Rating Rationale
December 10, 2019 | Mumbai
Excel Industries Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.149.5 Crore
Long Term Rating CRISIL A+/Stable (Reaffirmed)
Short Term Rating CRISIL A1 (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

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

The business risk profile has remained steady, notwithstanding the correction in di-ethyl thiophosphoryl chloride (DETC) prices, supported by increasing revenue diversity with healthy traction across polymers, pharmaceutical, and specialty chemical businesses. DETC accounted for 52% of revenue in fiscal 2019 and the company had benefitted significantly by the upswing in its prices following supply shortage from China. From January 2019, however, DETC prices started to moderate as expected, and accordingly the operating margin began to correct. The company however successfully grew volumes of other business segments, which partially offset the adverse impact of DETC. DETC accounted for 40% of revenues in the six months ended September 30, 2019. Revenue and operating margin in the first half of fiscal 2020 were at Rs 370 crore and 22%, against Rs 407 crore and 32%, respectively, in the corresponding period of the previous fiscal.

The business risk profile should benefit over the medium term from the acquisition of the Visakhapatnam plant of Netmatrix Crop Care Limited (NCCL) in October 2019. This unit produces sodium trichloropyridinol (NaTCP), another intermediate, besides DETC, which finds application in chlorpyrifos (an agrochemical technical). NaTCP has a healthy margin and the product can potentially contribute about 15% to revenue upon optimal utilisation.

CRISIL has also noted the risks associated with any ban on 'chlorpyrifos. This forms a part of the 27 pesticides that are presently under review by the Central Insecticides Board. Any decision to ban chlorpyrifos is likely to be implemented in a phased manner considering the wide usage of the chemical. CRISIL also notes that with acquisition of the NaTCP unit, Excel has increased the revenue concertation in chlorpyrifos. However, the company has also been diversifying into other business segments, including pharmaceutical (pharma) intermediates, specialty chemicals, and polymers, and alternative avenues for DETC in other agro and non-agro chemical segments, in order to reduce dependence on chlorpyrifos. However, given that the dependence on DETC will remain high in the medium term, any further sharp decline in DETC prices or any regulatory implication on chlorpyrifos will be closely monitored.

The strong financial risk profile is expected to be sustained, backed by increase in cash accrual and moderate debt-funded capital expenditure (capex) 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 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.

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:
* Established position in the DETC segment: The company is one of the largest producers of DETC in India with a market share of around 52% and clients consisting of major agrochemical companies. The market position is expected to be further strengthened over the medium term, considering the expected supply constraints from China and increase in capacity of DETC by Excel.

* Diversified revenue across end-user industries, customer segments, and geographies: The company started as an agrochemical intermediate manufacturer and has extended the product portfolio 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: The networth was healthy at Rs 699 crore as on March 31, 2019, due to substantial accretion to reserves. 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.

Weaknesses:
* High product concentration in revenue:
DETC had about 52% share in overall revenue in fiscal 2019, 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. This is under review by the Central Board of Insecticides. Any adverse regulatory decision or significant decline in prices of DETC will have a material impact on the performance.

* Exposure to risks inherent in the agrochemicals business: Revenue and profitability are susceptible to any unfavourable impact of amendments in 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

Cash accrual is expected at Rs 100-150 crore per fiscal in fiscals 2020 to 2022, against negligible term debt obligation. Cash surplus and internal cash accrual would be more than sufficient to fund company's regular capex plans. With a gearing of 0.02 time as on September 30, 2019, the company has sufficient gearing headroom, to raise additional debt if required.

Outlook: Stable

CRISIL 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, 2019.

Key Financial Indicators
As on/for the period ended March 31   2019 2018
Revenue Rs crore 825 599
Profit after tax (PAT) Rs crore 153 74
PAT margin % 18.6 12.3
Adjusted gearing Times 0.01 0.03
Interest coverage Times 74.17 18.31
 
Year to date*   H1-20 H1-19
Revenue Rs crore 370 407
PAT Rs crore 65 82
PAT margin % 17.7 20.1
Adjusted gearing Times 0.02 0.02
Interest coverage Times 77.64 109.15
*Standalone

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)
Rating Assigned
with Outlook
NA Cash Credit* NA NA NA 65.0 CRISIL A+/Stable
NA Channel Financing NA NA NA 5.0 CRISIL A1
NA Inland/Import Letter of Credit NA NA NA 41.5 CRISIL A1
NA Overdraft NA NA NA 1 CRISIL A1
NA Supplier Bill Discounting NA NA NA 10 CRISIL A1
NA Short Term Loan NA NA NA 10 CRISIL A1
NA Long Term Loan^ NA NA  NA 13.5 CRISIL A+/Stable
NA Inland Guarantees NA NA NA 3.5 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 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fixed Deposits  FD    --    --  16-11-18  Withdrawal  06-03-17  FA/Stable  02-03-16  FA/Stable  FA/Positive 
            29-01-18  FA+/Stable           
Fund-based Bank Facilities  LT/ST  94.50  CRISIL A+/Stable/ CRISIL A1      16-11-18  CRISIL A+/Stable/ CRISIL A1  06-03-17  CRISIL A-/Stable/ CRISIL A2+  02-03-16  CRISIL A-/Stable/ CRISIL A2+  CRISIL A-/Positive/ CRISIL A2+ 
            29-01-18  CRISIL A/Stable/ CRISIL A1           
Non Fund-based Bank Facilities  LT/ST  55.00  CRISIL A1      16-11-18  CRISIL A1  06-03-17  CRISIL A2+  02-03-16  CRISIL A2+  CRISIL A2+ 
            29-01-18  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
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/Import Letter of Credit 45 CRISIL A1
Inland/Import Letter of Credit 41.5 CRISIL A1 Overdraft 1 CRISIL A1
Long Term Loan 13.5 CRISIL A+/Stable Proposed Bank Guarantee 3.5 CRISIL A1
Overdraft 1 CRISIL A1 Rupee Term Loan 20 Withdrawn
Short Term Loan 10 CRISIL A1 Short Term Loan 20 CRISIL A1
Supplier Bill Discounting 10 CRISIL A1 Short Term Loan 5 Withdrawn
-- 0 -- Supplier Bill Discounting 10 CRISIL A1
Total 149.5 -- Total 174.5 --
*Interchangeable with export packing credit, foreign bills discounting, and inland bills discounting
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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