| NACL Industries Limited | ||||||
| Rating outlook revised to 'Negative'; 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 NACL Industries Ltd (NACL; a part of the NACL group) to ‘Negative’ from ‘Stable’ while reaffirming its rating at ‘CRISIL A-’. CRISIL Ratings has also reaffirmed its ‘CRISIL A2+’ rating on the short-term bank facilities of the company.
The outlook revision factors the subdued performance in fiscal 2024, especially in the first three quarters, due to sharp moderation in price realisations and weak demand from the export market. Though the company managed to keep the topline moderation under control with improved volumetric sales in the domestic market (which grew by around 30%) the earnings before interest, taxes, depreciation, and amortisation margin fell steeply to below 1% in fiscal 2024 (from 8.5% in fiscal 2023). Though the group witnessed some recovery, both in terms of profitability and revenue in the fourth quarter of fiscal 2024, one-time provision of Rs 18.8 crore to account for potential losses on doubtful receivables impacted the full-year performance.
Though the performance is likely to improve in fiscal 2025 owing to better export demand and expectation of normal monsoon in the domestic market, the extent of recovery and the consequent improvement in operating margin and working capital cycle remains monitorable. Moreover, the auditors have made a qualified opinion in the fourth quarter of fiscal 2024 on trade receivables aggregating Rs 77.96 crore for which they received unreliable responses from the customers. Further, the management has initiated independent investigation into the matter and has appointed M/s Ernst and Young LLP to conduct a thorough forensic audit regarding the observations made by the statutory auditors regarding irregularities in trade receivables. The investigation is under process and any further material provisions/write-offs post the final report from the forensic auditors will remain closely monitored.
The ratings continue to reflect the strong market presence and brand of NACL in the agrochemical space, supported by the extensive experience of the management team, well-established clientele, geographical diversification in revenue, and moderate financial risk profile. These strengths are partially offset by large working capital requirement, exposure to competition and susceptibility to regulatory changes and seasonality inherent in the agrochemicals sector. |
Analytical approach: Consolidated CRISIL Ratings has combined the business and financial risk profiles of NACL and all its subsidiaries and associate companies. This is because all these entities, collectively referred to as the NACL group, are in the same line of business and have common promoters and strong business and financial linkages. Also, NACL holds a 26% stake in Nasense Labs Pvt Ltd and has been consolidated accordingly.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key rating drivers and detailed description Strengths:
Weaknesses:
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Liquidity: Adequate Liquidity should remain supported by the ample surplus available in cash accrual and bank lines. Bank limit utilisation was moderate at 82% for the 12 months through May 2024. Cash accrual is projected at more than Rs 85 crore per annum, against yearly repayment obligations of around Rs 60-65 crore in fiscal 2025. Current ratio is estimated at 1.2 times on March 31, 2024. |
Outlook: Negative The outlook is negative on account of subdued business performance and the ongoing forensic audit initiated by the company. The outcome of the investigation, leading to any further provisions/write-offs and its impact on the overall credit profile, will remain monitorable. |
Rating sensitivity factors Upward factors
Downward factors
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About the NACL group NACL, incorporated in 1986, manufactures and exports crop protection technical (active ingredient) and formulations. It manufactures all kinds of pesticides, insecticides, herbicides, fungicides and other plant growth chemicals. The formulation business of the company is mainly in the Indian market, and it sells through a large retail dealer network spread across India; it also has a range of branded formulations. The company has two manufacturing units at Srikakulam and Ethakota in Andhra Pradesh and one research and development centre in Telangana. Ms K Lakshmi Raju is the promoter and Mr M Pavan Kumar manages the operations.
NSCL, established in April 2020, set up a manufacturing unit at Dahej Industrial Zone. The unit has installed capacity of 6,000 tonne per annum for manufacturing agrochemical technical and intermediate for domestic as well as export markets. Ms K Lakshmi Raju is the promoter. |
Key financial Indicators
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Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of instrument(s)
* WCDL and Pre&post shipment Credit are sublimits of CC. **CC and LC are sublimits of WCDL. |
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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