Rating Rationale
April 03, 2020 | Mumbai
BASF India Limited
NCD Rating placed on 'Watch Negative'
 
Rating Action
Rs.20 Crore Non Convertible Debentures CRISIL AAA (Placed on 'Rating Watch with Negative Implications')
Fixed Deposits Programme FAAA/Stable (Reaffirmed)
Rs.750 Crore Commercial Paper CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has placed its 'CRISIL AAA' rating on the non-convertible debenture programme of BASF India Limited (BASF India) on 'Rating Watch with Negative Implications'. Rating on BASF India's fixed deposits and commercial paper programme have been reaffirmed at 'FAAA/Stable/CRISIL A1+'.

The rating action follows S&P Global Ratings' (S&P) action of placing 'A/A-1' ratings on BASF SE (BASF India's parent) on CreditWatch with negative implications. According to S&P Global Ratings the CreditWatch reflects a one-in-two probability that the rating on BASF SE may be lowered. Due to strong linkages on account of the operational and financial support received from its parent, revision in rating of BASF SE by a notch or more is likely to impact the overall credit profile of BASF India.
 
S&P's rating action on the parent, is due to the significant implications of the coronavirus (COVID-19) pandemic on the world economy, including industrial production stoppages and supply chain issues, especially for cross-border sectors such as chemicals. S&P expects short-term effects from the pandemic on economies, which could be followed by a progressive recovery in second-half 2020 and thereafter. CRISIL believes the recovery of BASF India's operating and financial position to be gradual due to the ongoing lockdowns affecting the global trade the macroeconomic scenarios. Moreover, there is also a possibility of a longer-than-expected downturn, involving further lock-down measures and political restrictions on economic activity, or additional effects on the financial world.
 
Even as its parent is witnessing a challenging business environment, BASF India's operations too will be impacted by the ongoing lockdowns due to COVID-19, as its plants are shut as per the government directives. Also, the demand in nutrition and health segment, care chemicals segment and as well as segments which are dependent on the automotive sector is expected to be sluggish. As a result of lower business levels, its operating profitability (EBITDA) is expected to be affected in the near term. Moreover, delay in receivables and slower movement of inventory, as well as increased merchandising business, is expected to lead to higher short term debt levels.
 
However, the impact of lower business performance is expected to be buttressed by sale proceeds of Rs.595 crore on transfer of construction chemicals business to Master Builders Solutions Pvt Ltd (another BASF group entity), limiting the impact on the company's financial risk profile in fiscal 2021. The transaction is expected to complete by October 2020. Since, annual capital spend is expected to be minimal, overall debt levels are not expected to increase materially, despite higher working capital debt, as Rs.140 crore of long term debt will also be paid down. Liquidity is more than adequate, with unutilised bank lines of Rs.1500 crores, which will also help tide over covering of fixed costs and lower accruals due to reduced operations. Besides, as has been demonstrated amply in the past, support from parent is expected to be forthcoming in case of any exigencies, besides for large capital expenditure (capex).
 
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. These strengths are partially offset by BASF India' moderate financial risk profile, increasing working capital levels with addition of merchandise business, vulnerability to inherent risks in the crop protection sector and exposure to volatile crude prices and foreign exchange movements.

Analytical Approach

The ratings of BASF India factor in support expected from its parent, BASF SE. CRISIL believes that BASF India will, in case of exigencies, receive distress support from its parent for timely repayment of debt obligations, considering parent holding of 73.33%, operational, technical and financial support in the form of re-schedulement of ECBs and funding support for the capex.

Key Rating Drivers & Detailed Description
Strengths:
* Adequate business risk profile: This is because of a diversified revenue profile and an established position in key business segments: crop protection (16% of revenue in the 9 months through December 31, 2019), materials (22%), and nutrition and care (19%). The products cater to a variety of end-user industries, including leather, paper, construction, automotive, personal and home care, agriculture, petrochemicals, and refining. The diversity of revenue streams helps mitigate the impact of cyclicality and competitive pressures in any one business segment.
 
* Strong business and financial assistance by 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. A high level of integration exists between the parent and the Indian arm because of synergies arising from similar businesses. CRISIL believes timely, need based financial support will also be extended by the parent, in case of pressure on cash flows. Besides, any large capex, if undertaken, is also likely to be supported by the parent.
 
Weaknesses:
* Moderate financial risk profile:  BASF India's operating profitability has been under pressure since fiscal 2019, resulting in modest cash generation and credit metrics. For instance, interest cover was below 2 times in fiscal 2019, and is estimated at ~2.25-2.4 times in fiscal 2020. Cash accruals are expected to benefit from sale proceeds of construction chemicals business in fiscal 2021. However, key credit metrics, such as interest cover are expected to weaken in the near term on account of lower business performance, and then gradually recover over the medium term, in line with better business performance and limited capex.
 
* Exposure 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.
 
* Exposure to volatile crude and forex movements: The profitability in the key business segments of BASF India depend on the crude prices as the raw materials used in these segments are crude derivatives. As most of the raw materials are sourced from other group companies outside India, the profitability is also impacted by adverse movement of dollar and Euro against rupee, despite hedging. The impact of these factors was seen on performance in fiscal year 2019 and in nine months of 2020. While appreciating rupee and moderation in crude prices would benefit in financial year 2019-20, managing sharp volatility in these factors will continue to be a challenge.
Liquidity Superior

Annual net cash accrual-expected to be in the range of Rs. 250-280 crore over the medium term and cash balances of Rs 34 cr on Sep 30, 2019, should be sufficient to meet yearly debt obligations (Rs. 166 cr in FY21 and Rs 137 cr in FY22), moderate capex plans (~Rs. 20 crore per annum) and working capital requirements. Furthermore, BASF India uses only about 2% of its fund based facilities of about Rs 1570 crore. Liquidity is further supported by strong financial support from parent; this was reiterated in fiscal 2019 with parent refinancing ECBs to an extent of USD 20 Million with longer tenure loan.

Outlook (for Fixed Deposit Programme): Stable
The rating on the fixed deposit programme of BASF India will remain unchanged, even if BASF India's rating is revised by downwards by up to 1 notch.

Rating Sensitivity factors
Upward Factors (for long term ratings except Fixed Deposits):
* Sustenance of BASF SE's rating at current levels with 'Stable' outlook
* Better than expected performance of BASF India
 
Downgrade Factors
* Downgrade in rating of BASF SE by S&P by a notch (for long term ratings), and by 2 or more notches (for fixed deposit rating), and consequent change in BASF India's rating
* Change in stance of support from parent
* Sharp decline in business performance, resulting in EBITDA margins of less than 2%
* Further weakening of credit metrics; interest cover below 1.25-1.40 times, due to weak profitability, elongation of working capital cycle as well as debt funded capex
About the Company

BASF India, a 73.33% subsidiary of BASF SE, is the flagship company of the BASF group in India. BASF SE began operations in India with the acquisition of RA Cole Pvt Ltd (a manufacturer of expanded polystyrene), which was renamed BASF India in September 1967.
 
BASF SE' portfolio is organized into five segments: Chemicals, Performance Products, Functional Materials & Solutions, Agricultural Solutions and Oil & Gas. All global businesses, except for Oil & Gas, are present in India, through BASF India.

Key Financial Indicators
As on/for the period ended March 31 Unit 2019 2018
Revenue Rs crore 6034 5596
Profit After Tax (PAT) Rs crore 82 247
PAT Margins % 1.4 4.4
Adjusted debt/adjusted net worth Times 0.65 0.65
Interest coverage Times 1.75 4.00
^CRISIL adjusted numbers
 
Key Financial Indicators
As on/for the nine months ended Dec 31, Unit 2019 2018
Revenue Rs crore 5702 4708
Profit After Tax (PAT) Rs crore (22)* (5)
PAT Margins % (0.4) (0.1)
Interest coverage Times 2.68 2.45
*The negative PAT is due to loss on sale of optical brightening agents segment of Rs 26 cr in Oct 2019

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 Date of Redemption Coupon Rate (%) Issue Size
(Rs. Cr)
Rating Assigned
with Outlook
NA Commercial Paper NA 7-365 days NA 750 CRISIL A1+
NA Non-convertible debentures* NA NA NA 20 CRISIL AAA/Watch Negative
NA Fixed Deposit NA NA NA -- FAAA/Stable
*Yet to be issued
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  750.00  CRISIL A1+  30-01-20  CRISIL A1+  28-03-19  CRISIL A1+  27-03-18  CRISIL A1+  31-03-17  CRISIL A1+  CRISIL A1+ 
Fixed Deposits  FD  0.00  FAAA/Stable 30-01-20  FAAA/Stable  28-03-19  FAAA/Stable  27-03-18  FAAA/Stable  31-03-17  FAAA/Stable  FAAA/Stable 
Non Convertible Debentures  LT  0.00
03-04-20 
CRISIL AAA/(Watch) Negative  30-01-20  CRISIL AAA/Stable  28-03-19  CRISIL AAA/Stable  27-03-18  CRISIL AAA/Stable  31-03-17  CRISIL AAA/Negative  CRISIL AAA/Negative 
All amounts are in Rs.Cr.
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 rating short term debt
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

For further information contact:
Media Relations
Analytical Contacts
Customer Service Helpdesk
Saman Khan
Media Relations
CRISIL Limited
D: +91 22 3342 3895
B: +91 22 3342 3000
saman.khan@crisil.com

Naireen Ahmed
Media Relations
CRISIL Limited
D: +91 22 3342 1818
B: +91 22 3342 3000
naireen.ahmed@crisil.com

Anuj Sethi
Senior Director - CRISIL Ratings
CRISIL Limited
B:+91 44 6656 3100
anuj.sethi@crisil.com


Sameer Charania
Director - CRISIL Ratings
CRISIL Limited
D:+91 22 4097 8025
sameer.charania@crisil.com


Mohan Rao
Rating Analyst - CRISIL Ratings
CRISIL Limited
D:+91 22 4040 5989
Mohan.Rao@crisil.com
Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
CRISILratingdesk@crisil.com
 
For Analytical queries:
ratingsinvestordesk@crisil.com


 

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper / magazine / agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL. However, CRISIL alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites, portals etc.


About CRISIL Limited

CRISIL is a leading agile and innovative, global analytics company driven by its mission of making markets function better. We are India’s foremost provider of ratings, data, research, analytics and solutions. A strong track record of growth, culture of innovation and global footprint sets us apart. We have delivered independent opinions, actionable insights, and efficient solutions to over 1,00,000 customers.
 
We are majority owned by S&P Global Inc., a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.
 
For more information, visit www.crisil.com 


Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK

About CRISIL Ratings
CRISIL Ratings is part of CRISIL Limited (“CRISIL”). We pioneered the concept of credit rating in India in 1987. CRISIL is registered in India as a credit rating agency with the Securities and Exchange Board of India (“SEBI”). With a tradition of independence, analytical rigour and innovation, CRISIL sets the standards in the credit rating business. We rate the entire range of debt instruments, such as, bank loans, certificates of deposit, commercial paper, non-convertible / convertible / partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 24,500 large and mid-scale corporates and financial institutions. CRISIL has also instituted several innovations in India in the rating business, including rating municipal bonds, partially guaranteed instruments and microfinance institutions. We also pioneered a globally unique rating service for Micro, Small and Medium Enterprises (MSMEs) and significantly extended the accessibility to rating services to a wider market. Over 1,10,000 MSMEs have been rated by us.


CRISIL PRIVACY
 
CRISIL respects your privacy. We may use your contact information, such as your name, address, and email id to fulfil your request and service your account and to provide you with additional information from CRISIL.For further information on CRISIL’s privacy policy please visit www.crisil.com.


DISCLAIMER

This disclaimer forms part of and applies to each credit rating report and/or credit rating rationale that we provide (each a “Report”). For the avoidance of doubt, the term “Report” includes the information, ratings and other content forming part of the Report. The Report is intended for the jurisdiction of India only. This Report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the Report is to be construed as CRISIL providing or intending to provide any services in jurisdictions where CRISIL does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this Report does not create a client relationship between CRISIL and the user.

We are not aware that any user intends to rely on the Report or of the manner in which a user intends to use the Report. In preparing our Report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the Report is not intended to and does not constitute an investment advice. The Report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind or otherwise enter into any deal or transaction with the entity to which the Report pertains. The Report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Rating are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities / instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL assumes no obligation to update its opinions following publication in any form or format although CRISIL may disseminate its opinions and analysis. CRISIL rating contained in the Report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the Report should rely on their own judgment and take their own professional advice before acting on the Report in any way.CRISIL or its associates may have other commercial transactions with the company/entity.

Neither CRISIL nor its affiliates, third party providers, as well as their directors, officers, shareholders, employees or agents (collectively, “CRISIL Parties”) guarantee the accuracy, completeness or adequacy of the Report, and no CRISIL Party shall have any liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the Report. EACH CRISIL PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the Report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. CRISIL’s public ratings and analysis as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any) are made available on its web sites, www.crisil.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee – more details about CRISIL ratings are available here: www.crisilratings.com.

CRISIL and its affiliates do not act as a fiduciary. While CRISIL has obtained information from sources it believes to be reliable, CRISIL does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and / or relies in its Reports. CRISIL keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of the respective activity. As a result, certain business units of CRISIL may have information that is not available to other CRISIL business units. CRISIL has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL has in place a ratings code of conduct and policies for analytical firewalls and for managing conflict of interest. For details please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html

CRISIL’s rating criteria are generally available without charge to the public on the CRISIL public web site, www.crisil.com. For latest rating information on any instrument of any company rated by CRISIL you may contact CRISIL RATING DESK at CRISILratingdesk@crisil.com, or at (0091) 1800 267 1301.

This Report should not be reproduced or redistributed to any other person or in any form without a prior written consent of CRISIL.

All rights reserved @ CRISIL