Rating Rationale
April 27, 2021 | Mumbai
Heranba Industries Limited
Ratings upgraded to 'CRISIL A / Stable / CRISIL A1 '
 
Rating Action
Total Bank Loan Facilities RatedRs.160.5 Crore
Long Term RatingCRISIL A/Stable (Upgraded from 'CRISIL A- / Stable')
Short Term RatingCRISIL A1 (Upgraded from 'CRISIL A2+ ')
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has upgraded its ratings on the bank facilities of Heranba Industries Limited (HIL) to 'CRISIL A/Stable/CRISIL A1' from 'CRISIL A-/Stable/CRISIL A2+'.

 

The rating upgrade factors in sustained improvement in HIL’s business risk profile marked by strong top-line growth, healthy accruals and controlled working capital cycle coupled with significant improvement in HIL's overall financial risk profile post conclusion of initial public offering (IPO).

 

HIL’s revenues have grown at healthy pace at about 17% CAGR (compounded annual growth rate) for past 3 years ending fiscal 2021 backed by its strong position in Indian pyrethroids market. New product launches in export market, improving capacity utilisations, and new capacities going on stream, along with expectation of normal monsoon in FY22 will drive HIL’s revenue growth over the medium term. Further fully integrated facility for pyrethroids and limited dependence on China for raw material procurement, should ensure operating profitability stabilizing at 15-18 percent.

 

The company recently concluded an IPO, which resulted in an equity inflow of Rs 60 crore into the company through primary sale of shares. This has resulted in improvement in overall capital structure in FY21, with TOLANW (total outside liabilities to adjusted net worth) at 0.7 times estimated as on March 31, 2021 as against 1 times as on March 31, 2020. The proceeds from this IPO are expected to be primarily utilized for funding incremental working capital requirements. While HIL is expected to incur capex of Rs 150 crore over next 2-3 years; the same is expected to be funded through internal accruals. Thus reliance on bank borrowing is expected to remain low which will ensure continuance of strong financial risk profile.

 

The ratings continue to reflect an established track record and presence in key markets and a robust financial risk profile. These rating strengths are partially offset by large working capital requirement and exposure to risks inherent in the domestic agrochemicals market.

Key rating drivers & detailed description

Strengths:

Established track record and presence in key markets:

HIL is present in the entire product value chain of the agrochemicals industry i.e. Technicals (15-16 products), Formulations (more than 80 products) and Intermediates (2 products). HIL dominates the Indian pyrethroids market, accounting for a share of ~20%. It has a sound foothold in the domestic formulations market through a network of over 9,400+ dealers, and a robust marketing network through over 200+ representatives across India. HIL also exports to over 60+ countries across Middle East, Asia, South East Asia and Africa.

 

Robust financial risk profile:

The net worth is strong at over Rs. 500 crore and the gearing & TOLANW low at 0.12 time & 0.7 times respectively, estimated as on March 31, 2021. Debt protection metrics are robust, with interest coverage and net cash accrual to total debt ratios at 23 times and 2.3 times, respectively, estimated for fiscal 2021. The reliance of HIL on working capital bank borrowing is expected to remain low post IPO and capital structure expected to remain strong over the medium term.

 

Weaknesses:

Large working capital requirement:

Gross current assets are at 188 days estimated as on March 31, 2021, driven by large receivables and moderate inventory. Substantial credit extended to dealers resulted in receivables of 100-110 days over the past five fiscals. Also, seasonality and irregular demand because of the vagaries of the monsoon, along with dependence on imported raw materials entailed moderate inventory of 50-65 days over this period.

 

Exposure to risks inherent in the domestic agrochemicals market: A substantial area under cultivation is still not well-irrigated and depends on the monsoon. Thus, the fortune of the agrochemicals industry is linked to rainfall received during the year. There is intense price and product competition from local players and multinational corporations. Operations are also exposed to government regulations. In May 2020, the Ministry of Agriculture issued a draft order prohibiting 27 pesticides, out of which 16 were being manufactured by HIL contributing around 10% of overall revenue. However, continuous addition of new products mitigates the risk to a large extent.

Liquidity: Strong

Liquidity will remain strong over the medium term, backed by sizeable cash accrual and absence of any term debt obligations. The bank limit of Rs 74.75 crore was utilised moderately, at an average of 25% during the 9 months through January 2021. Estimated cash accrual of Rs 120-150 crore per fiscal over the medium term will be utilised to meet incremental working capital and capital expenditure (capex) requirements. HIL has healthy levels of unencumbered cash at over Rs 50 crore estimated as on 31st March 2021 The current ratio is at around 1.9 times estimated as on March 31, 2021.

Outlook Stable

CRISIL Ratings believes HIL will continue to benefit from its pan-India presence, established market position, and robust financial risk profile.

Rating Sensitivity factors

Upward factors

  • Sustained revenue growth of over 20% backed by successful ramp-up of operations from planned capacity expansion, while operating margin expands to over 18%
  • Sustained and sharp improvement in working capital cycle.

 

Downward factors

  • Decline in net cash accruals to below Rs 100 crore
  • Increase in working capital requirement, larger-than-expected, debt-funded capex or acquisition, or more-than-expected dividend pay-out, weakening the financial risk profile, particularly liquidity

About the Company

HIL was incorporated in 1992, and taken over by current promoters, Mr Sadashiv K Shetty and Mr Raghuram K Shetty, in 1994. It manufactures formulations and active ingredients for insecticides, fungicides, and herbicides at its three units in Vapi, Gujarat. The company made an IPO and got listed on the Bombay Stock Exchange and the National Stock Exchange in March 2021.

Key Financial Indicators

As on / for the period ended March 31

 

2020

2019

Operating income

Rs crore

953

1008

Reported profit after tax (PAT)

Rs crore

97.7

76.3

PAT margin

%

10.3

7.6

Adjusted debt/adjusted networth

Times

0.20

0.28

Interest coverage

Times

16.5

13.02

 

For half yearly ended September 30

 

2020

2019

Operating income

Rs crore

619.2

502.2

Reported profit after tax (PAT)

Rs crore

66.3

53.2

PAT margin

%

10.71

10.6

Adjusted debt/adjusted networth

Times

0.10

0.23

Interest coverage

Times

29.4

20.05

 

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 Levels

Rating Assigned with Outlook

NA

Bill Discounting

NA

NA

NA

30

NA

CRISIL A1

NA

Cash Credit

NA

NA

NA

74.75

NA

CRISIL A/Stable

NA

Foreign Exchange Facility

NA

NA

NA

5.25

NA

CRISIL A1

NA

Letter of credit & Bank Guarantee

NA

NA

NA

30

NA

CRISIL A1

NA

Packing Credit

NA

NA

NA

20

NA

CRISIL A/Stable

NA

Proposed Fund-Based Bank Limits

NA

NA

NA

0.5

NA

CRISIL A/Stable

 

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 130.5 CRISIL A1 / CRISIL A/Stable   -- 01-12-20 CRISIL A2+ / CRISIL A-/Stable 28-08-19 CRISIL A2+ / CRISIL A-/Stable 31-05-18 CRISIL BBB+/Positive / CRISIL A2 CRISIL BBB+/Stable / CRISIL A2
      --   -- 03-09-20 CRISIL A2+ / CRISIL A-/Stable   --   -- --
Non-Fund Based Facilities ST 30.0 CRISIL A1   -- 01-12-20 CRISIL A2+ 28-08-19 CRISIL A2+ 31-05-18 CRISIL A2 CRISIL A2
      --   -- 03-09-20 CRISIL A2+   --   -- --
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
Bill Discounting 30 CRISIL A1 Cash Credit & Working Capital Demand Loan 74.75 CRISIL A-/Stable
Cash Credit 74.75 CRISIL A/Stable Foreign Exchange Facility 5.25 CRISIL A2+
Foreign Exchange Facility 5.25 CRISIL A1 Inland/Import Letter of Credit 30 CRISIL A2+
Letter of credit & Bank Guarantee 30 CRISIL A1 Post Shipment Credit 30 CRISIL A2+
Packing Credit 20 CRISIL A/Stable Pre Shipment Packing Credit 20 CRISIL A-/Stable
Proposed Fund-Based Bank Limits 0.5 CRISIL A/Stable Proposed Fund-Based Bank Limits 0.5 CRISIL A-/Stable
Total 160.5 - Total 160.5 -
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
CRISILs Criteria for rating short term debt

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