Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL AA+/Stable/CRISIL A1+' ratings on the bank facilities of Rallis India Ltd (Rallis India). CRISIL Ratings has also reaffirmed the rating on the commercial paper at ‘CRISIL A1+’.

 

The ratings continue to reflect the company’s established position in India’s crop protection market, strong presence in exports, branding and farmer relationship, and an overall comfortable financial risk profile. The ratings also factor in the strategic importance to the parent, Tata Chemicals Ltd (TCL; rated ‘CRISILAA+/Stable/CRISIL A1+’) having 55.08% shareholding in Rallis India, and the consequent operational and need-based funding support available from TCL. These rating strengths are partially offset by vulnerability to risks inherent in the crop protection segment and working capital-intensive operations.

 

The company’s revenue declined by ~10.8% to Rs.2,650 crore in fiscal 2024 (Rs 2,970 crore in fiscal 2023) on account of moderation in the crop care segment which contributes to ~84% of the overall revenue. Domestic crop care segment witnessed growth in volumes, however due to fall in realizations, revenue de-grew by ~3% in fiscal 2024. The export crop care segment witnessed a decline of ~35% to Rs.639 crore in fiscal 2024 primarily due to global inventory de-stocking and Chinese dumping resulting in price erosion across key export markets. The seeds business, which contributes ~16% of the sales witnessed growth of ~21% to record Rs 416 crore led by healthy volumes expansion due to better offtake especially in cotton seeds sold in northern India. Revenue during the first quarter of fiscal 2025 remained flat at Rs 783 crore (first quarter of fiscal 2024: Rs. 782 crore) with crop care segment growing by 8% whereas seeds business declined by 16% largely due to supply side constraints. CRISIL Ratings expects Rallis India’s business profile to benefit over the medium term supported by steady increase in demand from both domestic and exports markets.

 

Operating margin improved to 12.3% in fiscal 2024 compared to 8.6% in fiscal 2023, primarily due to gross margin improving to 40.1% from 34.2% on account of cost optimization initiatives, flexible pricing, superior product mix in both crop care and seeds businesses and scale-up in revenue from new products launches. Operating margin during the first quarter of fiscal 2025 stood at 12.3% which was at par on sequential basis however compared to 14.1% during the same period in the previous fiscal primarily on account of continuing challenges in the export markets and lower offtake in the seeds segment.

 

The company’s financial risk profile is strong on account of healthy capital structure with almost nil term debt and networth of Rs 1,569 crore as on March 31, 2024. As a result, the company’s debt metrics were healthy with an interest coverage of 17.5 times in fiscal 2024. Gearing and total outside liabilities to tangible networth (TOL/TNW) ratios also remained comfortable at nil and 0.75 times, respectively, as on March 31, 2024. In the absence of any major debt-funded capex plans, these metrics are expected to be maintained at similar levels over the medium term.

 

Liquidity position is comfortable with cash accrual of Rs 213 crore and cash and cash equivalents of Rs 283 crore as on March 31, 2024. Over the medium term, in the absence of term debt repayments, cash accrual of Rs 150-200 crore and liquid surplus of over ~250 crore will be sufficient to meet annual capex plan of Rs.150 crore and incremental working capital requirement.

Analytical Approach

CRISIL Ratings has applied its parent notch up framework to factor in support from TCL, which has 55.08% stake in Rallis India. CRISIL Ratings believes that Rallis India will, in case of exigencies, receive support from its parent. For arriving at the ratings, CRISIL Ratings has considered the standalone business and financials of Rallis India.

Key Rating Drivers & Detailed Description

Strengths:

• Established market position: Rallis India is a major player in the crop protection sector with a strong presence in pesticide industry (insecticides, fungicides, and herbicides), hybrid seeds and plant growth nutrients. The company derives ~84% of its revenues from crop care segment and around ~16% from seeds. Further, Rallis India exports crop care products to 39 countries and 24% of the revenue is currently derived from the exports.

 

• Strong focus on branding and relationship with farmers: Strong brand and steady engagement with farmers facilitates regular launch of new products. Rallis India through its several farmer facing initiatives provides agricultural solutions to farmers and has also been working on improving productivity of crops. Several digital initiatives have been rolled out for improving engagement with farmers and partners across the value chain.

 

• Comfortable financial risk profile: Rallis India has generated healthy cash flows over time, which has strengthened its networth and lowered reliance on debt. Its tangible networth (excluding intangible assets) was healthy at Rs 1569 crore, and gearing at nil, as on March 31, 2024, while other debt metrics too were robust; for instance, interest cover (EBITDA/Interest & finance charges) was at 17.5 times in fiscal 2024. With only moderate capital spending over the medium term, and continuing moderately working capital-intensive operations, debt metrics will continue to be healthy.

 

• Support from the parent: Managerial and operational support from TCL continues to benefit the company. TCL is engaged in the manufacturing of soda ash and related chemicals, including sodium bicarbonate, caustic soda and bromides. In fiscal 2024, TCL generated revenue of Rs.15,707 crore and EBITDA margin of 19.9%. Rallis India is also strategically important to TCL as it is the only company in the group catering to the agrochemical space. Further, it might be noted that TCL increased its stake in Rallis India to 55.08% in July 2023 from 50.09% earlier further reiterating Rallis India’s strategic importance to the parent. TCL is expected to provide need-based support to Rallis India.

 

Weaknesses:

• Vulnerability to risks inherent in the crop protection sector: The agrochemical industry remains exposed to risks such as irregular monsoon, and volatility in farm income, specific registration processes in different countries, and various environmental rules and regulations. Any ban on key products will also pose a threat to business of players such as Rallis India. However, the company has a strong pipeline of products, which can be launched to offset/lower impact of possible ban of any key pesticides.

 

• Working capital-intensive operations: The domestic crop protection industry is working capital intensive. CRISIL Ratings believes that Rallis India’s working capital requirement will remain moderately intensive because of the nature of its business. Inventory is moderately high due to the numerous stock-keeping units and seasonality in the geographies it operates in. Overall inventory is 120-130 days (about 127 days as on March 31, 2024) and average receivables are 80-85 days (about 80 days as on March 31, 2024) and is expected to remain at similar levels over near-to-medium term. 

Liquidity: Strong

Liquidity position is comfortable with cash accrual of Rs 213 crore and cash and cash equivalents of Rs 283 crore as on March 31, 2024. Over the medium term, cash accrual of Rs 150-200 crore and liquid surplus of over ~250 crore will be sufficient to meet annual capex of Rs.150 crore, dividend payout of around ~Rs 50 crore, incremental working capital requirement and nil term debt repayments.

Outlook: Stable

CRISIL Ratings believes the business risk profile will continue to be supported by steady demand prospects for Rallis India’s products in the domestic market.  The financial risk profile is expected to remain healthy with steady cash generation, which would be sufficient to cater to capex and increasing working capital requirements. Rallis India will remain critical for TCL and keep receiving operational, managerial, and financial support.

Rating sensitivity factors

Upward factors:

• Sustained revenue growth with EBITDA margin of 15-17%.
• Substantial improvement in working capital situation with lower inventory and receivables and higher cash surplus.

 

Downward factors:

• Sustained revenue degrowth or EBITDA margin sustaining at 9-11%.
• Larger-than-expected, debt-funded capital spending, or substantial acquisition resulting in moderation of capital structure and debt protection metrics.
• Material stretches in working capital levels.
• Downward revision in parent rating.

About the Company

Rallis India, a part of the Tata group, is one of the leading players in the domestic crop protection sector and manufactures pesticides, herbicides, and fungicides at its factories. These agrochemicals are sold across 80% of India’s districts through an extensive distribution network. The Rallis Innovation Chemistry Hub (RICH) caters to domestic and global requirements. In fiscal 2010, Rallis India became a subsidiary of TCL; earlier, it was jointly owned by multiple Tata group companies.

 

Rallis India acquired a majority stake in Metahelix Life Sciences Ltd, a Bengaluru-based seeds company, to focus on hybrid seeds development and sales. Rallis India had also acquired a stake in Maharashtra-based Zero Waste Agro Organics Ltd, which manufactures scientifically prepared organic compost. Both these companies were merged with Rallis India Ltd.

About the Parent

TCL was incorporated in 1939 to manufacture soda ash and related chemicals, including sodium bicarbonate, caustic soda, and bromides. The company commenced operations in 1944 with a 30,000 tonne per annum (tpa) plant at Mithapur. Over the years, it has expanded its gross soda ash capacity to 10,91,000 tpa. It entered the iodised vacuum salt business in 1986. Tata Salt is the leading iodised edible salt brand in India. TCL also has a 440,000-tpa cement plant in Mithapur, which was set up to effectively utilise the solid waste generated during soda ash production.

Key Financial Indicators (Consolidated)

Particulars	Unit	2024	2023
Operating income	Rs crore	2,650	2,970
Profit after tax	Rs crore	148	92
PAT margin	%	5.6	3.1
Adjusted debt/adjusted networth	Times	0.00	0.07
Interest coverage	Times	17.5	18.9

 

Any other information: Not Applicable