| Dayal Fertilizers Private Limited | ||||
| Rating Reaffirmed | ||||
| 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 'CRISIL BBB+/Stable' rating on the long-term bank facilities of Dayal Fertilizers Private Limited (DFPL; part of the Dayal group).
The group’s revenue has grown 8-10% in fiscal 2022 driven by higher sales in the fertiliser and seed segments and addition of dealers, compared with decline in the two fiscals through 2021 because of low demand from the cattle feed segment. Further diversification of the product basket and geographical presence will augur well for the group over the medium term, assuming normal monsoon, with operating margin expected at 4-5%. The rating also factors in the strong financial risk profile of the group, with gearing estimated below 0.25 time as on March 31, 2022.
The rating continues to reflect the extensive experience of the promoters in the fertiliser, seed and cattle feed industries, the large product portfolio of the group, its diversified geographical reach, strong marketing network and healthy financial risk profile. These strengths are partially offset by large working capital requirement and susceptibility to volatility in raw material prices amid intense competition. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of DFPL, Dayal Industries Pvt Ltd (DIPL) and Dayal Seeds Pvt Ltd (DSPL). The companies, collectively referred to as the Dayal group, have significant financial linkages, same management and common distributorship model and brand. Moreover, DFPL holds 47.5% stake each in DIPL and DSPL.
Unsecured loan of Rs 10.72 crore as on March 31, 2021, from the promoters has been treated as 75% equity and 25% debt as the loan will be retained in the business over the medium term.
Please 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:
The Dayal group is a leader in the cattle feed segment with strong market share in north India (primarily Uttar Pradesh) and an established brand. Products are sold under a common brand (Dayal), which enhances marketability, through agri-malls (Dayal Krishi Bazar) and retail outlets (Dayal Bandhu Kendra). The promoters’ experience of over three decades in the fertilisers, seeds and cattle feed industries, understanding of local market dynamics and healthy relationships with customers and suppliers will continue to support the business.
The group supplies to 22 states (including Uttar Pradesh, Bihar, Rajasthan, Maharashtra and Punjab) through 1,400 distributors and 25,000 dealers. It manufactures a wide range of products—from micronutrients to biofertilisers and water-soluble fertilisers as well as cattle and poultry feed. The products are sold under a common brand, Dayal, enhancing their marketability. The strong diversity in clientele and product profile helps maintain steady growth in revenue and profitability despite the occasional decline in demand.
The capital structure was strong. Ploughing back profit into the business led to large networth of over Rs 142 crore as on March 31, 2022 (Rs 128.7 crore as on March 31, 2021). Aided by low reliance on external debt, adjusted gearing and total outside liabilities to tangible networth (TOLTNW) ratio are estimated at less than 0.25 time and 0.75 time, respectively, as on March 31, 2022 (0.12 and 0.83 time, respectively, a year earlier). Debt protection metrics were comfortable, as indicated by estimated interest coverage and net cash accrual to total debt ratios of more than 15 times and 0.85 time, respectively, in fiscal 2022 (8 and 1.08 times, respectively, in fiscal 2021).
Weaknesses:
Gross current assets (GCAs) were large at an estimated 150 days as on March 31, 2022 (142 days as on March 31, 2021), driven by inventory and receivables of 85-90 days and 40-45 days, respectively (88 and 37 days, respectively, a year earlier). The group has to maintain large inventory given the seasonality and irregularity in demand, vagaries of monsoon and large product portfolio. The working capital requirement is partly met through advances from customers and credit of 50-60 days provided by the suppliers. Operations will remain working capital intensive over the medium term considering healthy growth prospects.
The fertiliser and seed industries depends on the level of rainfall and farm income. The group faces intense competition from small, unorganised players, as well as strong players in markets where it plans to expand its reach. The operating margin is susceptible to fluctuations in the price of the key raw material (de-oiled rice bran). Furthermore, the ability to pass on any increase in raw material prices to customers is limited on account of intense competition. With bulk of the revenue coming from the domestic agricultural inputs business, the group remains susceptible to the vagaries of monsoon and farm income in India. |
Liquidity: Adequate Cash accrual is expected at Rs 16-18 crore per fiscal against negligible term debt obligation over the medium term. Bank limit utilisation was low at 1.94% on average during the 13 months through February 2022. Liquid surplus stood at Rs 5.06 crore as on March 31, 2021. Internal cash accrual, cash and equivalent and unutilised bank lines should comfortably cover incremental working capital requirement over the medium term. The promoters will provide funding support through unsecured loans. Current ratio was 2.11 times as on March 31, 2021. |
Outlook: Stable CRISIL Ratings believes the Dayal group will continue to benefit from the extensive experience of the promoters and its strong brand. |
Rating Sensitivity factors Upward factors
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About the Group Set up in 1979 by Mr Abhay Kumar and family members, the Dayal group has a plant in Meerut, Uttar Pradesh.
DFPL, incorporated in 1979, manufactures micronutrients, secondary nutrients and water-soluble fertilisers.
Incorporated in 2000, DIPL manufactures animal feed and supplements.
DSPL was incorporated in 2005 and manufactures seeds of food crops, oil seeds and fodders. |
Key Financial Indicators (Standalone)
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| 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 Bank Lenders & Facilities | ||||||||||||
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This Annexure has been updated on 13-Apr-22 in line with the lender-wise facility details as on 18-Aug-21 received from the rated entity.
Criteria Details
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