Rating Rationale
September 03, 2020 | Mumbai
Heranba Industries Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.152.5 Crore
Long Term Rating CRISIL A-/Stable (Reaffirmed)
Short Term Rating CRISIL A2+ (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 Heranba Industries Limited (HIL) at 'CRISIL A-/Stable/CRISIL A2+'.
 
The ratings continue to reflect an established track record and presence in key markets and a strong 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:
The company has established its market position in the agrochemicals industry, backed by a strong product portfolio of over 110+ registered brands in three segments. It has a sound foothold in the domestic formulations market through a network of over 6,000+ dealers, and a robust marketing network through over 200+ representatives across India.
 
* Strong financial risk profile:
The networth was healthy at around Rs 321 crore and the gearing low at 0.2 time, as on March 31, 2020. Debt protection metrics were strong, with interest coverage and net cash accrual to total debt ratios at 16.5 times and 1.56 times, respectively, for fiscal 2020. The company is planning an initial public offering, which would further strengthen the financial risk profile.
 
Weaknesses:
* Large working capital requirement:
Gross current assets are at 182 days as on March 31, 2020, 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 20% of overall revenue. However, continuous addition of new products mitigates the risk to a large extent.
Liquidity Strong

Liquidity should remain strong over the medium term, backed by sizeable cash accrual and no term debt obligation. The bank limit of Rs 67.5 crore was utilised moderately, at an average of 56% during the 12 months through April 2020. Estimated cash accrual of Rs 83-90 crore per fiscal over the medium term will be utilised to meet working capital and capital expenditure (capex) requirements. The current ratio is at around 1.53 times as on March 31, 2020.

Outlook: Stable

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

Rating Sensitivity Factors
Upward factors
* Significant improvement in scale of operations either though organic or in organic route supported by equity infusion while maintaining capital structure
* Sustained increase in net cash accrual to above Rs 100 crore per fiscal
* Sustained improvement in the working capital cycle

Downward factors
* A decline in net cash accrual to below Rs 50 crore per fiscal on account of significant drop in profitability or revenues
* An increase in working capital requirement, larger-than-expected, debt-funded capex or acquisition, or more-than-anticipated 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.

Key Financial Indicators
As on/for the period ended March 31 Unit 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 12.93

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
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 Cash Credit NA NA NA 18.5 NA CRISIL A-/Stable
NA Cash Credit & Working Capital demand loan NA NA NA 65 NA CRISIL A-/Stable
NA Foreign Discounting Bill Purchase NA NA NA 15 NA CRISIL A2+
NA Inland/Import Letter of Credit NA NA NA 30 NA CRISIL A2+
NA Letter of credit & Bank Guarantee NA NA NA 10 NA CRISIL A2+
NA Packing Credit in Foreign Currency NA NA NA 14 NA CRISIL A2+
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
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+      28-08-19  CRISIL A-/Stable/ CRISIL A2+  31-05-18  CRISIL BBB+/Positive/ CRISIL A2  16-02-17  CRISIL BBB+/Stable/ CRISIL A2  CRISIL BBB/Stable/ CRISIL A3+ 
Non Fund-based Bank Facilities  LT/ST  40.00  CRISIL A2+      28-08-19  CRISIL A2+  31-05-18  CRISIL A2  16-02-17  CRISIL A2  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 A-/Stable
Cash Credit & Working Capital demand loan 65 CRISIL A-/Stable Cash Credit & Working Capital demand loan 65 CRISIL A-/Stable
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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