| Excel Industries Limited | ||||||
| Rating outlook revised to ‘Stable’; Ratings reaffirmed | ||||||
| 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 revised its rating outlook on the long-term bank facilities of Excel Industries Limited (EIL) to ‘Stable’ from 'Positive' while reaffirming the long term rating at ‘CRISIL A+’. The rating on the short-term bank facilities has been reaffirmed at ‘CRISIL A1.
The rating action follows moderation in the operational performance of the company during fiscal 2023, following a decline in revenue by ~7% to Rs.1,090 crore (fiscal 2022: Rs.1,178 crore) and steep decline in operating margin to ~11.6%- (fiscal 2022: 19.7%).
Revenue during fiscal 2023 has declined by ~7% to Rs.1,090 (fiscal 2022: Rs.1,178 crore) mainly owing to lower volume offtakes both in the specialty chemical and agro-chemical segment. While revenues from the agro-chemical segment have increased marginally in fiscal 2023 aided by higher realizations, revenues in the specialty chemical key products declined in fiscal 2023 owing to both price corrections and lower volumes largely due to global macro economic headwinds in key exports geographies. Consequently, overall exports as a % of sales declined from 25.5% in fiscal 2022 to 20% in fiscal 2023. Overall demand is expected to gradually pick up by the second half of current fiscal resulting in improved volumes.
Operating margins for fiscal 2023 sharply declined to ~11.6% from 19.7% previous fiscal majorly owing to mismatch in sales prices and input material cost coupled with lower operating leverage owing to reduction in volumes due to headwinds in export market. With raw material prices stabilizing, operating margins should improve over the near to medium term.
Company’s financial risk profile remains strong marked by healthy networth at Rs. 1,186 core as on March 31, 2023 and positive net debt position. With steady improvement in cash accruals and no major debt funded capex plans, strong capital structure is expected to sustain over the near to medium term.
The ratings continue to reflect a strong business risk profile, backed by an established market position in the DETC segment and phosphonates product 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 limited yet improving product diversity.
CRISIL Ratings also notes that risks associated with any ban on chlorpyrifos, a key agrochemical produced using DETC, will remain key monitorable over the medium term given its considerable contribution to Excel’s revenue. However, as on date, there has been no ban on Chlorpyrifos in India and is continued to be used. It might be noted that EIL has 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, will lead to improvement in business risk profile over the medium term. Further, profenofos where DETC finds its application has also been gaining momentum steadily. |
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 presence in 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 Rs. 1,186 crore as on March 31, 2023, 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 0.20-0.25 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 40% share in overall revenue in fiscal 2023, which exposes the company to the inherent risk associated with price volatility determined by the supply situation in China. DETC find its application in making chlorpyrifos and profenofos, which are agrochemical technicals. The product concentration risk is however partially offset by the rising contribution from the non-agrochemicals segments which contributed to 40% of revenues in fiscal 2023. Within the non agro-chem segment, share of total revenue of phosphonates (key specialty chemical product) has been increasing steadily with recent capacity expansion in this segment. 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 including liquid investments of Rs 139 crore as of Mar 31st 2023. Further, annual cash accruals expected at over ~Rs 115-120 crore per fiscal should be sufficient to meet capex and incremental working capital requirements. The company also has access to Rs 65 crore of unutilised fund-based bank limits. |
Outlook: Stable CRISIL Ratings believes that EIL’s operating and financial performance to remain healthy going forward, driven by gradual recovery in demand in agro-chemical and specialty chemical segments. Its financial risk profile is expected to remain strong, driven by a strong capital structure and healthy cash accruals. |
Rating Sensitivity factors Upward factors
Downward factors
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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 52.60% stake in the company as on March 31,2023 |
Key Financial Indicators
*Considering amortization of goodwill |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
^ Interchangeable with export packing credit, foreign bills discounting, and inland bills discounting |
Annexure – List of entities consolidated
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| 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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Criteria Details
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