Detailed Rationale

CRISIL Ratings has reaffirmed its ratings on the bank facilities of PI Industries Limited (PI; part of the PI group) at ‘CRISIL AA+/Stable/CRISIL A1+’.

 

Revenue from operations improved by 16% to Rs.5,306Crs in FY22 (PY: Rs.4,586 Crs) driven by price increase of 3% and balance from volume growth. CSM segment witnessed growth of 20% owing to volume growth of existing products and commercialization of new products. Domestic revenues remained flattish owing to impact of unfavourable agro-climatic conditions in the Kharif season; however, good rabi season helped recovery in Q3 & Q4FY22. PI’s CSM segment contribution to total revenue increased to 76% during FY22 as compared to 72% in FY21. Momentum in revenue continued in 1QFY23 to Rs.1,543.2Crs (Q1FY22: Rs.1,193.8Crs) led by 42% growth in CSM exports and 4% growth in domestic sales. Considering the robust order book position of USD1.4bn in CSM, improving contributions from recent new launches in the domestic market, and new product additions in both business segments, PI is expected to deliver more than 20% revenue growth in FY23.

 

EBITDA margin declined to 21.8% in FY22 (PY: 23.1%) on account of increase in power costs and one-time expenses pertaining to strategic initiatives. Gross margins for the period improved by 103 bps despite RM price inflation owing to favourable product mix. During 1Q23 margins improved slightly to 22.6% driven by better operating leverage. The improving scale of operations and stronger product portfolio, along with healthy operating efficiencies, should translate into sustenance of operating margins above 20% over the medium term

 

PI’s financial risk profile continues to be strong as reflected by low debt of Rs.268 crore as of March 31, 2022, and healthy tangible net worth of Rs 5,950 crores. Debt protection metrics continues to remain strong with low debt and adequate profitability. Interest coverage remains healthy at 61.35 times for FY22 (FY21: 32 times). Company has strong liquidity driven by healthy cash balance of Rs.2,164 Crs. QIP issue of Rs. 2000 crore which was raised in July 2020 continues to be remain invested in fixed deposit, liquid, and other debt mutual funds. Company generated NCA of Rs.970Crs sufficient to meet repayment obligation of Rs.105Crs and proposed capex of Rs.650Crs. Net Cash Accruals to Total Debt (NCATD) of PI was 3.6 times in FY22 (FY21: 2.6 times). In addition, bank lines of Rs.400Crs remain utilized which provides additional comfort.

 

The ratings continue to reflect PI’s growing presence in the CSM business supported by strong tie-ups with global innovators and established position in the domestic agrochemicals market supported by in-licensing business. The ratings also factor the group’s healthy financial risk profile and strong liquidity position. These rating strengths are partially offset by working capital-intensive operations and susceptibility to risks inherent in the agrochemicals sector.

Analytical Approach

For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of PI and its wholly owned subsidiaries, PILL Finance & Investments Ltd (PFIL), PI Life Science Research Ltd (PLSRL), PI Japan Co Ltd (PJCL), PI Fermachem Pvt Ltd, PI Bioferma Pvt Ltd, PI Health Sciences Ltd and Jivagro Limited. That’s because all these companies, together referred to as the PI group, have the same promoters, and business and financial linkages. PFIL handles the investment activities of PI, while PLSRL handles its contract research and development activities. PJCL is the group’s marketing arm in Japan.

 

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:

• Growing presence in CSM exports: The CSM export segment is marked by a significantly de-risked business model, which provides healthy revenue visibility and stable profitability. The PI group is one of the pioneers of CSM in the agrochemical space in India. The group, which has been engaged in this business for over a decade, has built a strong reputation, based on its sound research capabilities. Its clientele includes some of the largest agrochemical innovator companies in the world. The group has invested significantly in enhancing manufacturing capacities over the past five fiscals and has commercialized 44 molecules up to fiscal 2022.

 

CSM business’s revenues registered a healthy CAGR of around 18% between fiscals 2014 and 2022 on the back of regular launches of new products and incremental revenues from existing products. Going forward, the CSM business is expected to grow at around 20-25% over the medium term backed by current healthy order book position of around USD 1.4 billion; thus, providing revenue visibility for the next 2-3 years.

 

• Established position in the domestic agrochemical business with healthy in-licensing and co-marketing (ILCM) product pipeline: A presence of over five decades in the domestic agricultural inputs business, a healthy product mix, leadership in several generic product segments, and increasing number of launches through the ILCM route have helped the group establish itself as one of the top 10 players in this space.

 

The domestic demand for agrochemicals is likely to maintain its growth trend. Commodity prices remain robust owing to rising global demand. The company is also likely to benefit from maturing of its new product launches of recent years. In addition, PI is also planning to launch 5 new products in domestic market in FY23. Moreover, its focused approach to horticulture through its brand ‘JIVAGRO’ coupled with a healthy pipeline of new launches shall support growth in revenue for 2022-23 and beyond.

 

• Healthy financial risk profile, and strong liquidity: Financial risk profile is healthy, marked by strong net worth (Rs.5,950 crore as of March 31, 2022) and low debt, which along with healthy operating profitability ensures robust debt metrics. Gearing was 0.04 times as on March 31, 2022, while the ratio of debt to earnings before interest, depreciation, taxation and amortization (EBITDA) stood at 0.23 times in fiscal 2022.

 

Company’s liquidity continues to be strong driven by healthy cash balance of Rs.2,164Crs. QIP issue of Rs. 2000 crore which was raised in July 2020 continues to be remain invested in fixed deposit, liquid, and other debt mutual funds. Company generated NCA of Rs.970Crs sufficient to meet repayment obligation of Rs.105Crs and proposed capex of Rs.650Crs

 

That said, the company is expected to pursue inorganic and organic expansion plans over the medium term to strengthen its business further. CRISIL Ratings expects PI’s management will exhibit financial prudence while implementing these growth plans as demonstrated in the recent past.

 

Weaknesses:

• Moderate working capital requirement: The domestic agrochemical industry is characterized by working capital-intensive operations, due to large inventory requirement, seasonality in demand, and extended credit to dealers and distributors. In line with industry, group maintains sizeable inventory of 100-120 days, to ensure that dealers’ requirements are met on timeCredit of 90-120 days from suppliers partly mitigates pressure on working capital management.

 

• Susceptibility to risks inherent in the agrochemicals sector: Although crop-protection or agrochemical sector remains susceptible to specific and separate registration processes in different countries, PI has strong early-stage association with global innovators and confirmed order book which mitigates the risk to a considerable extent. The domestic business, constituting ~24% of revenues, is exposed to vagaries of the monsoon and level of farm income.

Liquidity: Strong

PI has strong liquidity driven by healthy cash balance of Rs.2,164Crs as at 31Mar2022. QIP issue of Rs. 2000 crore which was raised in July 2020 continues to be remain invested in fixed deposit, liquid, and other debt mutual funds. Company generated NCA of Rs.970Crs sufficient to meet repayment obligation of Rs.105Crs and proposed capex of Rs.650Crs. NCATD of PI was 3.6 times in FY22 (FY21: 2.6 times). In addition, bank lines of Rs.400Crs remain utilized which provides additional comfort. With low debt outstanding, the group has sufficient headroom, to raise funds for sizeable capex of acquisitions if required.

 

Environment, social and governance (ESG) profile

CRISIL Ratings believes that PI Industries’ Environment, Social, and Governance (ESG) profile supports its already strong credit risk profile. 

 

The agro-chem manufacturers have a high impact on environment primarily driven by high power consumption done during their manufacturing process. The sector also has a significant social impact because of its large workforce across its own operations and value chain partners, and due to its nature of operations affecting local community and health hazards involved. PI Industries Limited has been focusing on mitigating its environmental and social risks.

 

Key ESG highlights:

-          The company has reduced their specific freshwater consumption by 4.4% in FY22 as compared to previous year. 13,716 Kilolitres of water has been recycled. Company is committed to reduce their specific freshwater consumption by 25% by 2025.

-          Company has reduced  SOx emission by 17% in FY22 as compared to previous year and 2.1% reduction towards specific CO2 emission (Scope 1 & Scope 2) as compared to previous year Also there is a 3x increase in usage of renewable energy as compared to the previous year.

-          Company has 13.0% Share of women in STEM related positions (as % of total STEM positions)

-          Company has ‘Zero’ LTIFR in FY 22 AND ‘Nil’ fatality in the last two years.

-          The company’s governance structure is characterized by 50% % of its board comprising independent directors, dedicated investor grievance redressal system and extensive disclosures

 

There is growing importance of ESG among investors and lenders. The commitment of PI Industries to the ESG principle will play a key role in enhancing stakeholder confidence and ensure ease of raising capital from markets where ESG compliance is a key factor.

Outlook: Stable

CRISIL Ratings believes that the PI group’s business risk profile remains robust over the medium term driven by its expanding product portfolio and healthy revenue visibility in both domestic agrochemicals and CSM segments, as well as steady profitability, leading to healthy cash generation. CRISIL also expects the group’s financial risk profile and liquidity to remain solid, supported by healthy cash surplus prudent working capital management and healthy net cash accruals, and notwithstanding a few bolts on acquisitions

Rating Sensitivity factors

Upward factors

• Significant diversification in revenue base with increasing share coming from own branded formulations
• Sustained revenue growth while maintaining operating profitability over 20%
• Maintaining strong debt metrics and heathy liquidity, while pursuing organic and inorganic growth.

 

Downward factors

• Significant moderation in revenue growth and operating profitability (below 14-15%), impacting the group’s cash accruals
• Large debt-funded capex or acquisition or elongation of working capital cycle leading to deterioration in key debt metrics
• Material further decline in liquid surplus due to share buyback, large dividend payout or sizeable acquisitions.

About the Group

PI was set up in 1946 as an edible oil refinery by the late Mr P P Singhal. The company later entered the agrochemical formulations business. In the mid-1990s, PI diversified into CSM exports for global agrochemical innovator companies.

 

PI currently operates in the domestic agricultural inputs and CSM exports segments. It is a leading player in the domestic agricultural inputs sector, primarily dealing in agrochemicals and plant nutrients. In the CSM exports segment, its business interests include dealing in custom synthesis and contract manufacturing of chemicals, which constitutes techno-commercial evaluation of chemical processes, process development, lab and pilot scale-up, as well as commercial production. The PI group has three agrochemical formulation plants and five multipurpose plants in Panoli, Gujarat, three multipurpose plants in Jambusar, Gujarat, and an R&D unit in Udaipur, Rajasthan. In December 2019, PI acquired IAPL. IAPL’s manufacturing facility are located in Panoli and Ahmedabad, Gujarat.

 

For the quarter ended June 30, 2022, on consolidated basis, the company registered a profit after tax (PAT) of Rs.262.4 crores on net sales of Rs.1,543 crores, compared with PAT of Rs.187 crores on net sales of Rs. 1,194 crores in the corresponding period of fiscal 2022.

Key Financial Indicators (Consolidated)

As on/for the period ended March 31,	Unit	2022	2021
Revenue	Rs crore	5306	4586
Profit After Tax (PAT)	Rs crore	844	738
PAT margin	%	15.9	16.1
Adjusted debt/adjusted net worth	Times	0.04	0.06
Interest coverage	Times	61.35	32.93

 

Any other information: Not applicable

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 & Working Capital Demand Loan	NA	NA	NA	420.00	NA	CRISIL AA+/Stable
NA	Letter of credit & Bank Guarantee	NA	NA	NA	280.00	NA	CRISIL A1+

 

Annexure – List of entities consolidated

Names of Entities Consolidated	Extent of Consolidation	Rationale for Consolidation
PILL Finance & Investments Ltd	Full	common management, similar line of business, business and financial linkages, and common promoters
PI Life Science Research Ltd	Full	common management, similar line of business, business and financial linkages, and common promoters
PI Japan Co. Ltd	Full	common management, similar line of business, business and financial linkages, and common promoters
Jivagro Limited	Full	common management, similar line of business, business and financial linkages, and common promoters
PI Bioferma Private Limited	Full	common management, similar line of business, business and financial linkages, and common promoters
PI Fermachem Private Limited	Full	common management, similar line of business, business and financial linkages, and common promoters
PI Health Science Private Limited	Full	common management, similar line of business, business and financial linkages, and common promoters