Detailed Rationale

CRISIL Ratings has reaffirmed its rating on the long term bank facilities of Advanta Enterprises Limited (AEL) at ‘CRISIL AA+/Negative+’ 

 

The board of the parent company of AEL, UPL Limited (UPL, rated 'CRISIL AA+/Negative/CRISIL A1+') approved divestment of 12.5% stake in AEL to the US-based private equity firm, Alpha Wave Ventures, for a total consideration of $ 350 million, which includes $ 250 million for secondary sale of shares by UPL and $ 100 million primary infusion in AEL. Post the divestment, UPL will hold 74.7% stake in AEL. The proceeds from secondary sale will be deployed towards debt reduction by UPL while the proceeds from primary infusion in AEL will be deployed towards organic and inorganic opportunities by AEL.

 

AEL revenues declined by 2% year- on-year in the first half of fiscal 2025 owing to moderation  in volumes with tight inventories of certain products and supply constraints. Operating profitability moderated to 24.2% in the first half of fiscal 2025 ( 29.5% in the corresponding period last fiscal) driven by lower volumes, higher production costs and lower recoveries. Earlier, in fiscal 2024, revenues witnessed an improvement of 18% y-o-y driven by healthy demand and growth in realisations across geographies. Operating profitability remained flat at 22% driven by product mix and better volumes.

 

CRSIL ratings expects that strong product portfolio, diversified presence supported by wide dealer network and strong inhouse research and development facilities will help revenue growth of AEL to sustain at 5-7% over the medium term while the operating profitability is expected to sustain at 20-23% backed by sustenance of demand and realisations.

 

AEL’s financial risk profile also is healthy supported by sizeable  net worth estimated at over Rs.4500 crores as on March 31, 2025,  and absence of long term debt. Short term debt remains nominal as the company’s incremental working capital requirements are met largely from liquid surpluses and cash accruals. Debt metrics remains robust; for instance, ratio of total outside liabilities to tangible net worth (TOL/TNW) is estimated at 0.4 times and interest cover will remain above 15 times for fiscal 2025. AEL’s capital expenditure (capex) is estimated at Rs 400-500 crore per annum mainly for registrations and geographic expansion. No incremental long term debt is expected to be added to AEL as the accruals and proceeds from equity infusion from Alpha wave ventures will be sufficient to fund the organic and inorganic expansions.

 

The ratings factors AEL’S healthy business risk profile supported by strong market position in the seeds segment, diverse product portfolio, established research and development (R&D) facilities and established dealer and distribution network. The ratings are also supported by the company’s healthy financial risk profile, which is supported by absence of long-term debt and steady cash generating ability. Besides, the rating also factors in the strong parentage of UPL Limited (UPL, rated 'CRISIL AA+/Negative/CRISIL A1+'). These strengths are partially offset by the highly working capital-intensive nature of the company’s operations, and susceptibility of its performance to inherent risks in the agricultural sector.

Analytical Approach

To arrive at its ratings, CRISIL Ratings has combined the business and financial risk profiles of AEL and its subsidiaries. This is because all these companies are under a common management and have close operational linkages and fungible cash flows.

 

CRISIL Ratings has applied its parent notch-up framework to factor in support to AEL, from its parent, UPL. AEL is also into agri-linked businesses similar to its parent.

 

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 with a sizeable presence across the world: AEL is one of the largest seed companies globally with experience of over 60 years in developing seeds, diverse product portfolio and healthy R&D capabilities. It has strong R&D capability This is further augment by wide geographic presence across the world with presence across more than 80 countries and 5000+ dealers across geographies. AEL holds leadership position in tropical and sub-tropical geographies powered by a strong global network.  AEL derives about 20-25% of its revenues from India while the rest are split across various geographies providing revenue diversity. Strong product portfolio with 900+ hybrid variants across more than 40 crops backed by proprietary inhouse technology further support its business profile. Field corn contributes 45% of the total revenues, grain and sorghum contributes 23%, vegetables contribute 12%, sunflower and canola contribute 14% while others contribute the rest.

 

Wide manufacturing presence and robust infrastructure enable effective new product development.. Established market position and consistent introduction of new products has enabled AEL to sustain healthy operating profitability above 20%.

 

• Strong Financial risk profile: AEL’s financial risk profile also is healthy supported by sizeable  net worth estimated at over Rs.4500 crores as on March 31, 2025,  and absence of long term debt. Short term debt remains nominal as the company’s incremental working capital requirements are met largely from liquid surpluses and cash accruals. Debt metrics remains robust; for instance, ratio of total outside liabilities to tangible net worth (TOL/TNW) is estimated at 0.4 times and interest cover will remain above 15 times for fiscal 2025. AEL’s capital expenditure (capex) is estimated at Rs 400-500 crore per annum mainly for registrations and geographic expansion. No incremental long term debt is expected to be added to AEL as the accruals and proceeds from equity infusion from Alpha wave ventures will be sufficient to fund the organic and inorganic expansions.

 

Further, AEL had cash surplus of Rs. 567 crores as on March 31,2024 which can be utilized for incremental working capital requirements reducing the reliance of AEL on external debt. AEL has parked surpluses with UPL group companies and earns interest income on the same.

 

• Support from parent, UPL: UPL, the parent entity, holds 86.67% stake in AEL while the rest is held by KKR. At consolidated level, UPL  is among the top 5 players in the global agrochemicals industry with well diversified revenue base and derives ~70% of its revenues from LATAM, Europe, and North America. UPL is present across the crop lifecycle, from seeds, seed-treatment products, pre- and post-harvest products, to storage-treatment products. UPL’s robust business risk profile is aided by a portfolio of 13,000+ registrations, over 200 active ingredients, and 1,023 patents. The group is present in 138 countries with 48 manufacturing locations, employing more than 10,400 people across the globe.

 

Given strong business linkages between AEL and UPL (both being in the agri-space), UPL is expected to continue being the largest shareholder in AEL and ensure the financial health of AEL, by providing timely support, when required.  Despite the divestment of 12.5% stake in AEL, UPL retains the majority stake in AEL.

 

Weaknesses:

• Large working capital requirement: The seeds business is seasonal in nature and operations are working capital intensive as the seeds are to be multiplied and kept in packets for sales. Generally, the inventory holding period is 150-180 days and high credit period required by the customers has increased the gross current assets to 290 days as on March 31 ,2024. However, given the presence of sizeable cash surplus in AEL, the company has been able to meet the incremental working capital requirements without significant addition of external debt.

 

• Susceptibility to risks inherent in the agriculture sector: The business remains susceptible to several external factors such as monsoon, soil and climatic conditions, and crop diseases. Although the use of innovative technologies and continuous R&D activities partially offset the risks, turnover and profitability remain susceptible to adverse changes in these factors. AEL’s earnings are susceptible to crop failure and disease outbreaks. However, the company’s diverse  presence insulates it against the risks to a certain extent.

Liquidity: Strong

AEL’s liquidity is strong and as on March 31,2024, it had cash balance of Rs. 567 Crore and nil utilization of bank lines (limits of Rs.90 crores) as of November 2024. Besides, the company has strong cash generating ability, with accruals estimated at Rs.700 - 800 crores annually over the medium term. Further, its parent, UPL can also support, should the need arise.

 

Further, AEL has parked surpluses of Rs.936 crores as on March 31,2024 with group company, UPL Corporation Ltd, and  parent, UPL and it earns interest income on the same. The same can be called back, should the need arise.

Outlook: Negative

CRISIL Ratings believes the AEL’s business risk profile will continue to remain healthy driven by established market position and healthy product portfolio. Better scale and business synergies, as well as a strong R&D will help sustain operating profitability at 23-25% over the medium term, benefiting cash generation. Strong parentage of UPL will also augment the healthy financial risk profile and liquidity of AEL.

Rating sensitivity factors

Upward factors

• Improvement in the credit profile of UPL Ltd
• Better than expected growth in AEL’s revenues, with operating profitability in excess of 25%, ensuring strong cash generation
• Sustenance of strong financial risk profile

 

Downward factors

• Material deterioration in the credit profile of UPL by one or more notch or change in stance of support
• Sharp decline in revenue growth and fall in operating profitability (EBITDA) of AEL to below 15% on sustained basis materially impacting cash generation.
• Significant increase in debt levels of AEL on a sustained basis, due to lower cash generation, large capex, material acquisitions, or elongation in working capital cycle, impacting the financial risk profile.

About the Company

AEL was set up in June 2022 and is 86.67% held by UPL. It earlier functioned as a division of UPL, and was carved out as a separate entity, post reorganization of UPL. AEL holds the Indian seed business and through its subsidiary, Advanta Mauritius Ltd (AML), it holds the International seed business of UPL. AEL holds a leadership position in tropical and sub-tropical geographies powered by a strong global network.

 

UPL acquired 100% stake in Advanta India Limited (AIL) in 2006 and gained entry into the seeds business.

 

At present, AEL has presence across 84+ countries with more than 900+ hybrids across more than 40 crops. Further AEL has 25 research centers worldwide with 24 stations of seed production and processing sites across 21 countries.

Any other information: Not Applicable