| BASF India Limited | ||||||
| NCD outlook revised to 'Stable'; Ratings reaffirmed | ||||||
| Rating Action | ||||||
| ||||||
| The common independent director on CRISIL Ratings’ and BASF India Limited boards did not participate in the rating committee meeting and the rating process of these instruments. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has revised the outlook on the non-convertible debenture programme of BASF India Limited (BASF India) to ‘Stable’ from ‘Negative’ while reaffirming the rating at ‘CRISIL AAA’. The rating on BASF India’s fixed deposits and commercial paper programme have been also been reaffirmed at ‘FAAA/Stable/CRISIL A1+’.
The rating action follows the change in outlook of BASF SE’s (BASF India’s parent) ratings to “Stable” from ‘Negative’ by S&P Global Ratings (S&P), and reaffirmation of the ratings at ‘S&P A/A-1’, driven by favourable market conditions, continuous strict control on operating cost and capital-spending, which would improve the company’s credit metrics in the near term.
The revision in outlook on BASF India’s ratings additionally factors in rebound in its operating performance in fiscal year 2020-2021. BASF India’s revenues improved by 27% YoY in fiscal 2020-2021 on account of higher volumes and better price realisation. Most business segments of the Company including Agricultural Solutions, segments focused on the automotive industry as well as the Nutrition and Care Chemicals business delivered profitable growth. Operating margins also improved to 6.7% during the fiscal 2021 from 3.8% in fiscal 2020, on account of benefit of volume growth, price increase and lower input costs.
During July-August 2020, the company received Rs 595 crores in July 2020 upon completion of divestiture of its construction chemicals business, and paid Rs 303 crore for the acquisition of 100% stake in BASF Performance Polyamides India Pvt Ltd. The acquisition should benefit BASF India, by further strengthening its Performance Material and Monomer portfolio.
BASF India manages its working capital cycle prudently; bulk of the traded inventory is order backed and receivables are stable. Intercompany credit period provided by group companies provides additional cushion and reduces reliance on short-term debt.
With steady accruals and modest capital expenditure plan, debt levels are expected to remain negligible over the medium term. With repayment of final tranche of ECB (Rs 152 crore), the company will become long term debt free in fiscal 2022. Liquidity is further supported by unutilised bank limit of around Rs.800.6 crore. Besides, as demonstrated amply in the past, CRISIL believes support from the parent will be forthcoming in case of any exigencies.
The rating continues to reflect BASF India's adequate business risk profile, driven by diversified revenue streams, and strong operational and financial support from BASF SE and its group companies. Revenue and profitability also remain susceptible to inherent risks in the crop protection sector and volatility in crude prices and foreign exchange rates. |
Analytical Approach CRISIL Ratings on the debt programmes of BASF India factor in support expected from its parent, BASF SE. CRISIL Ratings believes BASF India will, in case of exigencies, receive timely support from its parent for timely debt servicing, as seen in the past. The parent holds 73.33% stake in BASF India, and provides operational, technical and financial support. Besides, part of the working capital lines have been carved out from the parent’s global lines of credit. |
Key Rating Drivers & Detailed Description Strengths: * Adequate business risk profile, supported by diverse revenue streams: BASF India’s business risk profile is marked by a diversified revenue profile and established position in key business segments: agricultural solutions (15% of revenue in fiscal 2021), materials (23%) and nutrition and care (25%). Products cater to various end-user industries, including automotive, personal and home care, agriculture, petrochemicals, and refining. As seen in fiscal 2021, wherein the agricultural solutions and nutrition and care segments were less affected by the pandemic and outperformed other segments, the diversified revenue streams mitigates the impact of cyclicality and competitive pressures in any particular business segment.
* Strong business and financial assistance from the parent, BASF SE: The company receives strong operational as well as product support from BASF SE, one of the leading chemical companies in the world. High level of integration between the parent and the Indian arm reflects synergies arising from similar businesses. CRISIL Ratings believes the parent will extend timely, need-based financial support in case of pressure on cash flows, and also support financing of any large capex, if undertaken. The company received external commercial borrowings (ECBs) to fund its Dahej expansion in the past, and the parent also rearranged the repayment terms when cash generation was impacted. Entire ECBs have now been repaid.
* Improving financial risk profile: Financial risk profile of BASF India has improved significantly in fiscal 2021. Networth improved on the back of steady and healthy accretion to reserves, and stood at Rs 1780 Crore as of March 31, 2021. BASF has minimal debt of Rs 152 Crore which is the instalment amount to be paid in fiscal 2022 to its parent. Reliance on debt has been negligible during fiscal 2021 and the company is expected to be debt free by end of fiscal 2022. Liquidity is further supported by unutilised bank lines of ~Rs 800.6 Crore and cash and bank balance of Rs 173 Crore as on March 31, 2021.
Weaknesses: * Exposure to volatility in crude and forex rates: Operating margin in key business segments of BASF India depends on crude prices as raw materials are crude derivatives. Most of the raw materials are sourced from other group companies outside India. Thus, profitability is also impacted by adverse movement of the US dollar and Euro against the rupee, despite hedging, and low margin on few traded products.
* Exposure to risks inherent in the crop protection sector: The domestic crop protection segment is affected by irregular monsoon and volatility in farm income. The sector is also subject to specific registration processes in different countries and various environmental rules and regulations. This has an impact on BASF India’s agricultural-solutions business, which is a key revenue contributor. |
Liquidity: Superior CRISIL Ratings expects cash accrual of around Rs 440 crore for fiscal 2022. Cash balances stood at Rs 173 crore on March 31, 2021 and working capital lines around Rs 800.6 crore remain mostly unutilised. These, along with cash accrual, should suffice to cover the yearly debt obligation of Rs 152 crore in fiscal 2022. Liquidity is also aided by strong financial support extended by the parent; this was reiterated in fiscal 2019, with the parent refinancing ECBs to an extent of USD 20 million with a longer tenure loan. |
Outlook: Stable CRISIL Ratings believes that BASF India will continue to benefit over the medium term from its diversified revenue profile, and improving market scenario. BASF India’s financial risk profile expected to be healthy over the medium term. BASF will continue to benefit from the strong parent support. The rating will also remain sensitive to any changes in BASF SE's credit profile. |
Rating Sensitivity Factors Downward Factors
|
About the Company BASF India, a 73.33% subsidiary of BASF SE, is the flagship company of the BASF group in India. The parent began operations in India, after acquiring RA Cole Pvt Ltd (a manufacturer of expanded polystyrene), which was renamed BASF India in September 1967. The portfolio of BASF SE is organised under six segments: Chemicals, Materials, Industrial Solutions, Surface Technologies, Nutrition & Care and Agricultural Solutions. |
Key Financial Indicators^
^CRISIL adjusted numbers |
| 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)
*Yet to be issued |
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Criteria Details
|