Rating Rationale
January 30, 2020 | Mumbai
BASF India Limited
Ratings Reaffirmed 
 
Rating Action
Rs.20 Crore Non Convertible Debentures CRISIL AAA/Stable (Reaffirmed)
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 reaffirmed its ratings on the debt programmes of BASF India Limited (BASF India) at 'CRISIL AAA/FAAA/Stable/CRISIL A1+'.
 
CRISIL believes BASF India will maintain its business risk profile, despite divestment from paper wet-end & water chemical, optical brightening agents businesses, as the company replaced its agency business with the merchandise business model effective financial year 2019-20. . While margins are expected to remain low partly due to addition of merchandise business with lower margin, revenue growth is expected to be better than previous years over the medium term, enabling operating profits to remain in-tact.
 
In the first half of fiscal 2020, sales grew by 9% while the operating margin declined to 4.3% from 4.9% in the corresponding period of the previous fiscal. Higher input costs due to rise in crude oil prices and depreciation of rupee against euro impacted margins.
 
During fiscal 2019, one of its group company BASF Belgium Coordination Centre Comm. V., refinanced its one tranche of ECB repayment aggregating to USD 20 Million with higher tenure, thus reducing the annual debt repayment obligation and easing the funds flow position. Cash accruals over the medium term are expected to be sufficient for meeting these repayment obligations, modest capital expenditure plan and additional working capital requirements. CRISIL continues to derive comfort from timely and need-based support from parent in case of exigencies.
 
The rating continues to reflect BASF India's healthy business risk profile driven by diversified revenue streams, and strong operational and financial support from the parent/ group companies. These strengths are partially offset by average 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 (rated 'A/Stable/A1', by S&P Global Ratings). 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 reschedulement of ECBs and funding support for the capex.

Key Rating Drivers & Detailed Description
Strengths:
* Healthy business risk profile: This is because of a diversified revenue profile and an established position in key business divisions: agrochemicals (20% of revenue in the 6 months through September 2019), materials (22%), and Industrial solutions (16%). The products cater to a variety of end-user industries, including paper, construction, automotive, personal and home care, agriculture, petrochemicals, and refining. In FY19, while the agrochemical business was affected due to delayed monsoons and high raw material costs, the dispersions division (industrial solutions) performed well resulting in revenue growth. 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 the parent, 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. The parent and group companies have shown sufficient track record of financial support to the Indian entity by advancing USD 20 Million ECB loan in FY19. CRISIL believes timely, need based financial support will also be extended by the parent, in case of pressure on cash flows.
 
Weaknesses:
* Average financial risk profile: Lower profitability from operations resulted in weak financial risk profile; however, with profitability expected to remain stable over the medium term, capital structure and key credit metrics could witness gradual improvement. However, healthy networth, steady cash generation, moderate gearing, low capital expenditure (capex) and continued prudent working capital management in the medium term is likely to improve the financial metrics. Gearing remained steady at 0.60 time as on September 30, 2019 from 0.65 time as on March 31, 2019. Key debt protection metrics are likely to be steady; net cash accrual to total debt and interest coverage ratios were 0.13 time (0.23 time in fiscal 2019) and 3.62 times (1.75 times in fiscal 2019), respectively on September 30, 2019.
 
* Large working capital requirement: Operations should remain working capital-intensive with gross current assets at 147 days as on September 30, 2019, driven by receivables and inventory of 77 and 58 days, respectively (credit of about 30-90 days provided to clients). Working capital cycle is expected to remain at similar level over the medium term. With increase in scale of operations due to addition of merchandise business which are trading operations, the working capital management would become more critical.
 
* Exposure to risks inherent in the crop protection sector: Revenue growth is susceptible to regulations governing the agrochemicals industry. Monsoon also plays a significant role in the domestic agrochemicals market and is likely to impact revenue and profitability.
 
* Exposure to volatile crude prices and foreign exchange 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 financial year 2018-19 and in first half of fiscal 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. 250-260 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. 60-70 crore per annum) and working capital requirements. Furthermore, BASF India uses only about 7% 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: Stable

CRISIL believes BASF India's business risk profile will benefit from the diversified business risk profile and strong parent support that will buttress the impact of sub-par credit metrics. The rating will also remain sensitive to any changes in BASF SE's credit profile.

Rating Sensitivity factors
Downward factors:
* Lower-than-expected revenue growth of less than 10% including due to further divestment of businesses and reduction in operating profitability to less than 3%, impacting cash generation,
* Significant deterioration of debt protection metrics due to additional debt for acquisitions or working capital, leading to gearing greater than 1.0 time.
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 six segments: Agricultural Solutions, Materials, Industrial Solutions, Surface Technologies, Nutrition & Care Chemicals.
 
For the first 6 months in fiscal 2020, profit after tax (PAT) was Rs. 11 crore on operating income of Rs. 3688 crore against PAT of Rs. 34 crore on income of Rs. 3303 crore for the corresponding period in the previous fiscal.

Key Financial Indicators^
As on/for the period ended March 31 Unit 2019 2018
Revenue Rs crore 6026 5723
Profit After Tax (PAT) Rs crore 82 247
PAT Margins % 1.4 4.3
Adjusted debt/adjusted net worth Times 0.65 0.65
Interest coverage Times 1.75 4.00
^CRISIL adjusted numbers
 
Key Financial Indicators - Year to date financials
For the six months ended Unit Sep-19 Sep18
Revenue Rs crore 3688 3303
Profit After Tax (PAT) Rs crore 11 34
PAT Margins % 0.3 1.02
Interest coverage Times 3.62 3.60
 

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/Stable
NA Fixed Deposits NA NA NA NA FAAA/Stable
*Yet to be issue
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+      28-03-19  CRISIL A1+  27-03-18  CRISIL A1+  31-03-17  CRISIL A1+  CRISIL A1+ 
Fixed Deposits  FD  0.00  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
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

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