| Nath Bio-Genes India Limited | ||||
| Outlook revised to ‘Positive’; long-term rating reaffirmed; rated amount enhanced for Bank Debt | ||||
| Rating Action | ||||
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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 facilities of Nath Bio-Genes India Limited (Nath Bio) to ‘Positive’ from ‘Stable’ while reaffirming the long-term rating at ‘CRISIL BBB’.
The revision in outlook reflects CRISIL Ratings expectation of improvement in business risk profile of the company driven by continued growth in revenue and sustained healthy operating margin. Operating income saw a 10% y-o-y growth and was Rs 307.70 crore in fiscal 2021 as against Rs 280.02 crore in fiscal 2020. The improvement has been supported by the better offtake from existing customers, on the back of increased demand coupled with a diversified product portfolio. The revenue growth has continued in current fiscal as well – company has achieved revenue of Rs 214.63 crore in Q1 FY22 – a critical quarter, growing by 11% from Rs 193.25 crore in Q1 FY21. Company’s focus on developing innovative products and making the portfolio more balanced, should continue to support the company’s business risk profile. Operating margin is also expected to remain healthy in the range of 20-21%; and was at 21.8% in fiscal 2021.
Continued improvement in business risk should also further support the healthy financial risk profile. Company’s working capital requirements remain significant considering the nature of the operations. However strong networth, moderate reliance on external debt and maintained free FDs, would continue to support the capital structure and liquidity. Further contingent liabilities because of corporate guarantees extended to group entities are expected to significantly reduce, which should further support the financial risk profile and shall be a monitorable.
The rating 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 NBGL well in the medium term. Company is continuously investing in its R&D to develop new products.
* Healthy financial risk profile: Networth of Rs 599.66 crore as on March 31, 2021, 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 0.15 time and 0.29 time, respectively, as on March 31, 2021. Also, interest coverage and net cash accrual to adjusted debt ratios are healthy at 7.7 times and 0.65 time, respectively, in fiscal 2021. The financial risk profile should remain comfortable over the medium term. Company has extended corporate guarantee of Rs 43.60 Crores against the term loan facility availed by Paithan Mega Food Park Pvt Ltd (group company where Nath-Bio holds 19.98% with investment of Rs 4.99 crore). Company is expected to pay dividend equivalent to 20% of paid-up equity share capital. Company is expected to undertake moderate capital expenditure going ahead. Despite this, the financial risk profile metrics are expected to remain at a healthy level.
Weaknesses: * Large working capital requirements: Operations have been working capital intensive, with gross current assets (GCAs) days of 610 days driven by inventory and receivables of 343 days and 131 days, respectively, as on March 31, 2021. Working capital levels are expected to remain intensive and in the range of 605-635 days over the medium term. However, this is due to seasonal nature of the business. 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. Hence, the inventory days have moderated to 126 days as on June 30, 2021. 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 around Rs 60-70 crore, per annum, against repayments of Rs 0.5-1.5 crore per annum, over the medium term. Cash and bank balance was Rs 29.21 crore as on March 31, 2021 – of this, there is free cash & bank balance of Rs 9.21 crore and free FDs of Rs 20 crore. Bank limit utilization has averaged at 88% over the 12 months ended July-2021. Current ratio was healthy at 3.06 times as on March 31, 2021. Company has extended corporate guarantee of Rs 43.60 Crores against the term loan facility availed by Paithan Mega Food Park Pvt Ltd (group company). CRISIL Ratings believes Nath Bio has sufficient accruals, unutilized working capital bank limits, and cash and cash equivalents to finance its incremental working capital needs and capital expenditure over the medium term. |
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
Downward factors
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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
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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)
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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 | |||
| Facility | Amount (Rs.Crore) | Name of Lender | Rating |
| Cash Credit | 15.3 | Janakalyan Sahakari Bank Limited | CRISIL BBB/Positive |
| Cash Credit | 15 | IDBI Bank Limited | CRISIL BBB/Positive |
| Cash Credit | 44.7 | Axis Bank Limited | CRISIL BBB/Positive |
| Cash Credit | 15 | Axis Bank Limited | CRISIL BBB/Positive |
This Annexure has been updated on 27-Sep-2021 in line with the lender-wise facility details as on 27-Sep-2021 received from the rated entity
Criteria Details
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