Rating Rationale
September 30, 2020 | Mumbai
Crystal Crop Protection Limited
Rating outlook revised to 'Negative'; ratings reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.650 Crore
Long Term Rating CRISIL A/Negative (Outlook revised from 'Stable' and rating reaffirmed)
Short Term Rating CRISIL A1 (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has revised its rating outlook on the long-term bank facilities of Crystal Crop Protection Ltd (CCPL; part of the Crystal group) to 'Negative' from 'Stable', and reaffirmed the rating at 'CRISIL A'; the short-term rating has been reaffirmed at 'CRISIL A1'.

The outlook revision follows the expected impact on the group's financial and liquidity risk profile, owing to outflow of funds to honour contingent liabilities for repayment of TED (terminal excise duty) refunds CCPL had availed for fiscal 2014. The timing and quantum of crystalizing of the above-mentioned liability will be a key monitorable over the medium term. Currently, enquiry under the said case is carried out by the CBI (Central Bureau of Investigation) and the case is also being heard in the Gujarat High Court.

However, the group has adequate liquidity to meet contingent liabilities over the medium term, with healthy cash and bank of Rs 221.8 crore as on August 31, 2020. Financial risk profile expected to remain strong, with estimated gearing of less than 1.0 time as on March 31, 2021.

The EBITDA (earnings before interest, taxes, depreciation and amortisation) margin declined to around 10% in fiscal 2020 from 15.6% in fiscal 2019 due to competition in institutional sales, foreign exchange loss and IPO expenses. Over the medium term, EBITDA margin is expected at 12-13%; any significant deviation in profitability will remain a key rating sensitivity factor. 

The ratings continue to reflect the Crystal group's established market position in the agrochemical industry, backed by continuous acquisition of brands and in-house research and development; established brand positioning; and a strong financial risk profile. Revenue increased by 13% year-on-year to Rs 1,655.32 crore in fiscal 2020 from Rs 1,463.73 crore due to healthy demand from both the brand and institutional segments. These strengths are partially offset by working capital-intensive operations, and susceptibility to fluctuations in raw material prices, acceptance of new products, and to inherent risks in the domestic agrochemicals market.

Analytical Approach

 CRISIL has combined the business and financial risk profiles of CCPL; Modern Papers (MP); Rohini Seeds Pvt Ltd (RSPL); Rohini Bio-Seeds and Agritech Pvt Ltd (RBPL); Rohini Agriseeds Pvt Ltd (RAPL); Lotus Global Pte Ltd (LGPL); Nexus Crop; Crystal Crop Protection, Australia; Crystal Crop Protection, South Africa; Crystal Crop Protection, employee welfare trust; and Crystal Crop Protection, employee gratuity trust. The group has amalgamated most of the entities into CCPL and only MP; LGPL; Nexus Crop; Crystal Crop Protection, Australia; Crystal Crop Protection, South Africa; Crystal Crop Protection, employee welfare trust and Crystal Crop Protection, employee gratuity trust; exist separately. CRISIL has combined the business and financial risk profiles of all the above entities to arrive at the ratings. The entities, collectively referred to as the Crystal group, have the same promoters and management, and strong business and financial linkages as there are regular transactions among them and these entities provide financial support to each other.
 
Refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description
Strengths:
* Extensive industry experience of the management:
The promoters have been in the agrochemicals industry for over three decades. Prior to setting up the group, Mr Nand Kishore Aggarwal was associated with Jai Shree Agro Industries Limited, established in 1983, and is in the same line of business. The business risk profile should benefit from the extensive experience of the promoters in the agrochemicals industry.
 
* Diversified product portfolio, diverse distribution network and established brand position:
The group has developed a large portfolio of agrochemical products, with over 100 formulations of pesticides, insecticides and herbicides. Furthermore, the customer network is fairly diversified and comprises of over 7,500 dealers spread across India, such that the top 10 customers contributed less than 25% to overall revenue in fiscal 2020. Moreover, the group has strong brand recall in the domestic agrochemicals industry. Going forward, recently acquired brands are expected to aid the business risk profile and their respective contribution in the overall revenue mix will remain a key monitorable.
 
* Healthy financial risk profile:
Lower reliance on external funds yielded a strong total outside liabilities to tangible networth ratio in the three fiscals ended March 31, 2020 (0.96 time as on March 31, 2020, against 0.89 time as on March 31, 2019). Networth was estimated to be large at Rs 793 crore as on March 31, 2020. Debt protection metrics were robust, with interest coverage and net cash accrual to total debt ratios of 4.69 times and 0.24 time, respectively, in fiscal 2020 (8.17 times and 0.30 time, respectively, for fiscal 2019). Low reliance on external debt and a healthy capital structure should keep the financial risk profile stable over the medium term.

Weaknesses:
* Working capital-intensive operations:
Gross current assets (GCAs) were estimated at around 256 days as on March 31, 2020 (247 days as on March 31, 2019), because of inventory (both raw material and finished goods) and receivables of 95 days and 96 days, respectively (126 days and 102 days, respectively).  The group imports a major portion of its raw material requirement and has to maintain large raw material inventory during the year. The working capital cycle was aided by credit of 50-60 days from the suppliers. Working capital requirement will remain large over the medium term, considering healthy growth prospects.

* Susceptibility to fluctuations in raw material prices, acceptance of new products and inherent risks in the domestic agrochemicals market: 
The agrochemicals industry depends on the monsoon and the level of farm income. Also, high dependence on imports may result in lower operating margin in case of adverse movement in raw material prices globally. Furthermore, new product launches by peers can affect demand, thereby impacting revenue and cash accrual.
Liquidity Strong

Cash accrual is healthy at around Rs 111 crore in fiscal 2020, and is expected to be Rs 130-140.0 crore each in fiscals 2021, 2022 and 2023, which will be sufficient against annual debt obligation of Rs 54.20 crore per annum. Cash and bank balance was Rs 221.8 crore as on August 31, 2020 on the group level (Rs 118.29 crore as on March 31, 2020). Unencumbered cash and bank balance was Rs 202.35 crore as on August 31, 2020 (Rs 101.49 crore as on March 31, 2020). Average utilisation of fund-based limit was 57% over the 15 months through August 2020. Any large, debt-funded capital expenditure (capex) or acquisition affecting credit metrics will remain a key rating sensitivity factor. Current ratio was 2.20 times as on March 31, 2020.

Outlook: Negative

CRISIL believes CCPL's financial risk profile and liquidity profile might get impacted due to crystallization of contingent liability created because of issues in transactions related to refund of terminal excise duty. Also any further decline in EBITA margins will impact overall business risk profile over the medium term.

Rating Sensitivity factors
Upward Factors
* Significant Improvement in operating income at group level and EBITDA margin of around 15%
* Equity infusion or unsecured loan from the promoters to aid liquidity.
* Improvement in working capital cycle with GCAs of less than 220 days
 
Downward Factors
* Larger-than-expected fund outflow for contingent liability, leading to cash accrual of less than Rs 80 crore over the medium term, thus impacting overall financial risk profile.
* Decline in operating income by more than 20% and EBITDA margins of less than 8%.
* Any large, debt-funded capex affecting overall financial and liquidity risk profile or further stretch in working capital cycle with GCA days of more than 280 days impacting liquidity.
About the Company

CCPL was incorporated in 1994, earlier known as Jai Bharat Crop Chemical Pvt Ltd. In 2007, Jai Shree Agro Industries Ltd was merged with Crystal Phosphates Ltd, and in 2010, Crystal Phosphates Ltd was merged with CCPL to consolidate operations. In August 2008, the group expanded its operations in Jammu by setting up MP, a partnership firm.

The Crystal group, promoted and managed by Mr Nand Kishore Aggarwal (chairman) and his son, Mr Ankur Aggarwal (managing director), manufactures agrochemical products and formulations such as insecticides, fungicides, herbicides and plant growth regulators or micro nutrients, and trades in technical and agricultural equipment such as spray pumps. In 2011, the group entered the seed manufacturing segment with the acquisition of RSPL and RBPL.

Key Financial Indicators
As on / for the period ended March 31 Unit 2020* 2019
Operating income Rs crore 1655.3 1463.7
Reported profit after tax (PAT) Rs crore 61.21 129.96
PAT margin % 3.70 8.9
Adjusted debt/adjusted networth Times 0.60 0.57
Interest coverage Times 4.69 8.17
*Provisional

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
Annexure - Details of Instrument(s)
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size
(Rs crore)		 Complexity levels Rating assigned with outlook
NA Letter of Credit NA NA NA 268 NA CRISIL A1
NA Cash Credit NA NA NA 374 NA CRISIL A/Negative
NA Term Loan NA NA Aug-2022 8 NA CRISIL A/Negative
 
 
Annexure - List of entities consolidated
Names of Entities Consolidated Extent of Consolidation Rationale for Consolidation
Crystal Crop Protection Ltd Full consolidation Same promoters and management, and strong business and financial linkages as there are regular transactions among them and they provide financial support to each other
Lotus Global Pte Ltd Full consolidation Same promoters and management, and strong business and financial linkages as there are regular transactions among them and they provide financial support to each other
Modern Papers Full consolidation Same promoters and management, and strong business and financial linkages as there are regular transactions among them and they provide financial support to each other
Nexus Crop Science Pvt Ltd Full consolidation Same promoters and management, and strong business and financial linkages as there are regular transactions among them and they provide financial support to each other
Crystal Crop Protection, Australia Full consolidation Same promoters and management, and strong business and financial linkages as there are regular transactions among them and they provide financial support to each other
Crystal Crop Protection, South Africa Full consolidation Same promoters and management, and strong business and financial linkages as there are regular transactions among them and they provide financial support to each other
Crystal Crop Protection, employee welfare trust Full consolidation Same promoters and management, and strong business and financial linkages as there are regular transactions among them and they provide financial support to each other
Crystal Crop Protection employee gratuity trust Full consolidation Same promoters and management, and strong business and financial linkages as there are regular transactions among them and they provide financial support to each other
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    --    --    --    --  20-04-17  Withdrawn CRISIL A2+ 
Fund-based Bank Facilities  LT/ST  382.00  CRISIL A/Negative      28-06-19  CRISIL A/Stable  24-05-18  CRISIL A/Stable  20-04-17  CRISIL A-/Positive/ CRISIL A1  CRISIL A-/Stable 
                04-04-18  CRISIL A/Stable       
                07-02-18  CRISIL A-/Positive/ CRISIL A1       
Non Fund-based Bank Facilities  LT/ST  268.00  CRISIL A1      28-06-19  CRISIL A1  24-05-18  CRISIL A1  20-04-17  CRISIL A-/Positive/ CRISIL A1  CRISIL A-/Stable/ CRISIL A2+ 
                04-04-18  CRISIL A1       
                07-02-18  CRISIL A-/Positive/ CRISIL A1       
All amounts are in Rs.Cr.
 
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit 374 CRISIL A/Negative Cash Credit 315 CRISIL A/Stable
Letter of Credit 268 CRISIL A1 Letter of Credit 313 CRISIL A1
Term Loan 8 CRISIL A/Negative Proposed Letter of Credit 13.25 CRISIL A1
-- 0 -- Term Loan 8.75 CRISIL A/Stable
Total 650 -- Total 650 --
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
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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