Rating Rationale
October 09, 2019 | Mumbai
Rallis India Limited
Rated amount enhanced
 
Rating Action
Total Bank Loan Facilities Rated Rs.400 Crore (Enhanced from Rs.360 Crore)
Long Term Rating CRISIL AA+/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
 
Rs.75 Crore Commercial Paper CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its ratings on the bank facilities and commercial paper programme of Rallis India Limited (Rallis) at 'CRISIL AA+/Stable/CRISIL A1+'.
 
The ratings continue to reflect an established position in India's crop protection market, strong focus on exports, branding and farmer relationship, and a comfortable financial risk profile. The ratings also factor in the strategic importance to the parent, Tata Chemicals Ltd (TCL; rated 'CRISIL A1+'), 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 market in India, and working capital-intensive operations.

Analytical Approach

Parent Notch up
The ratings of Rallis factor in support expected from its parent Tata Chemicals Limited (CRISIL A1+). CRISIL believes that Rallis will, in case of exigencies, receive support from its parent.

Consolidation
For arriving at the ratings, CRISIL has combined the business and financial risk profiles of Rallis and its subsidiaries (annex) because of the close operational and financial linkages among these companies, together referred to herein as Rallis.

Goodwill Amortization
CRISIL has amortised goodwill on acquisitions over a period of 10 years.

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 market position: Rallis is a major player in the crop protection sector with a strong presence in all three segments of the pesticide industry (insecticides, fungicides, and herbicides) in India and abroad. Moreover, the company has entered into contract manufacturing by partnering with reputed players for developing new products and services. It has about 12% share in the global metribuzin market which is expected to increase with recent capacity expansions. and It is also focused on providing end-to-end solutions in the agriculture input chain and has thus entered into related sectors such as seeds (largely through MLSL, which has a commercialised portfolio of hybrid seeds), plant growth nutrients, and organic compost, helping to diversify the revenue base.

* Strong focus on branding and relationship with farmers: Strong brand and steady engagement with farmers facilitated regular launch of new products. The company undertakes farmer relationship programmes such as Rallis Kisan Kutumba, through which it provides them information on new and improved practices in agriculture. Further, in fiscal 2017, it launched Rallis Samrudh Krishi, through which agricultural solutions are provided to farmers and has also been working on improving productivity of crops. In addition, Grow More Pulses (MoPu), an initiative launched six years ago in Tamil Nadu to increase productivity in pulses, has been extended to Maharashtra, Madhya Pradesh, and Karnataka and covers over 500,000 farmers. TCL procures pulses from farmers under the MoPu programme, thereby reflecting strong operating synergy.

* Comfortable financial risk profile: The networth was large at Rs 1,221 crore, and the gearing healthy at 0.06 time, as on March 31, 2019. Debt protection metrics were also strong in fiscal 2019. Overall liquidity is backed by healthy build-up of cash and cash equivalents (Rs 152 crore as on March 31, 2019).

* Support from the parent: Managerial and operational support from TCL continues to benefit the company.

Weakness
* Vulnerability to risks inherent in the crop protection sector: The domestic crop protection segment is affected by irregular monsoon and volatility in farm income. Also, the sector is highly regulated by specific registration processes in different countries and is subject to various environmental rules and regulations.

* Working capital-intensive operations: The domestic crop protection industry is highly working capital intensive. Inventory of the company has been increasing due to higher stocking of raw materials in the anticipation of supply shortages following pollution control issues in China. Thus, gross current assets have increased to 238 days as on March 31, 2019, from 158 days in fiscal 2017. The stretch in working capital is expected to remain over the next two years since the industry is undergoing disruptions caused by short-supply of raw material from China due to pollution clampdown in the country.

Liquidity: Strong
Rallis is expected to generate cash accruals of Rs 200-250 cr between FY20-22. These are expected to be sufficient of all the large scale capex activates (about Rs 300-350 cr) planned by the company over the next 3 years. As on March 31, 2019, the company has cash and cash equivalents of about Rs 152 cr. The cash surplus and cash accrual should be sufficient to fund any additional working capital requirements and capex activities in FY20 and FY21.

Presently there are negligible long term debt obligations and management reliance on debt for funding of capex is very low. However, in case Rallis requires debt funding, the adjusted gearing is 0.06 time as on March 31, 2019 provide sufficient headroom for additional debt. Moreover, the fund based limits are utilized upto 36% of available limits and 16% of the drawing power for the last 11 months ended May 2019.
Outlook: Stable

CRISIL believes the business risk profile will continue to be supported by steady demand prospects for Rallis' products in the domestic market, and improving focus on exports. Large scale capex over the medium term is expected to result in better market share and mitigate impact on profitability caused by increasing raw material prices. Rallis will continue to remain critical for TCL and keep receiving operational, managerial and financial support.

Rating Sensitivity factors
Upward Factor
* Revenue growth of >13% and EBITDA margin > 17%
* Substantial improvement in working capital situation with lower inventory days, lower debtor days and higher cash surplus
* Upward revision in parent rating

Downward Factor
* Revenue degrowth or EBITDA margin <12%
* Larger-than-expected, debt-funded capital spending, or substantial acquisition resulting in total Debt / EBITDA > 1
* Further stretch in working capital
* Downward revision in parent rating.

About the Company

Rallis, 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 in four locations. These agrochemicals are spread across 80% of India's districts through an extensive distribution network. The Rallis Innovation Chemistry Hub (RICH) caters to global requirements and plays a key role in contract manufacturing. In fiscal 2010, Rallis became a subsidiary of TCL; earlier, it was jointly owned by multiple Tata group companies.
 
Rallis acquired a majority stake in MLSL, a Bengaluru-based seeds company, in fiscal 2011. MLSL was established in 2000 by scientists to focus on seed research and manufacturing. The company has proprietary bacillus thuringiensis trait and cry1C approvals for its cotton business. In fiscal 2013, Rallis acquired a stake in Maharashtra-based ZWAOL, which manufactures scientifically prepared organic compost from waste derived from the sugar industry. Currently, both the companies are wholly owned subsidiaries of Rallis.
 
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 tpa plant at Mithapur. Over the years, it has expanded its gross soda ash capacity to 917,700 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 2019 2018
Operating income Rs crore 1998 1807
Profit after tax (PAT)* Rs crore 135 147
PAT margin % 6.8 8.2
Adjusted debt/adjusted networth Times 0.06 0.02
Interest coverage Times 34.42 41.88
^CRISIL adjusted numbers
*Adjusted for goodwill amortization
 
Year to date financials
Particulars Unit Q1 FY20 Q1 FY19
Operating income Rs crore 623 573
PAT Rs crore 68 55
PAT margin % 10.84 9.52
Interest coverage Times 65.45 97.83

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)
ISIN Name of Instrument Date of Allotment Coupon Rate (%) Date of Maturity Issue Size
(Rs.Cr)
Rating Assigned
with Outlook
NA Cash Credit* NA NA NA 150.5 CRISIL AA+/Stable
NA Rupee Term loan NA NA Feb-2023 13.0 CRISIL AA+/Stable
NA Letter of Credit# NA NA NA 236.5 CRISIL A1+
NA Commercial Paper NA NA 7-365 days 75.0 CRISIL A1+
*Interchangeable with other fund-based facilities
#Interchangeable with other non-fund based facilities
 
Annexure - List of Entities Consolidated
Fully Consolidated Entities
Metahelix Life Sciences Ltd
Zero Waste Agro Organics Ltd
Rallis Chemistry Exports Ltd
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  75.00  CRISIL A1+      29-11-18  CRISIL A1+  15-12-17  CRISIL A1+  09-02-16  CRISIL A1+  CRISIL A1+ 
                08-02-17  CRISIL A1+       
Fund-based Bank Facilities  LT/ST  163.50  CRISIL AA+/Stable      29-11-18  CRISIL AA+/Stable/ CRISIL A1+  15-12-17  CRISIL AA+/Stable  09-02-16  CRISIL AA/Stable  CRISIL AA/Positive 
                08-02-17  CRISIL AA/Positive       
Non Fund-based Bank Facilities  LT/ST  236.50  CRISIL A1+      29-11-18  CRISIL A1+  15-12-17  CRISIL A1+  09-02-16  CRISIL A1+  CRISIL A1+ 
                08-02-17  CRISIL A1+       
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit* 150.5 CRISIL AA+/Stable Cash Credit* 121 CRISIL AA+/Stable
Letter of Credit# 236.5 CRISIL A1+ Letter of Credit# 179.5 CRISIL A1+
Rupee Term Loan 13 CRISIL AA+/Stable Proposed Long Term Bank Loan Facility 35 CRISIL AA+/Stable
-- 0 -- Proposed Short Term Bank Loan Facility 9.5 CRISIL A1+
-- 0 -- Rupee Term Loan 15 CRISIL AA+/Stable
Total 400 -- Total 360 --
*Interchangeable with other fund-based facilities
#Interchangeable with other non-fund based facilities
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Chemical Industry
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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