| Best Crop Science - Kathua | ||||
| Rated amount enhanced | ||||
| 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 facilities of Best Crop Science - Kathua (BCS; part of the Safex group) at 'CRISIL A/Stable'.
The rating continues to reflect the operational and financial support received from the parent, Safex Chemicals India Ltd (SCIL; rated ‘CRISIL A/Stable/CRISIL A1’).
The rating also continues to reflect the healthy business risk profile of the group, supported by its established market position in the agrochemicals industry, steady geographical penetration, brand acquisitions, capital expenditure (capex) and in-house research and development. Consequently, revenue registered a healthy CAGR (compound annual growth rate) of 17.73% over the five fiscals through 2022. Furthermore, the group is developing a new molecule for mosquito repellent under the home insecticides division under Shogun Organics Ltd (SOL), for which it has received the patent in nine countries, including India. Ramp-up of revenue from new product development will start from fiscal 2024 onwards. Operating margin is expected to be 14-15% over the medium term. Financial risk profile is healthy, with networth of over Rs 380 crore as on March 31, 2022, due to high cash accrual; hence, gearing was robust at 0.40 time. Healthy cash accrual against term debt obligation and unencumbered cash and bank balance of around Rs 108 crore support liquidity.
The rating continues to reflect the extensive experience of the promoters of the Safex group in the agrochemicals industry, diverse distribution network, 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, acceptance of new products, and to risks inherent in the domestic agrochemicals market. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of SCIL and its subsidiaries: Indo Swiss Chemicals Ltd (ISCL), Smith N Smith Chemicals Ltd (SNSCL), Him Bio Agro, BCS, SOL (acquired in fiscal 2021) and Shogun Lifesciences Pvt Ltd (SLPL). All these entities, collectively referred to as the Safex group, are under a common management, 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 - List of entities consolidated, which highlights entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths: Extensive experience of the promoters: Presence of over three decades in the agrochemicals industry has enabled the promoters to develop a large portfolio of products comprising pesticides, insecticides and herbicide formulations. This has led to healthy revenue growth in the five fiscals through 2022.
Diversified product portfolio, wide distribution network and established brand: The group has developed over 120 formulations of pesticides, insecticides and herbicides. Furthermore, customer network comprises over 10,000 dealers spread across India, such that the top 10 clients accounted for less than 25% of the overall revenue in fiscal 2022. Moreover, the group has strong brand recall in the domestic agrochemicals industry with a three-pronged marketing strategy. The recently acquired brands are expected to aid business risk profile, and their contribution to the overall revenue mix will remain a key monitorable.
Robust financial risk profile: Networth was strong at over Rs 380 crore as on March 31, 2022, backed by healthy estimated cash accrual of over Rs 74 crore. Limited reliance on external funds led to comfortable gearing and total outside liabilities to tangible networth ratio of 0.40 time and 0.78 time, respectively. Debt protection metrics were robust, with interest coverage and net cash accrual to total debt ratios of 10.14 times and 0.49 time, respectively, in fiscal 2022 (8.45 times and 0.49 time, respectively, in fiscal 2021). Financial risk profile will remain stable over the medium term due to low reliance on external debt and absence of any significant debt-funded capex.
Weaknesses: Working capital-intensive operations: Due to the seasonal nature of business, gross current assets (GCAs) were estimated to be 265 days as on March 31, 2022 (308 days as on March 31, 2021). Inventory (both raw material and finished goods) and receivables stood at 92 days and 117 days, respectively (115 days and 118 days, respectively). Inventory is large because of seasonality and irregular demand following uneven monsoon. Credit of 90-120 days from the suppliers and healthy unencumbered cash balance of Rs 108.40 crore (as on March 31, 2022) aid working capital cycle. Considering healthy growth prospects, working capital requirement should remain large over the medium term.
Exposure to fluctuations in raw material prices, acceptance of new products, and to risks inherent in the agrochemicals market: The agrochemicals industry is intensely competitive because of the presence of local players and multinational corporations, and is also susceptible to climatic conditions. Moreover, operations are exposed to government regulations. Being a formulator in the agrochemicals value chain, raw material price movement (active ingredients/technicals) is directly linked to the realisations of the group, resulting in volatile operating profitability. Furthermore, product launches could constrain demand, thereby weakening topline and cash accrual. However, continuous addition of new products mitigates this risk to a large extent. |
Liquidity: Strong Cash accrual was estimated at Rs 75 crore for fiscal 2022 and is expected at more than Rs 85 crore per fiscal in 2023 and 2024 against yearly debt obligation of Rs 5 crore. Average utilisation of fund-based limit was 48.7% during the 12 months through March 2022. Cash balance was healthy at over Rs 113 crore as on March 31, 2022, while current ratio was estimated at around 2 times. Internal cash accrual, cash and cash equivalent, and unutilised bank limit should be sufficient to meet debt obligation and incremental working capital requirement over the medium term. Despite acquiring companies and incurring capex over the medium term, liquidity of the group should remain strong. |
Outlook: Stable The Safex group should continue to benefit from its healthy brand recognition, established market position across India, and comfortable financial risk profile over the medium term. |
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. Portfolio includes insecticides, herbicides, fungicides, plant growth promoters/regulators and micro-nutrient fertilisers. 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 SNSCL, under the 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 repellents such as mosquito coils (spirals), liquid vaporisers (bottles), aerosol sprays and mats. SOL also undertakes contract manufacturing and formulation consulting services. It has a facility in Pune. SLPL, a subsidiary of SOL, was incorporated in April 2021. |
Key Financial Indicators
*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)
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 Bank Lenders & Facilities | ||||||||||||||||
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This Annexure has been updated on 05-Jul-2022 in line with the lender-wise facility details as on 05-Jul-2022 received from the rated entity.
Criteria Details
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