Rating Rationale
August 10, 2021 | Mumbai
Dharmaj Crop Guard Limited
'CRISIL BBB-/Stable/CRISIL A3' assigned to Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.42.45 Crore
Long Term RatingCRISIL BBB-/Stable (Assigned)
Short Term RatingCRISIL A3 (Assigned)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has assigned its CRISIL BBB-/Stable/CRISIL A3 ratings to the bank facilities of Dharmaj Crop Guard Limited (DCGL).

 

The ratings reflect extensive industry experience of DCGL's promoters in the agro-chemicals industry, diversified product portfolio, wide customer base and established distribution network, moderate working capital cycle, sound operating efficiencies and improving financial profile. These strengths are partially offset by risk associated with the ongoing project implementation, exposure to intense competition and inherent risks in the agro-chemicals industry.

Key Rating Drivers & Detailed Description

Strengths:

  • Extensive industry experience of the promoters in the agro-chemicals industry: The promoters have an experience of over 25 years in agro chemicals. This has given them an understanding of the dynamics of the market, and enabled them to establish relationships with suppliers and customers. This is reflected in the rapid scale up in operations to Rs. 301 cr in fiscal 2021, reflecting in a five fold revenue growth since fiscal 2018.

 

  • Healthy financial profile: DCGL  has healthy capital structure with net worth of Rs. 62 cr and controlled reliance on external borrowings yielding with gearing of 0.4 times and total outside liabilities to adj tangible networth (TOL/ANW) of 0.8  times as on March 31, 2021. DCGL debt protection measures are also comfortable with interest coverage and net cash accrual to total debt (NCATD) ratio are at 25.4 times and 0.87 times for fiscal 2021. DCGL debt protection measures are expected to remain at similar level over medium term.

 

  • Diversified product portfolio, wide customer base and established distribution network: The company manufactures a wide variety of pesticides, weedicides, fungicides, herbicides, and has an active portfolio of around 100 products. A diverse product portfolio has enabled the company to establish a wide customer base including bulk consumers, retailers and export customers. Further, company has a distribution network of 2558 distributors/dealers spread across country. Company also derives over 10% of its revenue from exports.

 

  • Moderate working capital cycle: Gross current assets were at 101-87days over the three fiscals ended March 31, 2021. This is driven by debtors of 38 days and inventory of 55 days as on March 31, 2021.

 

Weakness

  • Risks associated with project implementation

DGCL has taken up Rs 150 cr greenfield capital expansion for backward integration into manufacturing of technicals. The capex is spread through 2 years to fiscal 2022 and shall be funded 75% through term loan, though company is yet to achieve financial closure. The project is large for DGCL compared to the existing fixed asset base, net worth base or the revenue size.  The project exposes DGCL to associated risks, such as funding tie up, time or cost overrun, technology obsolesce, and stabilisation and ramp up in operations post completion. Progress in project implementation and subsequent ramp up, stabilization remains a rating sensitivity factor.

 

  • Exposure to intense competition and inherent risks in the agro-chemicals industry: The domestic agro-chemicals industry remains vulnerable to ban on products by the government and erratic monsoons. Further, presence of spurious pesticides and insecticides, could endanger the brand equity of players and damage crop production. Intense price and product competition among local players and multinational corporations (MNCs), further limits the bargaining power with customers. Also given the rapid scale up in operations, the ability of company to manage its business sustainably needs to be observed, in this competitive industry.

Liquidity: Adequate

The company has adequate liquidity profile backed by rising cash accruals sufficient against repayment obligations, low bank limit utilization, controlled working capital cycle and healthy financial flexibility. The company generate accruals of Rs. 23 cr in fiscal 2021 covering the repayment obligation 10 times. Its bank limit utilization is low at around 30 percent supported by controlled working capital cycle. Current ratio are healthy at 1.99 times on March 31, 2021. Low gearing and moderate net worth support its financial flexibility. However, liquidity over medium term will be contingent to the cash flow management and funding tie up for the capex. As DGCL undertakes Rs. 150 cr capex, a significant portion of accruals shall be deployed in the same. A significant cost overrun, delayed operationalization may affect the liquidity profile.

Outlook: Stable

CRISIL Ratings believe DCGL will continue to benefit from the extensive experience of its promoter, and established relationships with clients.

Rating Sensitivity Factors

Upward factor

  • Revenue growth of over 30%, along with steady margin, on sustained basis
  • Significant progress in project implementation

Downward factor

  • Pressure on revenue or profitability resulting in over 20% fall in accruals
  • Stretch in working capital cycle.
  • Time or cost overrun in project implementation, impacting the liquidity profile

About the Company

DCGL was incorporated in 2015. It is engaged in manufacturing of agrochemicals such as pesticides, insecticides, herbicides, fungicides, etc. It has manufacturing facility located in Ahmedabad- Gujarat and promoted by Mr. Ramesh R. Talavia and Mr. Jaman Talavia.

Key Financial Indicators

As on/for the period ended March 31

Unit

2021

2020

Operating income

Rs.Crore

300.8

198.3

Reported profit after tax

Rs.Crore

20.7

10.6

PAT margins

%

6.89

5.39

Adjusted Debt/Adjusted Networth

Times

0.43

0.45

Interest coverage

Times

24.77

7.97

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)

ISIN

Name of instrument

Date of allotment

Coupon rate (%)

Maturity date

Issue size

(Rs.Crore)

Complexity Level

Rating assigned

with outlook

NA

Cash Credit

NA

NA

NA

13

NA

CRISIL BBB-/Stable

NA

Cash Credit & Working Capital Demand Loan

NA

NA

NA

1.75

NA

CRISIL BBB-/Stable

NA

Long Term Loan

NA

NA

Mar-2024

21.15

NA

CRISIL BBB-/Stable

NA

Post Shipment Credit

NA

NA

NA

6.55

NA

CRISIL A3

Annexure - Rating History for last 3 Years
  Current 2021 (History) 2020  2019  2018  Start of 2018
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT/ST 42.45 CRISIL BBB-/Stable / CRISIL A3   --   --   --   -- --
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 13 CRISIL BBB-/Stable - - -
Cash Credit & Working Capital Demand Loan 1.75 CRISIL BBB-/Stable - - -
Long Term Loan 21.15 CRISIL BBB-/Stable - - -
Post Shipment Credit 6.55 CRISIL A3 - - -
Total 42.45 - Total 0 -
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Chemical Industry
The Rating Process
Understanding CRISILs Ratings and Rating Scales
CRISILs Bank Loan Ratings

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