Rating Rationale
January 25, 2022 | Mumbai
Dharmaj Crop Guard Limited
Rating reaffirmed at 'CRISIL BBB- / Positive'; 'CRISIL A3 ' assigned to Short Term Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.155 Crore
Long Term RatingCRISIL BBB-/Positive (Reaffirmed)
Short Term RatingCRISIL A3 (Reassigned)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL BBB-/Positive’ rating on the long term bank facilities of Dharmaj Crop Guard Limited (DCGL) and reassigned ‘CRISIL A3’ rating to the short term bank facility.

 

On January 18, 2022, CRISIL Ratings had revised the outlook to 'Positive' from 'Stable'. The revision in outlook reflects the expectations of continued improvement in DCGL’s business profile. In current year, the company is estimated to clock a revenue growth of above 30% over previous fiscal’s Rs. 303 cr driven by increasing branded sales, expanding distributor network and geographic presence and rising exports. These are also expected to result in improved profitability in the year. Over medium term, company is expected to maintain a revenue growth of over 20% with steady margins. DCGL’s financial profile shall also continue to consolidate driven by healthy annual accruals of Rs. 30-35 cr. Further, though DCGL is undertaking a backward integration capex of around Rs. 150 cr, its gearing shall remain moderate below 1.2 times with company maintaining healthy debt protection measures. The tie up of funding shall also ensure adequate liquidity during this phase for the company.

 

The ratings continue to 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 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. 55 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 1.23  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 22 times and 0.88 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 around 3500 distributors/dealers spread across country. Company also derives over 10-15% 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 39 days and inventory of 59 days as on March 31, 2021.

 

Weaknesses:

  • Risks associated with project implementation: DGCL has taken up around Rs 150 cr greenfield capital expansion for backward integration into manufacturing of technicals. The capex is spread through 2 years to fiscal 2023 and shall be funded through Rs. 100 cr term loan. DGCL has recently received the sanction for same. 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 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 accruals are expected to be Rs. 30-35 cr annually over next couple of fiscals, covering the repayment 5-6 times and providing cushion for working capital and capex funding. Its bank limit utilization is low at around 30 percent supported by controlled working capital cycle and enhanced bank limits. Current ratio are healthy at 1.99 times on March 31, 2021. Low gearing and moderate net worth support its financial flexibility. Liquidity over medium term will be contingent to the cash flow management. As DGCL undertakes around 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: Positive

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

Rating Sensitivity factors

Upward factors:

  • Improvement in accruals to Rs. 35 cr on steady basis coupled with significant progress in project implementation
  • Raising of equity capital resulting in much lower than expected debt levels

 

Downward factors:

  • Pressure on revenue or profitability declining to below 10% with stretch in working capital cycle.
  • Time or cost overrun in project implementation

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

 

2021

2020

Operating income

Rs crore

302.79

198.32

Reported profit after tax

Rs crore

21.30

10.64

PAT margins

%

6.96

5.39

Adjusted Debt/Adjusted Net worth

Times

0.48

0.45

Interest coverage

Times

21.84

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 22.75 NA CRISIL BBB-/Positive
NA Cash Credit NA NA NA 10 NA CRISIL BBB-/Positive
NA Foreign Exchange Forward NA NA NA 0.8 NA CRISIL A3
NA Foreign Exchange Forward NA NA NA 4.2 NA CRISIL A3
NA Foreign Exchange Forward NA NA NA 2.3 NA CRISIL A3
NA Term Loan NA NA Sep-2024 12 NA CRISIL BBB-/Positive
NA Term Loan^ NA NA Mar-2029 50 NA CRISIL BBB-/Positive
NA Term Loan NA NA Mar-2029 50 NA CRISIL BBB-/Positive
NA Working Capital Term Loan NA NA Mar-2024 2.95 NA CRISIL BBB-/Positive

& Includes EPC sublimit of Rs. 15 cr, PCFC sublimit of Rs. 15 cr, Bank guarantee Sublimit of Rs. 1 cr, WCDL sublimit of Rs. 9 cr.

^Capex LC sublimit of Rs. 50 cr.

Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities ST/LT 155.0 CRISIL BBB-/Positive / CRISIL A3 18-01-22 CRISIL BBB-/Positive 10-08-21 CRISIL BBB-/Stable / CRISIL A3   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit& 22.75 HDFC Bank Limited CRISIL BBB-/Positive
Cash Credit 10 State Bank of India CRISIL BBB-/Positive
Foreign Exchange Forward 0.8 HDFC Bank Limited CRISIL A3
Foreign Exchange Forward 4.2 HDFC Bank Limited CRISIL A3
Foreign Exchange Forward 2.3 HDFC Bank Limited CRISIL A3
Term Loan 12 HDFC Bank Limited CRISIL BBB-/Positive
Term Loan^ 50 HDFC Bank Limited CRISIL BBB-/Positive
Term Loan 50 State Bank of India CRISIL BBB-/Positive
Working Capital Term Loan 2.95 HDFC Bank Limited CRISIL BBB-/Positive

This Annexure has been updated on 25-Jan-2022 in line with the lender-wise facility details as on 18-Jan-2022 received from the rated entity.

& - Includes EPC sublimit of Rs. 15 cr, PCFC sublimit of Rs. 15 cr, Bank guarantee Sublimit of Rs. 1 cr, WCDL sublimit of Rs. 9 cr.
^ - Capex LC sublimit of Rs. 50 cr.
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
Understanding CRISILs Ratings and Rating Scales

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