Rating Rationale
January 29, 2021 | Mumbai
Excel Industries Limited
Ratings reaffirmed at 'CRISIL A+ / Stable / CRISIL A1 '
 
Rating Action
Total Bank Loan Facilities RatedRs.149.5 Crore
Long Term RatingCRISIL A+/Stable (Reaffirmed)
Short Term RatingCRISIL A1 (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ratings on the bank facilities of Excel Industries Limited (Excel) at ‘CRISIL A+/Stable/CRISIL A1’.

 

The ratings continue to reflect Excel’s strong business risk profile, notwithstanding the correction in di-ethyl thiophosphoryl chloride (DETC; 35% of revenue in fiscal 2020) prices, supported by healthy growth across polymers, pharmaceutical, and specialty chemical businesses.

 

Excel’s revenue and earnings before interest tax depreciation and amortisation (EBITDA) were adversely impacted in fiscal 2020 largely on account of reduction in DETC prices, post restoration of supplies from China. Further, first half of fiscal 2021 saw decline in revenue and EBIDTA due to disruptions in Operations owing to restrictions imposed by the Government and local authorities on account of COVID 2019. Company's performance is however expected to improve from the second half of fiscal 2021 supported by healthy agrochemical demand and traction in pharma, polymer and speciality chemical business.

 

CRISIL Ratings also notes that risks associated with any ban on chlorpyrifos, a key agrochemical produced using DETC, will remain key monitorables over the medium term given its considerable contribution to Excel’s revenue. As such, CRISIL Ratings believes that any decision to ban chlorpyrifos is likely to be implemented in a phased manner considering the wide usage of the chemical both in the domestic as well as global markets. Further, Excel has also been reducing its DETC exposure for use of chlorpyrifos by focussing on DETC Sales to non Chlorpyrifos segments. The company is also reducing its reliance on DETC by diversifying into other business segments including pharma intermediates and polymers. These measures, besides partially mitigating this risk will also lead to improvement in business risk profile over the medium term

 

Company’s financial risk profile remains strong marked by healthy networth and debt protection metrics. With steady improvement in cash accruals and no major debt funded capex plans, reliance on external debt is expected to remain low over the medium term. This coupled with growing scale and improving profitability should lead to further improvement in financial risk profile over the medium term.

 

The ratings continue to reflect a strong business risk profile, backed by an established market position in the DETC segment; presence in diversified end-user industries, customer segments, and geographies; and a strong financial risk profile because of healthy networth and debt protection metrics. These strengths are partially offset by high product concentration and exposure to risks in the agrochemical business.

Analytical Approach

For arriving at its ratings, CRISIL Ratings has made adjustments to the assets and liabilities and combined the business and financial risk profiles of Excel and its wholly owned subsidiaries, Kamaljyot Investments Ltd and Excel Bio Resources Ltd. Goodwill worth Rs 18.85 Cr on acquisition Visakhapatnam plant of Netmatrix Crop Care Limited (NMCCL) has being amortised for 5 years starting FY20.

 

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:

  • Diversified revenue across end-user industries, customer segments, and geographies: The Company started as an agrochemical intermediate manufacturer and has extended its product portfolio over the years by leveraging its process chemistry capabilities in other segments, such as performance and speciality chemicals, polymer additives, and pharma inputs. Performance and speciality chemicals cater to diverse segments, such as soaps and detergents, water treatment, and paints and coating. The company has also entered the polymer additives and pharmaceutical inputs segments to diversify revenue and reduce dependence on agrochemicals.

 

  • Strong financial risk profile: Capital structure remain strong marked by healthy networth of Rs 698 crore as on March 31, 2020, due to steady accretion to reserves over the years and minimal debt. Absence of any large, debt-funded capex and prudent working capital management will enable low reliance on bank funding. Hence, the capital structure and debt protection metrics should remain strong over the medium term. This coupled with growing scale and improving profitability should lead to further improvement in financial risk profile over the medium term.

 

Weaknesses:

       High product concentration in revenue: DETC had about 35% share in overall revenue in fiscal 2020, which exposes the company to the inherent risk associated with price volatility determined by the supply situation in China. Also DETC as well as the new product NaTCP find application in making chlorpyrifos, an agrochemical technical. End use of chlorpyrifos technical as a pesticide is under review by the Central Insecticides Board. Any adverse regulatory decision or significant decline in prices of DETC may have a material impact on the performance of the company and will be a key monitorable.

 

  • Exposure to risks inherent in the agrochemicals business: Revenue and profitability are susceptible to any unfavourable impact of government policies with respect to pollution control, product toxicity, or import and export of raw materials. The agrochemicals revenue is also susceptible to vagaries of the monsoon. Though increasing focus on other segments should result in a more diversified revenue profile, and provide some cushion, revenue and profitability will be linked to these risks as a large part of income is derived from agrochemical intermediaries.

Liquidity: Strong

Company had cash surplus of Rs 44 crore as of 30 Sep, 2020. Further, annual cash accruals are expected to be in the range of Rs 100-150 crore per fiscal in fiscals 2021 to 2023, against negligible term debt obligation. Cash surplus and internal cash accrual would be more than sufficient to fund company’s regular capex plans and working capital requirement. Company also has access to Rs 65 crore of fund based bank limits, utilised to the tune of 1% in the past six months ended Sep 2020. With a gearing of 0.01 time as on September 30, 2020, the company also has sufficient gearing headroom, to raise additional debt if required.

Outlook: Stable

CRISIL Ratings believes the business risk profile will benefit from diversified revenue streams, while the financial risk profile should remain adequate, driven by steady revenue growth and cash accrual, over the medium term.

Rating Sensitivity factors

Upward factors

  • Sustained revenue growth at more than 20% per fiscal, including through material diversification in revenue, along with steady profitability
  • Sustenance of a healthy financial risk profile and improvement in liquidity

 

Downward factors

  • Sustained decline in revenue and in the operating margin to below 14%
  • Larger-than-expected, debt-funded capex or working capital requirement, increasing the gearing to above 1 time

About the Company

Incorporated as a private limited company in 1960, Excel was reconstituted as a public limited company in 1971. Following the demerger of its crop protection business from its former associate, Excel Crop Care Ltd, Excel began manufacturing chemical intermediaries used in agrochemicals, commodity polymers, engineering polymers, soaps and detergents, water-treatment chemicals, and biocides. The promoter group owned 52.38% stake in the company as on September 30, 2020.

Key Financial Indicators

As on/for the period ended March 31

 

2020

2019

Revenue

Rs crore

703

825

Profit after tax (PAT)

Rs crore

94*

153

PAT margin

%

13.3

18.5

Adjusted gearing

Times

0.03

0.01

Interest coverage

Times

37.07

74.17

*Considering amortization of goodwill

 

Year to date

 

H1-21

H1-20

Revenue

Rs crore

317

370

PAT

Rs crore

25

67

PAT margin

%

7.83

18.17

Adjusted gearing

Times

0.01

0.02

Interest coverage

Times

37.97

79.33

 

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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. Cr)

Complexity Level

Rating Assigned with Outlook

NA

Cash Credit*

NA

NA

NA

65.0

NA

CRISIL A+/Stable

NA

Channel Financing

NA

NA

NA

5.0

NA

CRISIL A1

NA

Inland/Import Letter of Credit

NA

NA

NA

41.5

NA

CRISIL A1

NA

Overdraft

NA

NA

NA

1

NA

CRISIL A1

NA

Supplier Bill Discounting

NA

NA

NA

20

NA

CRISIL A1

NA

Long Term Loan^

NA

NA

NA

13.5

NA

CRISIL A+/Stable

NA

Inland Guarantees

NA

NA

NA

3.5

NA

CRISIL A1

* Interchangeable with export packing credit, foreign bills discounting, and inland bills discounting

^Not availed

Annexure – List of entities consolidated

Subsidiary

Extent of consolidation

Reason for consolidation

Excel Bio Resources Limited

Full

Wholly owned subsidiary

Kamaljyot Investments Limited

Full

Wholly owned subsidiary

 

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 ST/LT 84.5 CRISIL A+/Stable / CRISIL A1   --   -- 17-12-19 CRISIL A+/Stable / CRISIL A1 16-11-18 CRISIL A+/Stable / CRISIL A1 CRISIL A2+ / CRISIL A-/Stable
      --   --   -- 10-12-19 CRISIL A+/Stable / CRISIL A1 29-01-18 CRISIL A1 / CRISIL A/Stable --
Non-Fund Based Facilities ST 65.0 CRISIL A1   --   -- 17-12-19 CRISIL A1 16-11-18 CRISIL A1 CRISIL A2+
      --   --   -- 10-12-19 CRISIL A1 29-01-18 CRISIL A1 --
Fixed Deposits LT   --   --   --   -- 16-11-18 Withdrawn F A/Stable
      --   --   --   -- 29-01-18 F A+/Stable --
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* 65 CRISIL A+/Stable Cash Credit* 65 CRISIL A+/Stable
Channel Financing 5 CRISIL A1 Channel Financing 5 CRISIL A1
Inland Guarantees 3.5 CRISIL A1 Inland Guarantees 3.5 CRISIL A1
Inland/Import Letter of Credit 41.5 CRISIL A1 Inland/Import Letter of Credit 41.5 CRISIL A1
Long Term Loan$ 13.5 CRISIL A+/Stable Long Term Loan 13.5 CRISIL A+/Stable
Overdraft Facility 1 CRISIL A1 Overdraft Facility 1 CRISIL A1
Supplier Bill Discounting 20 CRISIL A1 Supplier Bill Discounting 20 CRISIL A1
Total 149.5 - Total 149.5 -
* - Interchangeable with export packing credit, foreign bills discounting, and inland bills discounting
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
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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