polymers, soaps and detergents, water-treatment chemicals, and biocides. The promoter group owned 52.1% stake in the company as on March 31, 2022.

Key Financial Indicators

As on/for the period ended March 31		2021	2020
Revenue	Rs crore	750	703
Profit after tax (PAT)	Rs crore	67*	94*
PAT margin	%	9.0	13.3
Adjusted gearing	Times	0.01	0.03
Interest coverage	Times	43.11	37.07

*Considering amortization of goodwill

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 Level	Rating Assigned with Outlook
NA	Cash Credit*	NA	NA	NA	65	NA	CRISIL A+/Positive
NA	Inland Guarantees	NA	NA	NA	3.5	NA	CRISIL A1
NA	Inland/Import Letter of Credit	NA	NA	NA	41.5	NA	CRISIL A1
NA	Letter of credit & Bank Guarantee	NA	NA	NA	39.5	NA	CRISIL A1

*Interchangeable with export packing credit, foreign bills discounting, and inland bills discounting

Annexure – List of entities consolidated

Names of Entities Consolidated	Extent of Consolidation	Rationale for Consolidation
Excel Bio Resources Limited	Full	Wholly owned subsidiary
Kamaljyot Investments Limited	Full	Wholly owned subsidiary