| Best Crop Science - Kathua | ||||
| Rating reaffirmed at 'CRISIL A / Stable'; rated amount enhanced for Bank Debt | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its rating on the long-term bank facility of Best Crop Science - Kathua (BCS; part of the Safex group) at 'CRISIL A/Stable'.
CRISIL Ratings had upgraded its ratings on the bank facilities of BCS to 'CRISIL A/Stable’ from ‘CRISIL A-/Stable’ on June 30, 2021. The upgrade follows a similar rating action on that of the parent, Safex Chemical India Ltd (SCIL; 'CRISIL A/Stable/CRISIL A1').
The upgrade reflects significant improvement in the group’s overall business risk profile backed by expansion into new geographies, an established brand presence across India with a strong network of over 10,000 distributors, and a diversified product portfolio. Consequently, revenue has had a healthy CAGR (compound annual growth rate) of 26% over the four fiscals through 2021. Besides, the EBITDA (earnings before interest, tax, depreciation and amortisation) margin has improved to 16% with cash accrual of around Rs 75crore in fiscal 2021. The operating performance is likely to improve further with a CAGR 15-20% over the medium term, supported by continuous expansion of the distribution network, introduction of the technical products segment and backward integration through acquisition of SOL during fiscal 2021, aided by expectation of a normal monsoon in fiscal 2022.
The rating also factors improvement in the financial risk profile due to equity infusion of Rs 120 crore by private equity (PE) fund, ChrysCapital, during fiscal 2021. Therefore, the capital structure has improved, with the gearing estimated at 0.43 time as on March 31, 2021, as against 0.62 time a year earlier. The equity capital funds should substantially improve the ability to meet incremental working capital and medium-term capital expenditure (capex) requirement towards capacity expansion efficiently, without raising additional debt. ChrysCapital has acquired a minority stake in SCIL in March 2021 through a combination of primary investment and acquisition of shares through a secondary stake sale. Banyan Tree (old PE) had exited the group during fiscal 2021.
The rating continues to reflect the extensive experience of the promoters in the agrochemicals industry, a diverse distribution network, an established brand and a robust financial risk profile. These strengths are partially offset by large working capital requirement, and exposure to fluctuations in raw material prices, to acceptance of new products, and to risks inherent in the domestic agrochemicals market. |
Analytical Approach: For arriving at the rating, CRISIL Ratings has now combined the business and financial risk profiles of Safex Chemicals India Ltd (SCIL), its subsidiaries, Indo Swiss Chemicals Ltd (ISCL), Smith N Smith Chemicals Ltd (SNSCL), Him Bio Agro (HBA) and Best Crop Science - Kathua (BCS). The business and financial risk profiles of SOL and step-down subsidiary Shogun Lifesciences Pvt Ltd (SLPL) have also been combined. The Safex group acquired SOL in fiscal 2021. All these entities, collectively referred to as the Safex group, are under a common management and in the same business, and have operational and financial linkages.
Furthermore, CRISIL Ratings has applied its parent notch-up framework to factor in the extent of support available to the Safex group from SCIL.
Please refer Annexure - Details of Consolidation, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
The promoters have been in the agrochemicals industry for over three decades. They have thus been able to develop a large portfolio of products comprising pesticides, insecticides and herbicide formulations. This led to healthy revenue growth, at 45% to Rs.702.92 crore in fiscal 2021 from Rs.485 crore in fiscal 2020. The business risk profile should continue to benefit from the extensive industry experience of the promoters.
The group has developed a large portfolio of agrochemical products, with over 120 formulations of pesticides, insecticides and herbicides. Furthermore, the customer network is fairly diversified and comprises of over 10,000 dealers spread across India, such that the top 10 customers contributed less than 25% to overall revenue in fiscal 2021. Moreover, the group has strong brand recall in the domestic agrochemicals industry with a three-pronged marketing strategy. Recently acquired brands are expected to aid the business risk profile and their contribution in the overall revenue mix will remain a key monitorable.
Equity infusion of Rs 120 crore and lower reliance on external funds led to improvement in the total outside liabilities to tangible networth ratio to 1.01 times as on March 31, 2021, from 1.16 times a year earlier. The networth is estimated to have been large at Rs 340 crore as on March 31, 2021. Debt protection metrics were robust, with interest coverage and net cash accrual to total debt ratios at 8.7 times and 0.52 time, respectively, in fiscal 2021 (5.99 times and 0.43 time, respectively, in fiscal 2021). Low reliance on external debt and absence of any significant debt-funded capex plans should keep the financial risk profile healthy over the medium term.
Weaknesses
Due to the seasonal nature of business, working capital requirement is large. Gross current assets (GCAs) are estimated at 318 days as on March 31, 2021 (269 days a year earlier), because of inventory (both raw material and finished goods) and receivables of 117 days and 115 days, respectively (101 days and 146 days, respectively, as on March 31, 2020). Further, seasonality and irregular demand because of the vagaries of the monsoon, along with dependence on imported raw materials leads to large inventory. The working capital cycle was aided by credit of 90-120 days from suppliers. Working capital requirement should remain large over the medium term, considering the healthy growth prospects.
The agrochemicals industry is intensely competitive and fragmented in nature, and is susceptible to climatic conditions. There is intense price and product competition from local players and multinational corporations. Operations are also exposed to government regulations. Further, the group being a formulator in the agrochemicals value chain, raw material price movement (active ingredients/technicals) is directly linked to realisations, resulting in volatile operating profitability. Furthermore, product launches could constrain demand, thereby weakening the topline and cash accrual. In May 2020, the Ministry of Agriculture issued a draft order prohibiting 27 pesticides, out of which 22 were being manufactured by the Safex group contributing around 11% of overall revenue. However, continuous addition of new products mitigates the risk to a large extent. |
Liquidity: Strong Liquidity is supported by healthy cash accrual, estimated at Rs 75 crore for fiscal 2021, and expected at more than Rs 85 crore per fiscal in fiscals 2022 and 2023. This is more than sufficient against debt obligation of Rs 5 crore per fiscal. Average fund-based bank limit utilisation was 48.4% during the 14 months through May 2021. The cash balance was healthy at over Rs 165 crore as on March 31, 2021. The current ratio is estimated at around 1.90 times as on March 31, 2021. Internal cash accrual, cash and cash equivalents, and unutilised bank lines should be sufficient to meet debt obligation, as well as incremental working capital requirement over the medium term. The group may continue to acquire companies in the medium term, though liquidity should remain strong despite the acquisitions and capex. |
Outlook Stable The Safex group should continue to benefit over the medium term from its healthy brand recognition, established pan-India market position, and comfortable financial risk profile. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Group Set up in 1991 by the late Mr SK Jindal and Mr SK Chaudhary, SCIL produces and distributes pesticides and agrochemicals under its Safex brand. The product range includes insecticides, herbicides, fungicides, plant growth promoters/regulators and micro-nutrient fertilisers. The manufacturing facilities are in Bahadurgarh, Haryana; Udhampur and Kathua, Jammu & Kashmir; and Unha, Himachal Pradesh.
ISCL is a 100% subsidiary of SCIL. It was set up in 2011, and sells pesticides and agrochemicals under its Indo Swiss brand.
SNSCL is a 100% subsidiary of SCIL. It was set up in 2013 and sells pesticides and agrochemicals under its Smith N Smith brand.
BCS was acquired by the Safex group in fiscal 2016. The products manufactured by the firm are sold through group entities ISCL and SNS in Indo and Smith brands respectively.
SOL was acquired by the Safex group in fiscal 2021 as part of backward integration. It manufactures technical grade active ingredients that are used in household insect repellent products such as mosquito coils (spirals), liquid vaporizers (bottles), aerosol sprays and mats. SOL also undertakes contract manufacturing and formulation consulting services. It has a manufacturing facility in Pune, Maharashtra. SLPL is a subsidiary of SOL incorporated in April 2021. |
Key financial indicators: Consolidated
*Provisional |
Any other information: Not applicable |
| 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)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||
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Criteria Details
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