| Sumitomo Chemical India Limited | ||||
| Rating reaffirmed at 'CRISIL AA/Stable' | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AA/Stable’ rating on the bank loan facilities of Sumitomo Chemical India Limited (SCIL).
The rating reflects SCIL’s established market position in the domestic crop protection business supported by its diversified product portfolio including insecticides, weedicides, fungicides, fumigants and rodenticides as well as plant growth nutrition products, bio-rationals and plant growth regulators, and access to the proprietary products of its Japanese parent, Sumitomo Chemical Company Limited (SCCL). Business risk profile should steadily improve over the medium term, supported by the healthy demand for crop-protection products, and as the company leverages its balanced presence across key sub segments of crop protection and the strong brand and chemistry skills of its parent, strengthening its agrochemicals business in India and abroad.
Supported by an above normal and well spread monsoon leading to higher Kharif acreages and a record increase in the sowing activities, revenue in the first 9 months of fiscal 2021 grew at a healthy 7% y/y. Profitability benefitted from improved operating leverage, better product mix and prices, improved operational efficiencies, cost optimization and merger synergies. Operating margin in the first 9 months of fiscal 2021 remained healthy at 19.7% as against 14.7% in the corresponding period of previous fiscal. Over the medium term revenue growth and operating profitability should remain healthy at 6-7% and 15-16%. The company is likely to maintain healthy return on capital employed of over 20%.
SCIL’s healthy business risk profile is complemented by its strong financial risk profile and liquidity. Reliance on external debt is expected to remain negligible as company’s annual cash accrual should be sufficient to meet modest capex and incremental working capital requirements.
These rating strengths are partially offset by company’s large working capital requirement and risks associated with the crop protection industry. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of SCIL and its wholly-owned subsidiaries. That’s because all these companies are in similar line of business, have the common management, and business and financial linkages.
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
A diversified product portfolio including insecticides, weedicides, fungicides, fumigants and rodenticides as well as plant growth nutrition products, bio-rationals and plant growth regulators, well-balanced technical and formulations manufacturing capabilities and access to SCCL’s proprietary products has helped SCIL establish itself as one of major players in this space.
Weaknesses
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Liquidity: Strong SCIL enjoys strong liquidity. Expected annual cash accruals of Rs 260-280 crore in fiscals 2021 and 2022 and cash and cash equivalents of Rs 680 crore as on December 31, 2020 should comfortably cover moderate capex plan of Rs. 35-40 crore per annum for regular maintenance and up gradation of facilities and incremental working capital requirements. Utilisation of fund based bank lines has also remained sparse in the past 12 months ended December 2020. |
Outlook Stable CRISIL Ratings believes SCIL’s business risk profile will improve steadily over the medium term, supported by the healthy demand for crop-protection products, and as the company leverages its balanced presence across key sub segments of crop protection and the strong brand and chemistry skills of its parent. Improving business risk profile will be complemented by its strong financial risk profile and liquidity. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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About SCIL SCIL is a wholly owned subsidiary of Japanese chemical major, SCCL, engaged in the manufacturing and marketing of crop protection formulations based on the active ingredients procured from SCCL and third parties. It has manufacturing plants in Gujarat and Maharashtra and Dadar & Nagar Haveli.
SCCL had established Sumitomo Chemical India Pvt Ltd (SCIPL) in the year 2000 as its manufacturing and marketing base for crop protection products in India. Further, in order to fortify its business in India, SCCL had acquired a majority stake in ECCL in fiscal 2016.
ECCL, engaged in the manufacture of agrochemical formulations, was promoted by the Shroff family. The family held 24.72% in the company before it was taken over by Sumitomo group. Post the take-over, Sumitomo group held 65% stake in ECCL, with 20% stake held by SCIPL and 45% stake held by SCCL.
On August 31, 2019, the entire business and the undertaking of ECCL was transferred to SCIPL after the National Company Law Tribunal approved the Scheme of Amalgamation and the combined entity was renamed as SCIL. |
Key Financial Indicators
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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)
*Interchangeable with Letter of credit and Bank guarantee |
Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||
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