Rating Rationale
January 23, 2023 | Mumbai
Finolex Plasson Industries Private Limited
Ratings reaffirmed at 'CRISIL A-/Stable/CRISIL A2+'
 
Rating Action
Total Bank Loan Facilities RatedRs.99 Crore
Long Term RatingCRISIL A-/Stable (Reaffirmed)
Short Term RatingCRISIL A2+ (Reaffirmed)
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 its 'CRISIL A-/Stable/CRISIL A2+' ratings on the bank facilities of Finolex Plasson Industries Private Limited (Finolex Plasson).

 

The ratings continue to factor in the healthy financial risk profile of Finolex Plasson and its established market position in the micro irrigation system (MIS) segment. These strengths are partially offset by large working capital requirement and susceptibility to changes in government policies.

 

Operating performance is estimated to recover in fiscal 2023 owing to smooth execution of orders and price hikes by government entities. This is reflected in revenue increasing by 33% year-on-year over the nine months through fiscal 2023. The margin is expected to recover to 9-10%in fiscal 2023 and at 10-11% in fiscal 2024, with likely moderation in the cost of raw materials. The credit risk profile should remain strong, aided by improved operating performance, negligible debt and expected net cash accrual of Rs 40-45 crore per annum.

 

The working capital cycle has improved with realisation in payments from Andhra Pradesh and Telangana. Considering the large working capital requirement, reducing contribution from these states will keep gross current assets (GCAs) at 230-270 days over the medium term.

Analytical Approach

CRISIL Ratings has taken a standalone view on the credit risk profile of Finolex Plasson.

Key Rating Drivers & Detailed Description

Strengths:

Healthy financial risk profile: The healthy financial risk profile should remain supported by minimal debt and absence of any large, debt-funded capital expenditure (capex). Networth is estimated to increase to over Rs 200 crore as on March 31, 2023, while gearing has been below 0.14 time for the past five fiscals. Expected net cash accrual of Rs 40-45 crore per annum, low capex and stable working capital cycle will result in gearing of below 0.05 time over the medium term. Debt protection metrics should remain strong, indicated by interest coverage and net cash accrual to total debt ratios expected at over 10 times and 4 times, respectively, in fiscal 2024.

 

Established position in the MIS industry: Finolex Plasson is the third largest player in the domestic MIS industry after Jain Irrigation Systems Ltd and Netafim Irrigation Pvt Ltd ('CRISIL A/Negative/CRISIL A1'). Revenue is geographically diversified, with no single state contributing more than 40% to the overall revenue. Tamil Nadu and Maharashtra are the largest contributors to revenue, followed by Gujarat. The company also benefits from its presence in project as well as retail MIS segments and its wide reach through 400 dealers. Operating revenue is expected to grow steadily from fiscal 2024 given the government’s strong focus on agriculture and irrigation. The company has decided to shift its focus to low-cost products used for micro irrigation, which is expected to support revenue growth in fiscal 2024, with the operating margin at over 10%.

 

Weaknesses:

Large working capital requirement: Operations may remain working capital intensive, driven by large receivables and inventory—receivables are dues from various state government bodies against the subsidy portion. The company has made substantial recovery from Andhra Pradesh and Telangana. Given the subsidy support for MIS, the working capital cycle is exposed to timely realisation of these subsidies. Focus on the cash and carry business model helps partly offset the high working capital required in the project business. Additionally, increased focus on conducting business with states that have lower receivables period, such as Gujarat and Tamil Nadu (about 90 days) and Maharashtra (advance), should improve the working capital cycle.

 

Susceptibility to changes in government policies: Policies related to government subsidies are a key growth driver for the MIS segment in India. State governments provide up to 60% capital subsidy to farmers, and the central government around 30%. Subsidies should continue in light of growing concern over the drop in water levels and agriculture productivity. However, any change in schemes or reduction in subsidies could impact revenue. Furthermore, a large portion of revenue is derived from government-related projects; state governments pay subsidies up to six months after installation/completion of the project. Additionally, pricing flexibility in the project business is limited as prices are determined by the respective state governments; this impacts overall profitability. Although the working capital requirement is partly met through payables, operations will remain susceptible to the large credit extended to government agencies.

Liquidity: Strong

Steady cash accrual of over Rs 30 crore per annum expected over the next three fiscals should be adequate to fund the working capital requirement and negligible annual debt obligation of Rs 2-4 crore. Consequently, bank limit utilisation was almost negligible for six months ended December 2022, while unencumbered cash and equivalents were around Rs 30 crore.

Outlook: Stable

Finolex Plasson will continue to benefit from its healthy operating performance, backed by established market position in the MIS segment and wide distribution network.

Rating Sensitivity factors

Upward factors

  • Cash accrual increasing to over Rs 40 crore, with sustained improvement in geographic diversity
  • Sustenance of a healthy financial risk profile and efficient working capital management

 

Downward factors

  • GCAs increasing beyond 300 days or writing off of receivables with difficulties in realising older dues
  • Large, debt-funded capex or substantial flow of funds to the parent

About the Company

Finolex Plasson (formerly Plastro Plasson Industries [India] Ltd) was incorporated in 1992 as an equal joint venture between the Finolex group and Plastro Gvat, Israel (Plastro), for manufacturing and trading in drip irrigation systems. In 1998, Plastro sold 17.3% of its stake to another Israeli company, Plasson Ltd (Plasson), which produces various fittings used in water irrigation projects. In 2008, the international operations of Plastro were acquired by John Deere Co (US), and Plastro sold its entire remaining stake, in equal proportion, to Finolex Industries Ltd and Plasson. The exit of Plastro led to the renaming of Plastro Plasson Industries (India) Ltd to Finolex Plasson Industries Ltd.

 

Finolex Plasson recorded total sales of Rs 312 crore over the nine months through fiscal 2023, with the operating margin at 9.9%.

Key Financial Indicators 

Particulars Unit 2022 2021
Revenue Rs crore 332 389
Profit after tax (PAT) Rs crore -4 25
PAT margin % -1.2 6.5
Adjusted gearing Times 0.02 0.03
Interest coverage Times 2.92 15.17

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.

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Annexure - Details of Instrument(s)

ISIN Name of
instrument		 Date of
allotment		 Coupon
rate (%)		 Maturity
date		 Issue size
(Rs crore)		 Complexity 
levels		 Rating assigned
with outlook
NA Cash Credit# NA NA NA 10.5 NA CRISIL A-/Stable
NA Letter of Credit* NA NA NA 73 NA CRISIL A2+
NA Term Loan NA NA 31-Jan-24 15.5 NA CRISIL A-/Stable

#Interchangeable with L.C. limits to the extent of Rs. 3.5 crore

*B.G sublimit of L.C of Rs. 41.5 crore

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
Fund Based Facilities LT 26.0 CRISIL A-/Stable   --   -- 25-10-21 CRISIL A-/Stable 27-07-20 CRISIL A-/Stable CRISIL BBB+/Positive
Non-Fund Based Facilities ST 73.0 CRISIL A2+   --   -- 25-10-21 CRISIL A2+ 27-07-20 CRISIL A2+ CRISIL A2
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Rating
Cash Credit& 5 CRISIL A-/Stable
Cash Credit& 3.5 CRISIL A-/Stable
Cash Credit& 2 CRISIL A-/Stable
Letter of Credit$ 21.5 CRISIL A2+
Letter of Credit$ 35 CRISIL A2+
Letter of Credit$ 16.5 CRISIL A2+
Term Loan 15.5 CRISIL A-/Stable
& - Interchangeable with L.C. limits to the extent of Rs. 3.5 crore
$ - B.G sublimit of L.C of Rs. 41.5 crore
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 Construction Industry
CRISILs Criteria for rating short term debt

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