Rating Rationale
August 28, 2019 | Mumbai
Heranba Industries Limited
Ratings upgraded to 'CRISIL A-/Stable/CRISIL A2+'
 
Rating Action
Total Bank Loan Facilities Rated Rs.152.5 Crore
Long Term Rating CRISIL A-/Stable (Upgraded from 'CRISIL BBB+/Positive')
Short Term Rating CRISIL A2+ (Upgraded from 'CRISIL A2')
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has upgraded its ratings on bank facilities of Heranba Industries Limited (HIL) to 'CRISIL A-/Stable/CRISIL A2+' from 'CRISIL BBB+/Positive/CRISIL A2'.
 
The upgrade reflects consistent improvement in business risk profile, which has exceeded expectations, and sustenance of the healthy financial risk profile. Revenue grew by 34% to Rs 997 crore in fiscal 2019 (Rs 746 crore in fiscal 2018), while the operating margin improved to 13.7% (12.5% in fiscal 2018). Better performance was driven by capacity enhancement, addition of new products, geographical expansion, and favorable demand. 
 
Cash accrual grew 63% year-on-year, to Rs 85 crore in fiscal 2019, and may further improve over the medium term. In absence of any maturing debt, cash accrual should suffice to cover the routine capital expenditure (capex), and incremental working capital requirement.  CRISIL believes the business risk profile will further strengthen with scaling up of operations while sustaining its operating performance over the medium term.
 
The ratings continue to reflect HIL's established market position in the agrochemicals industry, aided by a diverse product line and strong marketing network, and the healthy financial risk profile. These rating strengths are partially offset by large working capital requirement and susceptibility to cyclicality in the agricultural inputs industry.

Key Rating Drivers & Detailed Description
Strengths:
* Robust financial risk profile: HIL's financial risk profile is marked by a healthy networth of around Rs 232.80 crore and low gearing of 0.25 time, estimated as on March 31, 2019. Debt protection metrics were robust, led by interest coverage and net cash accrual to total debt ratios of 13.93 times and 1.3 times, respectively, recorded for fiscal 2019.
 
* Established track record and presence in key markets: The company has established its market position in the agrochemicals industry, backed by a robust product portfolio of over 100 registered brands in three segments. It has a strong foothold in the domestic formulations market, through a network of over 5,000 plus dealers, and a strong marketing network with 200 people across India.
 
Weaknesses:
* Moderate working capital requirement: Gross current assets stood at 163 days over the four fiscals ended March 31, 2019, driven by large receivables and moderate inventory.
 
* Susceptibility to cyclicality in the agricultural inputs industry: The domestic agrochemicals industry is cyclical, and depends on monsoon and farm incomes, as demand for agrochemicals is driven by agricultural production, which depends on rainfall.

Liquidity: Strong
Liquidity should remain strong over the medium term, backed by sizeable cash accrual and the prudent working capital management. External long-term debt remains nil, and bank limit of Rs 113 crore was utilised moderately, at an average 71% in the 12 months through May 2019. Cash accrual of Rs 85-95 crore per annum, over the medium term, will be utilised to meet working capital and capex requirements. Current ratio was around 1.41 times as on March 31, 2019.
Outlook: Stable

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

Rating Sensitivity Factors
Upward Factors
* Further strengthening of the business risk profile along with sustenance of margins of around 12%
* Sustenance of working capital cycle

Downward Factors
* Sharp dip in operating income and operating margins falling below 9% 
* Significant stretch in working capital cycle with GCA days beyond 250 days
* Large debt funded capex plans resulting in weakening of financial and liquidity profile.

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 manufacturing units in Vapi, Gujarat.

Key Financial Indicators
As on/for the period ended March 31 Unit 2019 2018
Operating income Rs crore 997.15 746.56
Reported profit after tax Rs crore 80.47 47.85
PAT margin % 8.1 6.29
Adjusted Debt/Adjusted Networth Times 0.28 0.48
Interest coverage Times 13.93 7.89

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 18.5 CRISIL A-/Stable
NA Cash Credit & Working Capital demand loan NA NA NA 65 CRISIL A-/Stable
NA Foreign Discounting Bill Purchase NA NA NA 15 CRISIL A2+
NA Inland/Import Letter of Credit NA NA NA 30 CRISIL A2+
NA Letter of credit & Bank Guarantee NA NA NA 10 CRISIL A2+
NA Packing Credit in Foreign Currency NA NA NA 14 CRISIL A2+
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
Fund-based Bank Facilities  LT/ST  112.50  CRISIL A-/Stable/ CRISIL A2+      31-05-18  CRISIL BBB+/Positive/ CRISIL A2  16-02-17  CRISIL BBB+/Stable/ CRISIL A2  16-05-16  CRISIL BBB/Stable/ CRISIL A3+  CRISIL BBB/Stable/ CRISIL A3+ 
Non Fund-based Bank Facilities  LT/ST  40.00  CRISIL A2+      31-05-18  CRISIL A2  16-02-17  CRISIL A2  16-05-16  CRISIL A3+  CRISIL A3+ 
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 18.5 CRISIL A-/Stable Cash Credit 18.5 CRISIL BBB+/Positive
Cash Credit & Working Capital demand loan 65 CRISIL A-/Stable Cash Credit & Working Capital demand loan 65 CRISIL BBB+/Positive
Foreign Discounting Bill Purchase 15 CRISIL A2+ Foreign Discounting Bill Purchase 15 CRISIL A2
Inland/Import Letter of Credit 30 CRISIL A2+ Inland/Import Letter of Credit 30 CRISIL A2
Letter of credit & Bank Guarantee 10 CRISIL A2+ Letter of credit & Bank Guarantee 10 CRISIL A2
Packing Credit in Foreign Currency 14 CRISIL A2+ Packing Credit in Foreign Currency 14 CRISIL A2
Total 152.5 -- Total 152.5 --
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
CRISILs Criteria for rating short term debt

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