Rating Rationale
October 07, 2022 | Mumbai
Nath Bio-Genes India Limited
Rating downgraded to 'CRISIL BBB-/Stable'; Rated amount enhanced for Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.105 Crore (Enhanced from Rs.90 Crore)
Long Term RatingCRISIL BBB-/Stable (Downgraded from 'CRISIL BBB/Positive')
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has downgraded its ratings on the long-term bank facilities of Nath Bio-Genes India Limited (Nath Bio) to ‘CRISIL BBB-/Stable’ from ‘CRISIL BBB/Positive’

 

The downgrade reflects the unanticipated deterioration in the company’s financial risk profile, particularly its liquidity profile as indicated by high bank utilization. The overall financial risk profile is expected to come under further pressure due to the stretched liquidity position of Paithan Mega Food Park Private Limited (PMFPPL) a group company of Nath Bio; PMFPPL’s bank facilities are guaranteed by Nath Bio. PMFPPL operating performance remains subdued. Aside Nath Bio reported lower than expected revenue and operating margin of Rs 278 crore and 13.5% in fiscal 2022 with Q1 fiscal 2023 also remaining subdued. The operating margins have been impacted on account of higher incentives given for the trade in fiscal 2022. Working capital has stretched further with significant increase in debtors over 6 months. Company also made a provision of Rs 88.78 crore in fiscal 2022 against the advances made to the farmers and growers.

 

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

Key Rating Drivers & Detailed Description

Strengths:

  • Established market presence backed by experience of the promoters and diversified product profile: Promoter’s have an experience of over three decades in the domestic seed industry business and have established relationships with suppliers and customers. The promoters have developed a strong understanding of the industry dynamics, which has helped them successfully navigate several business cycles as well as build long standing relationships with customers. 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 and has been shifting from normal seeds to Hybrid seeds.

 

  • Moderate financial risk profile: Networth of Rs 529.94 crore as on March 31, 2022, 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 0.18 time and 0.38 time, respectively, as on March 31, 2022. Also, interest coverage is healthy at 3.5 times in fiscal 2022. 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.). Company in fiscal 2022 made a provision of Rs 88.78 crore for the advances made to the farmers. Any material outflow from such provisions or invocation of guarantee could test the company’s financial profile.

 

Weaknesses:

  • Large working capital requirements: Operations have been working capital intensive, with gross current assets (GCAs) days of 591 days. The higher gross current assets days were high because of high debtor’s days of 116 days and inventory of 334 days as on March 31,2022. Working capital levels are expected to remain intensive as seen by GCA days of around 590-630 days for past 4 years for fiscal 2022. However, this is due to seasonal nature of the business. Debtors greater than 6 months were Rs 58.14 crore as on March 31, 2022. The company has almost about 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.

 

  • Susceptibility of Operating Margins: Operating margins have fluctuated and ranged between 13.5% - 21.8% in the past 4 fiscal through 2022. Operating margins were 13.5% for fiscal 2022 on account of higher incentives to its distributors. Improvement in operating margin to remain rating sensitivity factor.

 

  • Exposure to regulatory changes, vagaries of the monsoon and intense competition: The seed industry is closely regulated by the government because of its links with farmers and hence, seed manufacturers remain exposed to the risk of adverse changes in the regulatory environment, along with vagaries of the monsoon, thereby affecting demand and realisations. Also, intense competition from multinational companies and established Indian players may necessitate continuous research & development and introduction of new products/varieties.

Liquidity: Stretched

Bank limit utilisation is high at around 91 percent for the past twelve months ended June 2022. Cash accruals are expected to be over Rs 35 crore which are sufficient against term debt obligation of Rs 0.5-1 crore over the medium term. Current ratio is at 2.33 times on March 31, 2022. Unencumbered Cash and bank balance is Rs 4.17 crore as on March 31,2022. 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 sensitivity factor, considering the weak operating performance of PMFPPL.

Outlook: Stable

CRISIL Ratings believes Nath Bio's would continue to benefit from its established market position

Rating Sensitivity factors

Upward factors

  • Higher-than-expected revenue growth backed by healthy demand for its products coupled with operating margin sustaining at over 20% resulting in improved return on capital employed.
  • Sustained improvement in working capital cycle particularly debtors collection cycle 
  • Significant reduction in contingent liabilities and exposure to group entities.

 

Downward factors

  • Operating profitability continuing to remain below 15% because of high cost of production, lower realization or higher trade credit passed to customers.
  • 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 group 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 against the debt availed by PMFPPL.

Key Financial Indicators

As on / for the period ended March 31

 

2022

2021

Operating income

Rs crore

278.60

307.70

Reported profit after tax

Rs crore

-67.34

55.66

PAT margins

%

-24.2

18.1

Adjusted Debt/Adjusted Net worth

Times

0.18

0.15

Interest coverage

Times

3.63

7.69

Status of non cooperation with previous CRA:

Nath Bio has not cooperated with India Ratings And Research Private Limited (India Ratings) which has classified it as non-cooperative vide release dated October 6,2022. The reason provided by India Ratings is non-furnishing of information for monitoring of ratings.

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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)

ISIN

Name of

instrument

Date of Allotment

Coupon

Rate (%)

Maturity Date

Issue Size
(Rs Crore)

Complexity Level

Rating Assigned
with Outlook

NA

Cash Credit

NA

NA

NA

105

NA

CRISIL BBB-/Stable
Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 105.0 CRISIL BBB-/Stable   -- 27-09-21 CRISIL BBB/Positive 16-06-20 CRISIL BBB/Stable 30-08-19 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-/Stable
Cash Credit 15 IDBI Bank Limited CRISIL BBB-/Stable
Cash Credit 59.7 Axis Bank Limited CRISIL BBB-/Stable
Cash Credit 15 HDFC Bank Limited CRISIL BBB-/Stable

This Annexure has been updated on 07-Oct-2022 in line with the lender-wise facility details as on 27-Sep-2021 received from the rated entity.

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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