Rating Rationale
July 31, 2020 | Mumbai
Krishi Rasayan Exports Private Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.450 Crore
Long Term Rating CRISIL A-/Stable (Reaffirmed)
Short Term Rating CRISIL A2+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL A-/Stable/CRISIL A2+' ratings on the bank facilities of Krishi Rasayan Exports Private Limited (KREPL; part of the KREPL group).
 
During fiscal 2020, KREPL reported a strong 50% growth in revenues driven by favorable demand in the end market as well as higher contribution from new products and trading sales. The healthy demand has continued in fiscal 2021 driven by favorable crop expectations (both kharif and rabi) and hence the impact of nationwide lockdown due to Covid pandemic has been minimal, restricted to supply chain disruptions and delay in shipments. As a result, KREPL's revenue is expected to grow at a healthy clip in fiscal 2021 as well. Expansion of product basket and geographical presence will continue to augur well for the company over the medium term, assuming normal monsoon.
 
Operating profitability declined to 6.3% during fiscal 2020 due to higher pricing discounts offered to customers; same is expected to improve to about 7% over the medium term through improved product mix towards exports.
 
During fiscal 2020, the group had purchased 16% stake in the Nagarjuna Agro Chemicals Ltd (NACL), a Hyderabad based agrochemical manufacturer at a consideration of Rs 100 crore. During fiscal 2021, KREPL is planning to invest Rs 50 crore towards expanding its technical plant in Panoli, Gujarat. Despite this and the incremental working capital requirement, the financial risk profile should remain comfortable over the medium term, supported by healthy gearing and steady cash accruals.
 
The ratings continue to reflect the KREPL group's established position in the agrochemical formulations industry, wide product portfolio and geographical reach, and sanguine industry outlook for the Indian agrochemicals sector. The ratings also factor the group's adequate financial risk profile driven by healthy networth and capital structure, and comfortable debt protection metrics. These strengths are partially offset by lack of backward integration in operations; large working capital requirement; and susceptibility to risks inherent in the agrochemicals sector 

Analytical Approach

For arriving at the ratings, CRISIL has combined the business and financial risk profiles of KREPL and Agro Life Science Corporation (ALSC), a partnership firm. The two entities, together referred to as the KREPL group, are in similar businesses, and have significant business linkages, common management, and financial fungibility. CRISIL has not combined the business and financial risk profiles of Truly Pest Solutions Pvt Ltd (Truly Pest), Krishi Biotech Research Pvt Ltd, and KREPL (HK) Ltd, as these entities do not have significant operations and do not materially impact the KREPL group's credit risk profile.

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
* Established market position for agrochemical formulations, supported by wide product portfolio and diversified geographic reach
The KREPL group has wide products portfolio including insecticides, fungicides, herbicides, and plant growth regulators. It has over 100 registrations for formulations in the domestic market and more than 120 registrations abroad. It has tied up with several companies in China, the US, Spain, Japan and Singapore for 45 technical-grade pesticides for sale in India, and plans more tie-ups to expand range. Furthermore, customer base is also likely to expand supported by investments for geographical expansion and increase in exports, led by new registrations and steady demand.
 
* Adequate financial risk profile
Financial risk profile is adequate, backed by healthy networth (about Rs 514 crore as on March 31, 2020), comfortable gearing, and adequate debt protection indicators, supported by steady cash accrual and prudent capex. Debt protection metrics continued to remain comfortable with interest coverage ratio of 4.1 and comfortable NCATD of 0.17 time for the fiscal 2020 (albeit lower compared to 5.98 times and 0.23 time respectively in fiscal 2019). The financial risk profile should remain adequate over the medium term because of steady accrual despite working capital-intensive operations and moderate capex investments.
 
* Steady medium-term prospects for the Indian agrochemical sector
The agrochemical sector, after witnessing its most challenging period in fiscals 2015 and 2016, due to back-to-back unfavourable monsoon and weak demand in key global markets, benefited from normal monsoon from fiscal 2018 to fiscal 2020. Pesticide industry is expected to grow at 14-15% by value in over the medium term driven by increasing geographic penetration by players and greater shift from premium formulation to cost effective generic formulations by farmers. Growth in fiscal 2021 is expected to be at 10-12% due to supply side challenges triggered by the covid pandemic. Global multinational companies outsourcing from India will also present healthy contract manufacturing and custom synthesis opportunities for Indian players.
 
Weaknesses
* Working capital-intensive operations
The group's operations, like those of other players in the industry, are highly working capital intensive, indicated by gross current assets of around 250 days in near to medium term. The group has receivables of around 135 days and maintains 3-4 months of inventory for imported raw material (55-60% of purchases) to service demand in a timely manner. Payable days of company increased to 95 days in fiscal 2020 due to tightness in availability of raw materials from China and sharp increase in their prices. Additionally, with the ongoing lockdown, the receivable collection period is expected to remain high and gradually normalize with stabilization in end markets.
 
* Lack of backward integration into manufacture of technical
The group has composite manufacturing units with formulation plants in Bihar, Himachal Pradesh, Jammu & Kashmir, and Gujarat. Its pesticide product is generic and the group depends on technicals to make formulations. Lack of backward integration, especially during times of supply disturbances from China, places pure-play formulators on weaker footing compared with fully integrated players. KREPL is mitigating the disadvantage by its strategic investment in NACL, which will meet a part of the group's technical requirement. It has tied ups with several companies in China, the US, and Singapore for 13 technical-grade pesticides for sale in India. The group's long-term tie-ups with overseas suppliers and longstanding relationships with domestic suppliers, helps address challenges on input availability. However, it has limited bargaining power with suppliers. Thus, profitability will remain susceptible to lack of backward integration in operations.
 
* Exposure to competition, monsoon vagaries and regulations Susceptibility to risks inherent in the agrochemicals sector
The crop-protection sector remains susceptible to specific and separate registration processes in different countries, and various environmental rules and regulations. Change in regulatory requirements, such as export and import policies, and environmental and safety requirements in countries could impact players in the industry.
 
Recently in May 2020, the Indian Govt. has issued a draft order banning 27 pesticides citing high toxicity levels and their impact on soil health. The ban is relaxed on exports though on cases to case basis. KREPL derives 10% of its revenues from these products from domestic market. Given that the ban would be implemented in phased manner, companies in the industry, including KREPL, are expected to replace the products through other alternatives over the medium term.
 
Further with about 92% of revenue coming from the domestic agricultural inputs business, KREPL remains exposed monsoon vagaries and level of farm incomes in India.
Liquidity Adequate

Liquidity is adequate, driven by steady accruals of Rs 40-55 crore, negligible long term debt, and moderate bank limit utilisation of around 55% for the 12 months ended through June, 2020. KREPL is expected to invest in capex of Rs 50 crore in fiscal 2021 (part funded by debt) to enhance its capabilities in its technical unit at Panoli, Gujarat. Cash accruals, liquid surplus (Rs 14 crore as of June 2020), and unutilised bank lines should be sufficient to meet incremental working capital requirements over the medium term.

Outlook: Stable

CRISIL believes the KREPL group's business risk profile will remain stable over the medium term supported by favourable demand prospects for agrochemicals and the group's established market presence in the agrochemical industry. Its financial risk profile is expected to remain adequate driven by steady cash accrual and prudent capex funding.

Rating Sensitivity Factors
Upward Factors
* Sustained expansion of market presence leading to compounded annual revenue growth of greater than 15% over the medium term
* Steady improvement in profitability to 9-10% driven by better operating efficiency and launch of new products including in export markets

Downward Factors
* Sharper decline in profitability below 5% due to higher competition or inability to fully pass on the input cost increases
* Debt funded acquisition or increase in investments leading to gearing above 1.2 times over the medium term.

About the Group

KREPL, established in 1973, manufactures agrochemicals. It has six composite manufacturing plants at Muzzaffarpur, Bihar; Baddi, Himachal Pradesh; Jammu, Jammu & Kashmir; Agma Energy Private Limited, a joint venture between KREPL and Alga Energy, Spain (for manufacturing of Bio stimulants in India as well as exports) and a state-of-the-art bulk formulations plant in Panoli, Gujarat. ALSC has two manufacturing facilities'at Changodar in Gujarat, and at Kathua in Jammu. KREPL has 16 marketing offices in India and one international office. Mr Rajesh Agarwal and his family, and Mr Atul Churiwal and his family hold 45% and 55%, respectively, in KREPL, and 50% each in ALSC.
 
The KREPL group has diversified into multiple business segments over the past six years, including pest control services (under Truly Pest Solutions Pvt Ltd, a subsidiary of KREPL; franchisee of Truly Nolen International, USA), biotech research and development (under Krish Biotech Research Pvt Ltd), and bio and chemical products manufactured for agricultural use under ALSC. The group also has a marketing arm KREPL (HK) Ltd, incorporated in 2009, which currently has no operations.

Key Financial Indicators
As on March 31, Unit 2019 2018
Revenue Rs.Cr 828 653
PAT Rs.Cr 44 52
PAT margins % 5.3 7.9
Adjusted debt/Adjusted Networth Times 0.43 0.42
Interest Coverage Times 5.98 9.37

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL 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. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
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 Buyer's Credit NA NA NA 35 NA CRISIL A2+
NA Cash Credit NA NA NA 176 NA CRISIL A-/Stable
NA Letter of Credit NA NA NA 162.5 NA CRISIL A2+
NA Proposed Buyer's Credit Limit NA NA NA 76.5 NA CRISIL A2+
 
Annexure - List of Entities Consolidated
Entity Consolidated Extent of consolidation Rationale for consolidation
Krishi Rasayan Exports Pvt Ltd Full Strong business and financial linkages
Agro Life Science Corporations Full Strong business and financial linkages
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  287.50  CRISIL A-/Stable/ CRISIL A2+      30-04-19  CRISIL A-/Stable/ CRISIL A2+  08-01-18  CRISIL A-/Stable/ CRISIL A2+      CRISIL A-/Stable/ CRISIL A2+ 
Non Fund-based Bank Facilities  LT/ST  162.50  CRISIL A2+      30-04-19  CRISIL A2+  08-01-18  CRISIL A2+      CRISIL A2+ 
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Buyer`s Credit 35 CRISIL A2+ Buyer`s Credit 35 CRISIL A2+
Cash Credit 176 CRISIL A-/Stable Cash Credit* 30 CRISIL A-/Stable
Letter of Credit 162.5 CRISIL A2+ Cash Credit** 51 CRISIL A-/Stable
Proposed Buyer Credit Limit 76.5 CRISIL A2+ Cash Credit 95 CRISIL A-/Stable
-- 0 -- Letter of Credit^ 15 CRISIL A2+
-- 0 -- Letter of Credit^^ 20 CRISIL A2+
-- 0 -- Letter of Credit# 85 CRISIL A2+
-- 0 -- Letter of Credit@ 42.5 CRISIL A2+
-- 0 -- Proposed Buyer Credit Limit 76.5 CRISIL A2+
Total 450 -- Total 450 --
*Includes sublimits of Rs 30 crore of working capital demand loan (WCDL), Rs 10 crore for pre-shipment export credit, Rs 10 crore for post shipment credit/foreign bills purchased/discounted (foreign bill purchased/foreign bill discounting).
**Includes sublimits of Rs 44 crore for WCDL, Rs 44 crore for buyer's credit, Rs 10 crore for export bill negotiation, Rs 44 crore for letter of credit (LC)
^Includes sublimit of Rs 15 crore for buyer's credit
^^Includes sublimits of Rs 15 crore for usance LC, Rs 10 crore letter for clean bill discounting
#Includes sublimits of Rs 85 crore for buyer's credit, Rs 1 crore for bank guarantee
@Includes sublimits of Rs 42.5 crore for buyer's credit/letter of undertaking for buyer's credit, Rs 15 crore for bank guarantee
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Chemical Industry
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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