Rating Rationale
January 24, 2019 | Mumbai
Excel Crop Care Limited
Long-term rating continues on 'Watch Positive'; short-term rating reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.200 Crore
Long Term Rating CRISIL AA- (Continues on 'Rating Watch with Positive Implications')
Short Term Rating CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL's rating on the long-term bank facilities of Excel Crop Care Limited (ECCL) continues to be on 'Rating Watch with Positive Implications'. The rating on the company's short-term bank facilities is reaffirmed at 'CRISIL A1+'.

The rating was placed on watch following the announcement by ECCL on August 03, 2018 that it has obtained the board's approval to amalgamate itself with Sumitomo Chemical India Pvt Ltd (SCIPL; a wholly-owned subsidiary of Sumitomo Chemical Company, Ltd [SCC], Japan). The transaction is subject to relevant approvals, mainly from the shareholders of ECCL, stock exchanges, Securities Exchange Board of India, and National Company Law Tribunal (NCLT).

The public shareholders of ECCL will receive 51 shares of Rs 10 each of SCIPL for every two shares of Rs 5 each. Subsequent to the amalgamation, the combined entity will be listed in Indian exchanges, and SCC's holding of 80.30% in the combined entity will be reduced to 75% within a year of listing. The company has received approval from the stock exchanges and has filed the scheme with NCLT.

CRISIL believes the transaction will have a positive impact on the business risk profile of ECCL-SCIPL combined, given the operational, product, and market synergies. As SCIPL is a debt-free company, with healthy networth and cash surplus, financial risk profile of the combined entity should also remain strong.

CRISIL is in discussion with ECCL's management to understand the detailed implications of the transaction on the operations and financials of the combined entity, as well as the benefits the entity is likely to derive from SCC. CRISIL will remove the ratings from watch, and take the final action once key regulatory approvals, mainly from the shareholders, are obtained.

The ratings continue to reflect ECCL's established market position in the domestic crop protection business, strong financial risk profile, and robust synergies with SCC. These strengths are partially offset by susceptibility to vagaries in monsoon and regulatory changes.

Analytical Approach

* For arriving at the ratings, CRISIL has combined the business and financial risk profiles of ECCL and its wholly-owned subsidiaries (listed in Annexure-Details of Consolidation).

* CRISIL has also applied its parent notch-up framework to factor in support from SCC.

Please refer Annexure - Details of consolidation, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description
Strengths:
* Healthy business risk profile, with an established market position: ECCL has an established market position in the Indian agro-chemical industry supported by strong brands and an extensive distribution network of 4,700 dealers. Backed by products spanning the entire agricultural value chain, the company has been able to strengthen its relations with farmers through initiatives such as the integrated pest- and crop-management advice programme. The amalgamation with SCIPL will benefit in terms of accessibility to newer and value-added specialty products, better geographic and crop diversity, and enhanced marketing capabilities.

* Strong support from the parent: SCC is a global conglomerate, and one of the leading chemical companies in Japan, with annual consolidated revenue in excess of $20.6 billion. Post the amalgamation, ECCL is expected to significantly benefit from the rich and diverse product portfolio, brand equity, research and development activities, and financial strength of the parent.

* Robust financial risk profile: Networth was healthy at Rs 528 crore as on March 31, 2018, and debt has been negligible. This along with healthy annual cash accrual enable robust debt protection metrics: interest coverage and net cash accrual to total debt ratios were 89.30 times and 9.67 times, respectively, in fiscal 2018. Continued healthy cash generation, and prudent capital spending should keep credit metrics healthy over the medium term. Given the healthy networth of SCIPL and its debt free status, financial risk profile of the combined entity should also remain strong.

Weakness
* Vulnerability to risks inherent in the crop protection sector: The domestic crop protection segment is constrained by irregular monsoon and volatility in farm income. Also, the sector is highly regulated by specific registration processes in different countries, and is subject to various environmental rules and regulations.

Liquidity: Ample
Cash and cash equivalents stood at Rs.25.47 crore as on September 30, 2018 (Rs. 8.77 crore on March 31, 2018) which is sufficient considering absence of large term debt repayments. Also Excel has unutilized bank limits of about Rs 100 cr for the last 9 months. Cash balances and annual cash accruals of about Rs 100 cr would be sufficient to fund the capex investments.

About SCIPL
SCIPL manufactures and sells crop protection formulations based on the active ingredients procured from its parent, SCC Japan and third parties. It has manufacturing plants in Vapi (Gujarat) and Tarapur (Maharashtra). The Vapi plant has formulation and packaging capabilities, and the Tarapur unit manufactures active ingredients. More than three-fourth of the business is from sales of agro-chemicals, and the balance is from allied businesses, such as household and pest control insecticides, and animal nutrition products.

About SCC
SCC is one of Japan's leading chemical companies, offering a diverse range of products globally in the fields of petrochemicals, energy and functional materials, information technology related chemicals and materials, health and crop science products, and pharmaceuticals.

For the six months ended September 30, 2018, on a standalone basis, ECCL's net profit was Rs 80.28 crore on operating income of Rs 808.43 crore, as against Rs 69.06 crore and Rs 681.01 crore, respectively, for the corresponding period of the previous fiscal.
Key Financial Indicators - ECCL
Particulars Unit 2018 2017
Operating income Rs crore 1150 950
Profit After Tax (PAT) Rs crore 81 71
PAT Margin % 7.0 7.4
Adjusted debt/Adjusted networth Times NA NA
Adjusted interest coverage Times 89.3 30.5

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		 Coupon rate (%) Date  of
allotment		 Date  of
redemption		 Issue size (Rs.Cr) Rating assigned with
outlook
N.A. Fund & Non Fund Based Limits NA NA NA 167.00 CRISIL AA-/Watch Positive
N.A. Non-Fund Based Limit NA NA NA 33.00 CRISIL A1+

Annexure - Details of Consolidation
1 Excel Crop Care (Africa) Ltd
2 Excel Crop Care (Europe) LLC
3 Excel Crop Care (Australia) Pty Ltd
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST    --    --    --    --  15-07-16  Withdrawal  CRISIL A1+ 
                    07-06-16  CRISIL A1+/Watch Developing   
                    05-02-16  CRISIL A1+   
Fund-based Bank Facilities  LT/ST          02-04-18  CRISIL AA-/Stable  02-03-17  CRISIL AA-/Stable  25-11-16  CRISIL A+/Positive  CRISIL A+/Stable 
                    09-09-16  CRISIL A+/Watch Developing   
                    15-07-16  CRISIL A+/Watch Developing   
                    07-06-16  CRISIL A+/Watch Developing   
                    05-02-16  CRISIL A+/Stable   
Non Fund-based Bank Facilities  LT/ST  200.00  CRISIL AA-/(Watch) Positive/ CRISIL A1+/(Watch) Positive      31-10-18  CRISIL AA-/Watch Positive/ CRISIL A1+/Watch Positive  02-03-17  CRISIL A1+  25-11-16  CRISIL A1+  CRISIL A1+ 
            08-08-18  CRISIL AA-/Watch Positive/ CRISIL A1+/Watch Positive      09-09-16  CRISIL A1+/Watch Developing   
            02-04-18  CRISIL A1+      15-07-16  CRISIL A1+/Watch Developing   
                    07-06-16  CRISIL A1+/Watch Developing   
                    05-02-16  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
Fund & Non Fund Based Limits 167 CRISIL AA-/Watch Positive Fund & Non Fund Based Limits 167 CRISIL AA-/Watch Positive
Non-Fund Based Limit 33 CRISIL A1+ Non-Fund Based Limit 33 CRISIL A1+
Total 200 -- Total 200 --
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
Rating Criteria for Chemical Industry
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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