Rating Rationale
March 03, 2022 | Mumbai
Sumitomo Chemical India Limited
Rating Reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.200 Crore
Long Term RatingCRISIL AA/Stable (Reaffirmed)
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).

 

Revenue in the first 9 months of fiscal 2022 grew at a healthy 14% y/y supported by better demand across industry. Profitability benefitted from improved operating leverage, better product mix, cost optimization and synergistic benefits with the parent. Rising input prices have not impacted the margins, as company was able to largely pass on the prices to its customer though with lag of 30-40 days. Operating margin in the first 9 months of fiscal 2022 remained healthy at 20.5% as against 19.7% in the corresponding period of previous fiscal. Over the near to medium-term, revenue growth is expected to be healthy at 15% supported by steady domestic demand and healthy growth in exports, while operating margins are expected to sustain around 20%.

 

The rating continue to reflect 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.

 

SCIL’s healthy business risk profile is complemented by its strong financial risk profile and liquidity. Reliance on external debt is expected to remain nil 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:

  • Established presence in the crop protection segment: 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.

 

  • Product portfolio is well diversified with company’s agro chemical products covering multiple crop segments: in both Kharif and Rabi season and non-agrochemical including animal nutrition and environment health products. With over 13,000 distributors, SCIL’s distribution network covers close to 85% of mainland India, providing geographic diversity. Further, close to 20% of the revenue (in the first 9 months of fiscal 2022) is generated from export markets, partially offsetting the risk related to demand cyclicality in the domestic market.

 

  • Healthy financial risk profile: Financial risk profile is healthy, marked by comfortable gearing and debt protection metrics. Tangible networth was healthy at Rs 1,760 crore as on Sep 30, 2021, and debt has been nil. Healthy annual cash accrual has enabled robust debt protection metrics. Continued healthy cash generation, and prudent capital spending should lead to further improvement in financial risk profile over the medium term.

 

Weaknesses:

  • Large working capital requirement: The agrochemical industry is characterised by working capital-intensive operations, due to large inventory requirement, seasonality in demand, and extended credit to dealers and distributors. While sales occur at the start of the season, payment is realised post-harvest, thus resulting in large receivables. Further, company has to maintain sizeable inventory given the large number of products at various price points, to ensure that dealers' requirements are met on time. Additionally, distributors require large credit period leading to high working capital requirement.

 

  • Susceptibility to risks inherent in the agrochemicals sector: The crop-protection sector remains susceptible to specific and separate registration processes in different countries, and various environmental rules and regulations. Change in regulatory requirements, such as export and import policies, and environmental and safety requirements in countries where the company has significant exposure, could weaken growth prospects. Further with about 80% of revenue coming from the domestic agricultural inputs business, SCIL remains exposed to cyclicality in the agrochemicals industry, which is highly dependent on monsoon and level of farm incomes.

Liquidity: Strong

SCIL enjoys strong liquidity. Expected annual cash accruals of Rs 390-410 crore in fiscals 2022 and 2023 and cash and cash equivalents of more than Rs 750 crore as on Sep 30, 2021 should comfortably cover moderate capex plan of Rs. 40-50 crore per annum for regular maintenance and up gradation of facilities and incremental working capital requirements. Utilization of fund based bank lines has also remained sparse in the past 12 months ended December 2021.

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:

  • Better than anticipated revenue growth and operating profitability in excess of 20%, leading to strong and sustained annual cash generation
  • Sustenance of healthy financial risk profile and debt metrics - gearing below 0.5 time
  • Significant improvement in working capital cycle (gross current assets less than 200 days) leading to material improvement in liquid surplus.

 

Downward factors:

  • Significant decline in revenues by over 15% and deterioration of operating margin to below 10%, adversely affecting cash flows
  • Large debt-funded capex or acquisition or elongation of working capital cycle leading to deterioration in key debt metrics – gearing above 1.0 time

About the Company

About SCIL

SCIL is a wholly owned subsidiary of Japanese chemical major, Sumitomo Chemical Company Limited Japan (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. SCCL holds 75% of SCIL.

 

On August 31, 2019, the entire business and the undertaking of Excel Crop care Limited (ECCL) was transferred to SCIL after the National Company Law Tribunal approved the Scheme of Amalgamation.

Key Financial Indicators

Particulars

Unit

2021

2020

Revenue

Rs crore

2644

2424

Adjusted profit after tax (PAT)

Rs crore

345

205

PAT margin

%

13.1

8.4

Adjusted debt/Adjusted networth

Times

-

-

Adjusted interest coverage

Times

73.08

48.69

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)

ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs. Cr.) Complexity level Rating assigned with outlook
NA Working Capital Facility* NA NA NA 50 NA CRISIL AA/Stable
NA Proposed Working Capital Facility NA NA NA 150 NA CRISIL AA/Stable

* Interchangeable with Letter of credit and Bank guarantee

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Excel Crop Care (Africa) Ltd

Full

Common management, similar line of business, and business and financial linkages

Excel Crop Care (Europe) NV

Full

Common management, similar line of business, and business and financial linkages
Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 200.0 CRISIL AA/Stable   -- 25-02-21 CRISIL AA/Stable 31-01-20 CRISIL AA/Stable   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Rating
Proposed Working Capital Facility 150 CRISIL AA/Stable
Working Capital Facility* 50 CRISIL AA/Stable
* - Interchangeable with Letter of credit and Bank guarantee
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Chemical Industry
CRISILs Criteria for Consolidation

Media Relations
Analytical Contacts
Customer Service Helpdesk

Pankaj Rawat
Media Relations
CRISIL Limited
B: +91 22 3342 3000
pankaj.rawat@crisil.com

 


Naireen Ahmed
Media Relations
CRISIL Limited
D: +91 22 3342 1818
B: +91 22 3342 3000
naireen.ahmed@crisil.com


Anuj Sethi
Senior Director
CRISIL Ratings Limited
B:+91 44 6656 3100
anuj.sethi@crisil.com

Rajeswari Karthigeyan
Associate Director
CRISIL Ratings Limited
D:+91 44 6656 3138
rajeswari.karthigeyan@crisil.com

Akshay Yeole
Senior Rating Analyst
CRISIL Ratings Limited
B:+91 22 3342 3000
Akshay.Yeole@crisil.com		Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
CRISILratingdesk@crisil.com
 
For Analytical queries:
ratingsinvestordesk@crisil.com

 

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper/magazine/agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL Ratings. However, CRISIL Ratings alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites and portals.


About CRISIL Ratings Limited (A subsidiary of CRISIL Limited)

CRISIL Ratings pioneered the concept of credit rating in India in 1987. With a tradition of independence, analytical rigour and innovation, we set the standards in the credit rating business. We rate the entire range of debt instruments, such as bank loans, certificates of deposit, commercial paper, non-convertible/convertible/partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 33,000 large and mid-scale corporates and financial institutions. We have also instituted several innovations in India in the rating business, including ratings for municipal bonds, partially guaranteed instruments and infrastructure investment trusts (InvITs).
 
CRISIL Ratings Limited ('CRISIL Ratings') is a wholly-owned subsidiary of CRISIL Limited ('CRISIL'). CRISIL Ratings Limited is registered in India as a credit rating agency with the Securities and Exchange Board of India ("SEBI").
 
For more information, visit www.crisilratings.com 
 



About CRISIL Limited

CRISIL is a global analytical company providing ratings, research, and risk and policy advisory services. We are India's leading ratings agency. We are also the foremost provider of high-end research to the world's largest banks and leading corporations.

CRISIL is majority owned by S&P Global Inc, a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.

For more information, visit www.crisil.com

Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK

CRISIL PRIVACY NOTICE
 
CRISIL respects your privacy. We may use your contact information, such as your name, address and email id to fulfil your request and service your account and to provide you with additional information from CRISIL. For further information on CRISIL’s privacy policy please visit www.crisil.com.



DISCLAIMER

This disclaimer is part of and applies to each credit rating report and/or credit rating rationale (‘report’) that is provided by CRISIL Ratings Limited (‘CRISIL Ratings’). To avoid doubt, the term ‘report’ includes the information, ratings and other content forming part of the report. The report is intended for the jurisdiction of India only. This report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the report is to be construed as CRISIL Ratings providing or intending to provide any services in jurisdictions where CRISIL Ratings does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this report does not create a client relationship between CRISIL Ratings and the user.

We are not aware that any user intends to rely on the report or of the manner in which a user intends to use the report. In preparing our report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the report is not intended to and does not constitute an investment advice. The report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind to enter into any deal or transaction with the entity to which the report pertains. The report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Ratings are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold or sell any securities/instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL Ratings assumes no obligation to update its opinions following publication in any form or format although CRISIL Ratings may disseminate its opinions and analysis. The rating contained in the report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the report should rely on their own judgment and take their own professional advice before acting on the report in any way. CRISIL Ratings or its associates may have other commercial transactions with the entity to which the report pertains.

Neither CRISIL Ratings nor its affiliates, third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively, ‘CRISIL Ratings Parties’) guarantee the accuracy, completeness or adequacy of the report, and no CRISIL Ratings Party shall have any liability for any errors, omissions or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the report. EACH CRISIL RATINGS PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Ratings Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. Public ratings and analysis by CRISIL Ratings, as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any), are made available on its website, www.crisilratings.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee – more details about ratings by CRISIL Ratings are available here: www.crisilratings.com.

CRISIL Ratings and its affiliates do not act as a fiduciary. While CRISIL Ratings has obtained information from sources it believes to be reliable, CRISIL Ratings does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and/or relies on in its reports. CRISIL Ratings has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL Ratings has in place a ratings code of conduct and policies for managing conflict of interest. For details please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html.

Rating criteria by CRISIL Ratings are generally available without charge to the public on the CRISIL Ratings public website, www.crisilratings.com. For latest rating information on any instrument of any company rated by CRISIL Ratings, you may contact the CRISIL Ratings desk at crisilratingdesk@crisil.com, or at (0091) 1800 267 1301.

This report should not be reproduced or redistributed to any other person or in any form without prior written consent from CRISIL Ratings.

All rights reserved @ CRISIL Ratings Limited. CRISIL Ratings is a wholly owned subsidiary of CRISIL Limited.
 

 

CRISIL Ratings uses the prefix ‘PP-MLD’ for the ratings of principal-protected market-linked debentures (PPMLD) with effect from November 1, 2011, to comply with the SEBI circular, "Guidelines for Issue and Listing of Structured Products/Market Linked Debentures". The revision in rating symbols for PPMLDs should not be construed as a change in the rating of the subject instrument. For details on CRISIL Ratings' use of 'PP-MLD' please refer to the notes to Rating scale for Debt Instruments and Structured Finance Instruments at the following link: https://www.crisil.com/en/home/our-businesses/ratings/credit-ratings-scale.html