| Heranba Industries Limited | ||||||
| Ratings upgraded to 'CRISIL A / Stable / CRISIL A1 ' | ||||||
| Rating Action | ||||||
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| 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 Heranba Industries Limited (HIL) to 'CRISIL A/Stable/CRISIL A1' from 'CRISIL A-/Stable/CRISIL A2+'.
The rating upgrade factors in sustained improvement in HIL’s business risk profile marked by strong top-line growth, healthy accruals and controlled working capital cycle coupled with significant improvement in HIL's overall financial risk profile post conclusion of initial public offering (IPO).
HIL’s revenues have grown at healthy pace at about 17% CAGR (compounded annual growth rate) for past 3 years ending fiscal 2021 backed by its strong position in Indian pyrethroids market. New product launches in export market, improving capacity utilisations, and new capacities going on stream, along with expectation of normal monsoon in FY22 will drive HIL’s revenue growth over the medium term. Further fully integrated facility for pyrethroids and limited dependence on China for raw material procurement, should ensure operating profitability stabilizing at 15-18 percent.
The company recently concluded an IPO, which resulted in an equity inflow of Rs 60 crore into the company through primary sale of shares. This has resulted in improvement in overall capital structure in FY21, with TOLANW (total outside liabilities to adjusted net worth) at 0.7 times estimated as on March 31, 2021 as against 1 times as on March 31, 2020. The proceeds from this IPO are expected to be primarily utilized for funding incremental working capital requirements. While HIL is expected to incur capex of Rs 150 crore over next 2-3 years; the same is expected to be funded through internal accruals. Thus reliance on bank borrowing is expected to remain low which will ensure continuance of strong financial risk profile.
The ratings continue to reflect an established track record and presence in key markets and a robust financial risk profile. These rating strengths are partially offset by large working capital requirement and exposure to risks inherent in the domestic agrochemicals market. |
Key rating drivers & detailed description Strengths: Established track record and presence in key markets: HIL is present in the entire product value chain of the agrochemicals industry i.e. Technicals (15-16 products), Formulations (more than 80 products) and Intermediates (2 products). HIL dominates the Indian pyrethroids market, accounting for a share of ~20%. It has a sound foothold in the domestic formulations market through a network of over 9,400+ dealers, and a robust marketing network through over 200+ representatives across India. HIL also exports to over 60+ countries across Middle East, Asia, South East Asia and Africa.
Robust financial risk profile: The net worth is strong at over Rs. 500 crore and the gearing & TOLANW low at 0.12 time & 0.7 times respectively, estimated as on March 31, 2021. Debt protection metrics are robust, with interest coverage and net cash accrual to total debt ratios at 23 times and 2.3 times, respectively, estimated for fiscal 2021. The reliance of HIL on working capital bank borrowing is expected to remain low post IPO and capital structure expected to remain strong over the medium term.
Weaknesses: Large working capital requirement: Gross current assets are at 188 days estimated as on March 31, 2021, driven by large receivables and moderate inventory. Substantial credit extended to dealers resulted in receivables of 100-110 days over the past five fiscals. Also, seasonality and irregular demand because of the vagaries of the monsoon, along with dependence on imported raw materials entailed moderate inventory of 50-65 days over this period.
Exposure to risks inherent in the domestic agrochemicals market: A substantial area under cultivation is still not well-irrigated and depends on the monsoon. Thus, the fortune of the agrochemicals industry is linked to rainfall received during the year. There is intense price and product competition from local players and multinational corporations. Operations are also exposed to government regulations. In May 2020, the Ministry of Agriculture issued a draft order prohibiting 27 pesticides, out of which 16 were being manufactured by HIL contributing around 10% of overall revenue. However, continuous addition of new products mitigates the risk to a large extent. |
Liquidity: Strong Liquidity will remain strong over the medium term, backed by sizeable cash accrual and absence of any term debt obligations. The bank limit of Rs 74.75 crore was utilised moderately, at an average of 25% during the 9 months through January 2021. Estimated cash accrual of Rs 120-150 crore per fiscal over the medium term will be utilised to meet incremental working capital and capital expenditure (capex) requirements. HIL has healthy levels of unencumbered cash at over Rs 50 crore estimated as on 31st March 2021 The current ratio is at around 1.9 times estimated as on March 31, 2021. |
Outlook Stable CRISIL Ratings believes HIL will continue to benefit from its pan-India presence, established market position, and robust financial risk profile. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company HIL was incorporated in 1992, and taken over by current promoters, Mr Sadashiv K Shetty and Mr Raghuram K Shetty, in 1994. It manufactures formulations and active ingredients for insecticides, fungicides, and herbicides at its three units in Vapi, Gujarat. The company made an IPO and got listed on the Bombay Stock Exchange and the National Stock Exchange in March 2021. |
Key Financial Indicators
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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