Detailed Rationale

Crisil Ratings has reaffirmed its ratings on the bank facilities of Aries Agro limited (AAL) at ‘Crisil BBB+/Positive/Crisil A2’.

 

The ratings factors in the established position of AAL in the organised micronutrients market, its improving market share, wide product basket, strong distribution and marketing network, and extensive experience of the promoters. The ratings also factor in the company's healthy and improving financial risk profile supported by its comfortable networth and reducing leverage. These strengths are partially offset by exposure to intense competition, low awareness about its products among consumers (farmers) and vulnerability of demand to monsoons and fungal/pest attacks.

 

In fiscal 2025, revenue improved by 19% yoy to Rs 804 primarily driven by realization growth as company passed on the price increases to its customers. While volumes in the micronutrients segment remained marginally flat, agrochemicals segment witnessed volume growth albeit on a low base. Revenue is expected to grow at 8-10% over the near-to-medium term driven by increased awareness among farmers of the benefits of micronutrients owing to education initiatives undertaken by the company. The company will continue to benefit from its wide product portfolio, established brand image and wide reach of over 10000 distributors. Operating margins were stable at 8.4% in FY25 as compared to 8.6% in FY24. Thereafter, the operating margin is expected to improve to 8.5-9.0% over the medium term, with sustenance of gross margin aided by calibrated price hikes, lowering dependance on imports and better operating leverage.

 

The financial risk profile is healthy with networth of Rs 293 crore as on March 31, 2025 (Rs 265 crore as on March 31, 2024) as against debt of Rs 44 crore, resulting in healthy gearing of 0.15 time as against 0.22 times in FY24. Owing to optimisation of the working capital cycle, progressive debt repayment and steady accretion to reserve, gearing is expected below 0.2 time over the medium term. Debt protection metrics will remain healthy with interest coverage expected at 4-5.5 times over the medium term. Net cash accrual to adjusted debt ratio is at 0.97 time in fiscal 2025 and will strengthen over the medium term. Further, in FY25 the company received ~Rs 12 crores in lieu of loans and advances to group company, GHME (total outstanding as on March 31, 2025: Rs 44.39 crore) and is expected to receive repayment of Rs 10 crore in FY26 (Rs 5 crore is already received).

 

Though operations are working capital intensive, the company has been making efforts to efficiently manage the same and has been able to grow the business without any additional debt. The net working capital cycle have reduced to 59 days as on March 31, 2025, from 115-120 days as on March 31, 2021. The company has been taking advances from customers and better manage its inventory which help rationalize working capital during this period. While the advance from customers entails an interest component, it provides the offtake assurance. This has also resulted in almost nil utilization of the fund based working capital limits in the recent past (which earlier stood at ~28% ending March’2024) providing sufficient cushion. The working capital cycle is expected to remain range-bound at 65-70 days over the medium term. Also, expected cash accrual of Rs 40-55 crore per annum will be sufficient to meet yearly debt obligation of Rs 8-10 crore and partly fund capital expenditure (capex) of ~Rs 30-40 crore.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of AAL and its subsidiaries, Aries Agro Equipments Pvt Ltd (AAE), Golden Harvest Middle East FZC (GHME) and Mirabelle Agro Manufacturing Pvt Ltd (MAMPL). The entities, collectively referred to as the Aries group, have significant operational synergies and common promoters.

 

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:

Healthy market position and extensive experience of the promoters: The promoters have been in the micronutrients industry for more than 50 years and have established the company as a market leader despite the high gestation period for product acceptability.

 

The company is the largest player in the domestic chelated micronutrients market and has steadily developed a strong marketing network to educate farmers and market its products. It has invested in grass-root level marketing by deploying its marketing staff in villages to educate farmers, convince opinion leaders and demonstrate the effectiveness of its products. It has continuously added new nutrient formulations (on an average 5-6 products new products launched every year) to meet changing requirements of farming regions and provides a wide range of related products and services, further strengthening its brand. 

 

The wide product basket of the group, its well-established position in the domestic chelated micronutrients market and extensive experience of its promoters will help maintain healthy business risk profile over the medium term.

 

Comfortable financial risk profile: The financial risk profile is marked by comfortable networth and gearing. Networth and gearing are estimated at Rs 293 crore and 0.15 time, respectively, as on March 31, 2025, as against Rs 265 crore and 0.27 time, respectively, as on March 31, 2023. Gearing is expected below 0.2 time over the medium term with optimisation of working capital cycle, progressive debt repayment and steady accretion to reserve.

 

Debt protection metrics will remain healthy, with interest coverage ratio expected above 4 times over the medium term. Net cash accrual to adjusted debt was at 0.97 time in fiscal 2025 and will strengthen further over the medium term.

 

The financial risk profile is also expected to remain healthy owing to improved cash accrual driven by steady revenue growth and stable profitability as well as better management of working capital cycle.

 

Efficient working capital management: The working capital cycle is managed efficiently, as reflected in decline in receivables to 53 days in FY25 from 61 days in FY24. Inventory days has also been improved to 66 days in FY25 from 75 days in FY24. Even though the scale of operations has doubled since fiscal 2019, outstanding debt declined to Rs 44 crore in fiscal 2025 from Rs 172 crore in fiscal 2019. The company has been taking advances from its customers to manage its working capital cycle better. The customer advances entail interest; although this impacts on the operating margin, it provides offtake assurance. Also, fund-based working capital limit utilisation in the past 12 months has been minimum and nil utilization in 6 months ended March 31, 2025.

 

Weaknesses:

Exposure to intense competition: The company faces competition from unorganised players, which comprise around 60% of the market. The industry is characterised by low entry barriers owing to low capital investment and limited product differentiation. However, with increasing customer awareness and farmer education, demand for its products should increase. Also, with stricter government regulations with respect to quality of products, unorganized players are getting eliminated, benefitting companies like AAL

 

Low awareness among consumers: One of the other major restraints to growth of the agriculture micronutrients market is the lack of awareness among farmers in developing countries regarding appropriate dosage and proper application of micronutrients, limiting demand. As per international standards, 4 kg of micronutrients are used per 100 kg of fertiliser, while in India, only 870 gm of micronutrients are used per 100 kg of fertilisers. However, with the company taking steps towards farmer education, awareness among farmers has improved, which will also increase the offtake over the medium term.

 

Large investments in overseas subsidiary, GHME, and associate company, Amarak (49% equity stake held by GHME): Operations in Amarak (associate company in which GHME holds 49% stake) were disrupted in fiscal 2018 on account of challenges in sourcing of major raw material, sulphur, and lack of availability of power. Loans and advances of Rs 75 crore were stuck in the company. In fiscal 2020, the company roped in a UAE-based partner, Odyssey Global, and divested 26% stake to mobilise resources and restart operations. Further, with the help of the joint venture partner, the company has been able to recover loans and advances and is expected to recover Rs 10-15 crore per annum going forward. In FY25 company received Rs. 12 crore in lieu of loans and advances given to group company GHME (o/s reduced to Rs.44.39 crore as on Mar.31, 2025) and is expected to receive repayments of Rs. 10 crore this fiscal (Rs 5 crore already received).

 

With operations in Amarak gaining momentum in Fujairah, the group expects to penetrate international markets.

 

Vulnerability of the micronutrients sector to rainfall: Micronutrients are  used for correcting nutrient imbalance in soil and improving the land/crop productivity. Rainfall and its distribution over time and space is one of the basic determinants of micronutrient consumption. The fortunes of the domestic micronutrient industry are therefore linked to rainfall. Surplus or inadequate rainfall could affect revenue and profit margins of domestic players. Despite increasing awareness among farmers about better irrigation mechanisms, a substantial area under cultivation in the country is still not well irrigated and depends on rainfall to meet water requirements. As the group derives a major portion of its revenue from domestic markets, it will remain susceptible to the vagaries of monsoon.

Liquidity: Adequate

Liquidity is likely to remain adequate, supported by expected cash accrual of Rs 40-55 crore per annum against yearly debt obligation of Rs 8-10 crore and capex of Rs 30-40 crore. Fund-based working capital limit of Rs 121 crore was almost nil in fiscal 2025, providing sufficient cushion for meeting exigencies. Cash and liquid investments balance stood at Rs 35 crores as on March 31, 2025. Cash surplus, internal accrual and bank limits will sufficiently cover capex, debt obligation and working capital requirement.

Outlook: Positive

Crisil Ratings believes the business risk profile of the Aries group will continue to benefit from its established market presence, healthy product portfolio, and improving market share. The financial risk profile is also expected to remain comfortable with continued improvement in the working capital cycle and higher cash accruals.

Rating sensitivity factors

Upward Factors:

• Significant scale up of operations with operating margins improving to 8-10% on a sustained basis.
• Sustenance of healthy financial risk profile.
• Earlier-than-expected realisation of loans and advances and receivables from associate company

 

Downward Factors:

• Significant decline in revenues or operating margin declining below 5-7% on a sustained basis.
• Significant increase in debt owing to large capex or stretched working capital cycle, weakening the credit metrics

About the Company

Incorporated in 1969, AAL manufactures and markets micronutrients. It introduced the chelation technology for manufacturing micronutrients in India and is the market leader. Headquartered in Mumbai, the company has six manufacturing units in India in addition to an overseas subsidiary for sale of chelated micronutrients. The company was founded by Dr T B Mirchandani and Ms Bala Mirchandani and is now managed by Dr Rahul Mirchandani. As on March 31, 2025, the promoters held 52.66% stake and the remaining was held by public.

Any other information: Not Applicable