Rating Rationale

Rating Rationale

November 11, 2024 | Mumbai

Punjab Chemicals and Crop Protection Limited

Rating reaffirmed at 'CRISIL BBB+/Stable'

Rating Action

Total Bank Loan Facilities Rated	Rs.25 Crore (Reduced from Rs.60 Crore)
Long Term Rating	CRISIL BBB+/Stable (Reaffirmed)

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 reaffirmed its ‘CRISIL BBB+/Stable’ rating on the long term bank facilities of Punjab Chemicals and Crop Protection Limited (PCCPL).

CRISIL Ratings has also partially withdrawn the ratings to the tune of Rs 35 crores on receipt of request from the company and NOC received from the bankers. The withdrawal is in line with CRISIL’s Withdrawal Policy.

The ratings reflect the company's extensive industry experience of the promoters, established client relationship and healthy scale of operations and its healthy financial profile. These strengths are partially offset by susceptibility to adverse changes in government regulations, and customer concentration in revenue profile.

Analytical Approach

For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of PCCPL and its wholly owned overseas subsidiary, SD AgChem (Europe) NV (SDAC), together referred to as Punjab Chemicals group.

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:

Extensive industry experience of the promoters and established market position: The promoters have an experience of over 5 decades in the APIs, along with other pharmaceutical intermediaries’ 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. The group has a presence across diverse end-user segments like agrochemical, industrial chemicals, and fine/specialty chemical industries. The business risk profile is expected to improve over the medium term supported by extensive promoter experience, introduction of new molecules and expected improvement in the operating profitability.

Established client relationships and healthy scale of operations: PCCPL has established itself as a low-cost operator and has established a good position in the market for sale of its products under CMO, CRAMs and Inhouse manufacturing. The company also has a good diversity in revenues with exports contributing to around 52% of overall revenues in fiscal 2024 (42% in H1 FY 2025). While the majority of exports revenues are from the European market, it has healthy relationships with the clientele it deals with and hence it safeguards the company in terms of receipt of payments from the customers. The scale of operations has been around 934 crores in fiscal 2024, a 7% decline in the year on year as compared to FY 2023 largely driven by softening prices and moderate decline in volume sales. The company has achieved around Rs 484 crores in H1 of fiscal 2025 and is expected to have flattish growth in fiscal 2025 as compared to last year, with the revenues expected to improve H2 FY 2025 onwards. Being a low-cost operator, the operating margins of the company also remain healthy at around 12% for fiscal 2024, although it has moderated in the current fiscal year to around 11% for H1, it is expected to bounce back in H2 of FY 2025. Steady order flow from the customers, new molecules launch (better margins products) and healthy relationships with clientele will help sustain the revenues over the medium term.

Healthy financial risk profile: Financial risk profile is healthy as reflected in net worth of Rs 325 crores as on March 31, 2024 (Rs ~347 crores as on Sept 2024) led by the healthy accretion to the reserves over the years. Moderate reliance on the outside debt and creditors for working capital cycle has kept capital structure at moderate levels as reflected in the gearing and total outside liabilities to tangible net worth ratio of 0.38 times and 0.93 times, respectively, as on March 31, 2024. Debt protection metrics were comfortable, as indicated by interest coverage and net cash accrual to adjusted debt ratios of 5.57 times and 0.59 times, respectively, in fiscal 2024. With no large debt funded capital expenditure (capex) to be done in fiscal 2025 & 2026, the capital structure is expected to remain comfortable over the medium term. Although the financial risk profile is expected to be comfortable, any large debt or cost overruns in the planned capex would remain closely monitorable.

Weaknesses:

Exposure to regulatory changes, and seasonality in the agrochemicals sector: The domestic agrochemical formulations industry has many organized players with regional presence. The company faces intense competition from organized as well as unorganized players in the domestic market. Also, the domestic agrochemicals sector is dependent on monsoon and the level of farm income. The fortunes of the sector are, therefore, linked to the quantum, timing, and distribution of rainfall in a year, exposing the players’ revenue to seasonal trends. Besides, surplus, or inadequate rainfall could hit the profitability of players and lead to build-up in the working capital requirement. As the company’s operating margin has remained volatile between 12% to 15% over the last four fiscal years ended fiscal 2024 and will remain monitorable.

Customer and product concentration in revenue profile: The group faces significant customer concentration risks. Its 3 major customers account for more than 50 per cent of its total sales. The high customer concentration makes the group’s revenue growth and profitability dependent on its key customers’ future growth plans. However, the company is adding new customers to reduce customer concentration, and few molecules are in advance stages to be getting commercialized which will further help and will remain key monitorable.

Liquidity: Adequate

Net Cash accruals are expected to be over Rs 70 to 80 crore per fiscal over the medium term against long debt repayment obligations of Rs 10 to 13 Crore per annum. Bank limits were moderately utilized at 55% during the 12 months through July-2024. Low gearing and moderate net worth support its financial flexibility and provides the financial cushion available in case of any adverse conditions or downturn in the business. Cash and cash equivalent is Rs 15 crore (encumbered & Unencumbered) as on Sep 30,2024. No major debt funded capex plans over medium term.

Outlook: Stable

CRISIL Ratings believe the group will continue to benefit from the extensive experience of its promoter, and established relationships with clients.

Rating sensitivity factors

Upward factors

Sustained improvement in revenue and sustained healthy operating margins leading to cash accruals above Rs 80 crores.
Sustenance of healthy financial risk profile.

Downward factors

Decline in revenue or moderation in operating margins to below 8% leading to a significant decline in net cash accruals.
Stretch in working capital cycle or significant debt funded capex or large dividend leading to weakening of financial risk profile.

About the Group

Incorporated in 1975, PCCPL is owned & managed by Mr Shalil S Shroff. It is engaged in manufacturing agrochemicals and Contract Research and Manufacturing (CRAMS). Its products include agrochemicals (Technicals), API's, Pharmaceutical Intermediates, Phosphorous Derivatives and Speciality Chemicals.

PCCPL has three manufacturing facilities, one each located at Lalru (Punjab), Derabassi (Punjab) and Pune (Maharashtra).

SDAC is the marketing arm of the group in Europe with various registrations for immediate supply of the Company’s products in the region.

Key Financial Indicators

As on/for the period ended March 31	Unit	2024	2023
Operating income	Rs.Crore	934	1006
Reported profit after tax	Rs.Crore	53.58	61
PAT margins	%	5.7	6.1
Adjusted Debt/Adjusted Networth	Times	0.37	0.3
Interest coverage	Times	5.5	6.9

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.Crore)	Complexity Levels	Rating Outstanding with Outlook
NA	Cash Credit	NA	NA	NA	35.00	NA	Withdrawn
NA	Proposed Fund-Based Bank Limits	NA	NA	NA	10.00	NA	CRISIL BBB+/Stable
NA	Working Capital Term Loan	NA	NA	30-Jun-28	15.00	NA	CRISIL BBB+/Stable

Annexure - List of Entities Consolidated

Names of Entities Consolidated	Extent of Consolidation	Rationale for Consolidation
SD AgChem (Europe) NV (SDAC)	Full	Wholly owned subsidiary

Annexure - Rating History for last 3 Years

	Current			2024 (History)		2023		2022		2021		Start of 2021
Instrument	Type	Outstanding Amount	Rating	Date	Rating	Date	Rating	Date	Rating	Date	Rating	Rating
Fund Based Facilities	LT	60.0	CRISIL BBB+/Stable		--	17-08-23	CRISIL BBB+/Stable		--		--	--
			--		--	07-08-23	CRISIL BBB+/Stable		--		--	--
			--		--	30-01-23	CRISIL BBB+/Stable		--		--	--
Non-Fund Based Facilities	ST		--		--	17-08-23	CRISIL A2		--		--	--
			--		--	07-08-23	CRISIL A2		--		--	--
			--		--	30-01-23	CRISIL A2		--		--	--

All amounts are in Rs.Cr.

Annexure - Details of Bank Lenders & Facilities

Facility	Amount (Rs.Crore)	Name of Lender	Rating
Cash Credit	35	SVC Co-Operative Bank Limited	Withdrawn
Proposed Fund-Based Bank Limits	10	Not Applicable	CRISIL BBB+/Stable
Working Capital Term Loan	15	SVC Co-Operative Bank Limited	CRISIL BBB+/Stable

Criteria Details

Links to related criteria

Rating criteria for manufaturing and service sector companies

CRISILs Bank Loan Ratings - process, scale and default recognition

CRISILs Criteria for Consolidation

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