Rating Rationale
November 28, 2023 | Mumbai
Nath Bio-Genes India Limited
Rating outlook revised to 'Positive'; Rating Reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.105 Crore
Long Term RatingCRISIL BBB-/Positive (Outlook revised from 'Stable'; Rating Reaffirmed)
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1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has revised its outlook on the long-term bank loan facility of Nath Bio-Genes India Limited (Nath Bio) to ‘Positive’ from ‘Stable’ and has reaffirmed the rating at ‘CRISIL BBB-’.

 

The change in outlook reflects expected improvement in business risk profile of the company while maintaining its healthy financial risk profile. Company’s scale and operating margin has improved with revenue of over Rs 300 crore at an operating margin of 16.5% in fiscal 2023. Scale is expected to sustain in fiscal 2024 with company achieving revenue of Rs 257 crores till H1 FY24. Sustained improvement in revenue while maintaining operating margin will remain monitorable.

 

While company has exposure to group companies, it has been gradually reducing and will remain monitorable. Financial risk profile remains comfortable and with higher accretion to reserves, it is expected to improve over the medium term.

 

The rating continues to reflect Nath Bio's established market presence, backed by experience of the promoters in the domestic seed industry, along with a healthy financial risk profile. These strengths are partially offset by large working capital requirement, and susceptibility of the business to changes in government regulations, monsoon and intense competition.

Key Rating Drivers & Detailed Description

Strengths:

  • Established market presence backed by experience of the promoters and diversified product profile: Supported by extensive experience of the promoters, Nath Bio has established its position in the domestic seed industry for more than three decades. The promoters have maintained strong relationships with customers while successfully navigating several business cycles over the years. The improvement in revenue is supported by the better offtake from existing customers on the back of increased demand. A diversified portfolio further backs this. The strong research credentials of the company and its varied product basket are expected to serve Nath Bio well in the medium term. Company is continuously investing in its R&D to develop new products.

 

  • Moderate financial risk profile: Networth of Rs 562.94 crore as on March 31, 2023, and with low reliance on external debt, reflects company has a strong capital structure, with low gearing and total outside liabilities to adjusted networth ratio of 0.19 time and 0.39 times, respectively, as on March 31, 2023. Also, interest coverage is healthy at 4.85 times in fiscal 2023. Company has extended corporate guarantee of Rs 43.60 Crores against the term loan facility availed by PMFPPL (group company where Nath-Bio holds 19.98% shares.). Any material outflow from such provisions or invocation of guarantee could test the company’s financial profile and will remain key monitorable.

 

Weakness:

  • Large working capital requirements: Operations have been working capital intensive, with gross current assets (GCAs) days of 590 days as on March 31,2023. The higher gross current assets days were high because of high debtor’s days of 118 days and inventory of 301 days as on March 31,2023. Working capital levels are expected to remain intensive as seen by GCA days of around 590-630 days for past 4 years for fiscal 2023. However, this is due to seasonal nature of the business. Inventory has reduced as on September 2023. The company has almost one year of inventory in March which gets offloaded in the first quarter of the next year as kharif crops form a major part of the portfolio of the company. Inventory level and GCA days will remain key sensitivity.

 

  • Exposure to regulatory changes, vagaries of the monsoon and intense competition: The government because of its potential impact on farmers closely regulates the seed industry and as a result, seed manufacturers remain exposed to the risk of adverse changes in the regulatory environment, apart from the monsoon. Also, Nath Bio faces competition from multinational companies, as well as Indian players.

Liquidity: Adequate

Net cash accruals are expected to be over Rs 38 crores over minimal repayments over the medium term. Bank Limit utilization is high at around 89% for the last 12 months ending April 2023. Company has cash and cash equivalent of Rs 15.17 crores (encumbered & unencumbered) as on September 30,2023. No major capex plans over medium term. Company has extended corporate guarantee to the tune of Rs 43.60 Crores against the term loan facility availed by PMFPPL. While it has not been invoked yet, it continues to remain a rating sensitive factor, considering the weak operating performance of PMFPPL.

Outlook: Positive

CRISIL Ratings believes Nath Bio's credit risk profile should improve, over the medium term, supported by its strong research capabilities, diverse product portfolio and extensive experience of the promoters.

Rating Sensitivity factors

Upward factors

  • Sustained improvement in working capital cycle.
  • Significantly higher-than-expected revenue backed by healthy demand for its products coupled with sustenance of operating margin resulting in accruals above Rs 40 crores.
  • Continued reduction in contingent liabilities and exposure to group entities.

 

Downward factors

  • Weaker operating profitability below 12% because of high cost of production or lower realizations.
  • Drop in the scale of operations of the company, or a further stretch in the working capital cycle, especially inventory levels or increased exposure to group companies.
  • Invocation of corporate guarantee given to its associate company Paithan Mega Food Park Pvt. Ltd.

About the Company

Incorporated in July 1993, Nath Bio is promoted by the Kagliwal family. The company is based in Aurangabad, Maharashtra. The company is engaged in production and marketing of hybrid seeds of crops like cotton, wheat, jowar, bajra and vegetables amongst others and plant nutrition products under the brand name of ‘Nath’.

 

Incorporated in 2011, Paithan Mega Food Park Private Limited (PMFPL) is an SPV formed for setting up a mega food park. Nath Bio holds 19.98% in PMFPL. Nath Bio has extended corporate guarantee worth Rs. 43.60 crore (current outstanding Rs 35.84 crore) against the debt availed by PMFPPL.

Key Financial Indicators

As on / for the period ended March 31

 

2023

2022

Operating income

Rs crore

301.40

278.60

Reported profit after tax

Rs crore

35.17

-67.34

PAT margins

%

11.7

-24.2

Adjusted Debt/Adjusted Net worth

Times

0.19

0.18

Interest coverage

Times

4.85

3.53

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.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

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

Cash Credit

NA

NA

NA

105

NA

CRISIL BBB-/Positive
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 105.0 CRISIL BBB-/Positive   -- 07-10-22 CRISIL BBB-/Stable 27-09-21 CRISIL BBB/Positive 16-06-20 CRISIL BBB/Stable CRISIL BBB/Stable
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 15.3 Janakalyan Sahakari Bank Limited CRISIL BBB-/Positive
Cash Credit 15 State Bank of India CRISIL BBB-/Positive
Cash Credit 59.7 Axis Bank Limited CRISIL BBB-/Positive
Cash Credit 15 HDFC Bank Limited CRISIL BBB-/Positive
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
Understanding CRISILs Ratings and Rating Scales

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