| Sumitomo Chemical India Limited | ||||
| Rating reaffirmed at 'CRISIL AA / Stable' | ||||
| Rating Action | ||||
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| 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 AA/Stable’ rating on the long-term bank facility of Sumitomo Chemical India Ltd (SCIL).
Revenue grew by 15% on-year to Rs 3,511 crore in fiscal 2023 driven by the price hike taken by the company as volume remained steady on account of low insect infestation and uneven rainfall. Operating margin moderated by 60 basis points to 19% in fiscal 2023 prom previous fiscal because of carryover of high-cost inventory. Revenue growth will be healthy over the medium term supported by stable domestic demand and healthy growth in export, while the operating margin is expected to sustain at 18-19%.
The rating continues to reflect the company’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, biorationals and plant growth regulators, and access to the proprietary products of its Japanese parent, Sumitomo Chemical Company Ltd (SCCL). The business risk profile should improve over the medium term, driven by healthy demand, for crop-protection products, leverage across key sub segments of crop protection and strong brand and chemistry skills of its parent, strengthening its agrochemicals business in India and abroad.
The business risk profile is complemented by a strong financial risk profile and liquidity. Networth and total outside liabilities to tangible networth (TOLTNW) ratio stood at Rs 2,360 crore and 0.42 time, respectively, as on March 31, 2023, against nil debt. Reliance on external debt is expected to remain nil as the company’s annual cash accrual will be sufficient to meet capital expenditure (capex) of around Rs 200 crore per annum and working capital requirement. These strengths are partially offset by large working capital requirement and exposure to risks associated with the crop protection industry. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of SCIL and its wholly owned subsidiaries as the entities are in similar businesses, and have 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
Diversified product portfolio, including insecticides, weedicides, fungicides, fumigants and rodenticides as well as plant growth nutrition products, biorationals and plant growth regulators; well-balanced technical and formulations manufacturing capabilities and access to SCCL’s proprietary products have helped the company to become one of the major players in this segment.
The product portfolio is well-diversified, with the company’s agrochemical products covering multiple crop segments in both kharif and rabi seasons and non-agrochemical products for animal nutrition and environment health. With over 15,000 distributors, the distribution network covers close to 85% of India, providing geographic diversity. Furthermore, around 25% of the revenue in fiscal 2023 came from export, partially offsetting risks related to demand cyclicality in the domestic market.
Tangible networth was comfortable at Rs 2,360 crore as on March 31, 2023, and debt was nil. Healthy annual cash accrual has enabled robust debt protection metrics. Continued healthy cash generation and prudent capital spending should lead to improvement in the financial risk profile over the medium term.
Weaknesses
Operations remain working capital-intensive owing to large inventory, seasonality in demand and extensive credit to dealers and distributors. While sales occur at the start of the season, payments are realised post-harvest, resulting in large receivables. Furthermore, the company has to maintain sizeable inventory owing to the large number of products to ensure that dealers' requirements are met on time.
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Liquidity: Strong Expected annual cash accrual of Rs 500-550 crore over the medium term and cash and equivalent of more than Rs 500 crore as on March 31, 2023 (includes cash and equivalent, bank balance and current investments), should comfortably cover capex of around Rs 200 crore per annum for regular maintenance and upgrade of facilities and working capital requirement. Fund-based bank lines were not utilised in the 12 months through March 2023 |
Outlook Stable CRISIL Ratings believes the business risk profile of SCIL will improve steadily over the medium term, supported by healthy demand, balanced presence across key sub segments of crop protection and strong brand and chemistry skills of the parent. The improving business risk profile will be complemented by strong financial risk profile and liquidity. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company SCIL is a subsidiary of the Japanese chemical major, SCCL. The company manufactures crop protection formulations based on active ingredients procured from SCCL and third parties. It has manufacturing plants in Gujarat and Maharashtra and Dadra and Nagar Haveli. SCCL holds 75% stake in SCIL.
SCCL established Sumitomo Chemical India Pvt Ltd (SCIPL) in 2000 as its manufacturing and marketing base for crop protection products, household insecticides, public health insecticides and animal nutrition products in India. The company was reconstituted as a public limited company with effect from November 24, 2018. Furthermore, in order to fortify its business in India, SCCL acquired majority stake in Excel Crop Care Ltd (ECCL) in fiscal 2016. ECCL, engaged in the manufacture of agrochemical formulations, was promoted by the Shroff family members.
On August 31, 2019, the entire business and the undertaking of ECCL was transferred to SCIL after the National Company Law Tribunal approved the Scheme of Amalgamation. |
Key Financial Indicators (CRISIL Ratings-adjusted numbers)
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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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 Bank Lenders & Facilities | ||||||
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Criteria Details
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