Rating Rationale
October 31, 2018 | Mumbai
Excel Crop Care Limited
Long-term rating continues on 'Watch Positive'
 
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'. CRISIL has reaffirmed its 'CRISIL A1+' rating on the company's short-term bank facilities.

The rating action follows an announcement by ECCL in August 2018 that it has obtained the board' approval to amalgamate itself with Sumitomo Chemical India Private Limited (SCIPL, a wholly owned subsidiary of Sumitomo Chemical Company (SCC), Japan). The transaction is subject to relevant regulatory approvals, mainly from the shareholders of ECCL, stock exchanges, Securities Exchange Board of India, and National Company Law Tribunal.

The public shareholders of ECCL will receive 51 shares of Rs. 10 each of SCIPL for every 2 shares of Rs 5 each. Subsequent to 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 one year of listing.

CRISIL believes the transaction will have a positive impact on the business risk profile of the ECCL-SCIPL combine, given the operational, product, and market synergies. As SCIPL is a debt-free company, with healthy networth and cash surplus, the financial risk profile of the combined entity should 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 rating 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 fluctuations in rainfall and regulatory changes.

Analytical Approach

* For arriving at the ratings, CRISIL has combined the business and financial risk profiles of Excel and its wholly owned subsidiaries.
* CRISIL has also applied its parent notch-up framework to factor in support from SCC.

Key Rating Drivers & Detailed Description
Strengths
* Healthy business risk profile with established market position: ECCL has an established market position in the Indian agro-chemicals industry, supported by strong brands and an extensive distribution network of 4700 dealers. Backed by products spanning the entire agricultural value chain, the company has strengthened relationships with farmers through initiatives such as the integrated pest- and crop-management advice programme. It will benefit from the amalgamation with SCIPL in terms of accessibility to newer and value-added specialty products, better geographic and crop diversity, and enhanced marketing capability.

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

* Strong financial risk profile: ECCL has a healthy net worth of Rs 528 crore and as on March 31, 2018, and debt has been negligible. This along with healthy annual cash accruals, has enabled debt protection metrics to remain strong. Continued healthy cash generation and prudent capital spending should keep credit metrics healthy over the medium term. Given the healthy net worth of SCIPL and its debt free status, CRISIL expect the financial risk profile of the combined entity should also remain strong.

Weaknesses:
* Vulnerability to risks inherent in the crop protection sector: The domestic crop protection segment is affected 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.

About ECCL
ECCL manufactures crop protection chemicals. The bulk of revenue comes from insecticides, followed by herbicides, fungicides, and other products. Key products are glyphosate, chlorpyriphos, aluminium phosphide, profenofos, and zinc phosphide.

About SCIPL
SCIPL, a wholly owned subsidiary of SCC, is engaged in manufacturing and selling of crop protection formulations based on the active ingredients procured from SCC and third parties. It operates manufacturing plants located at Vapi (Gujarat) and Tarapur (Maharashtra) ' Vapi plant has formulation and packaging capabilities whereas Tarapur unit manufactures active ingredients. More than three-fourth of its business is from sales of agro chemicals and the balance is from other allied businesses such as household insecticides, 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 (IT) -related chemicals and materials, health and crop science products, and pharmaceuticals.

For three months ended June 30, 2018, on a standalone basis, Excel's net profit was Rs 38.50 crore and operating income was Rs 399.70 crore, against Rs 23.91 crore and Rs 296.25 crore, respectively, for the corresponding period of the previous fiscal.
Key Financial Indicators
Particulars Unit 2018 2017
Revenue Rs. cr. 1139 940
Profit After Tax (PAT) Rs. cr. 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 CRISIL AA-/Watch Positive
N.A. Non-Fund Based Limit NA NA NA 33 CRISIL A1+
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST    --    --    --  15-07-16  Withdrawal  21-01-15  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  21-01-15  CRISIL A+/Stable  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  08-08-18  CRISIL AA-/Watch Positive/ CRISIL A1+/Watch Positive  02-03-17  CRISIL A1+  25-11-16  CRISIL A1+  21-01-15  CRISIL A1+  CRISIL A1 
        02-04-18  CRISIL A1+      09-09-16  CRISIL A1+/Watch Developing       
                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 rating short term debt

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