Rating Rationale
December 30, 2022 | Mumbai
Insecticides (India) Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.650 Crore
Long Term RatingCRISIL A/Stable (Reaffirmed)
Short Term RatingCRISIL A1 (Reaffirmed)
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed rationale

CRISIL Ratings has reaffirmed its 'CRISIL A/Stable/CRISIL A1' ratings on the bank facilities of Insecticides (India) Limited (IIL).

 

The business risk profile is supported by established brand presence across India with a strong network of over 6,000 distributors, expansion into new geographies and a diversified product portfolio. IIL reported healthy turnover of Rs 1,504 crore in fiscal 2022, as against Rs 1,420 crore in fiscal 2021. Revenue grew by 25.29% to Rs 1,143 crore in the first half of fiscal 2023, compared with Rs 912 crore in the corresponding period of fiscal 2022, driven by improved institutional sales and increased acceptance of newly launched products. The company is expected to clock revenue of more than Rs 1,700 crore in fiscal 2023. It launched four new products during the first half of fiscal 2023 and is committed to launch more products to keep in touch with the changing needs of the domestic agricultural market. (Gross revenue from the new products stood at Rs 244 crore in fiscal 2022, as against Rs 66 crore in fiscal 2018.)

 

Operating margin was healthy at 11% with return on capital employed (RoCE) maintained at 15% in fiscal 2022. The operating margin is expected at 11-12% in fiscal 2023 with normalisation of supply chain and incremental revenue from value-added products. Furthermore, the company has ploughed back profit from the business over the years, which led to strong networth of Rs 855 crore and gearing of 0.06 time as on March 31, 2022. With limited reliance on external debt, steady accretion to reserve and healthy profitability, the financial risk profile will remain comfortable over the medium term.

 

The ratings continue to reflect the company’s healthy business risk profile, driven by the extensive experience of the promoters in the agrochemicals industry, strong brands, established industry presence and wide geographical reach in the domestic market. The ratings also factor in the company's comfortable financial risk profile. These strengths are partially offset by large working capital requirement and susceptibility to risks inherent in the agrochemicals industry, including ban on certain pesticides by the government.

Key rating drivers and detailed description

Strengths:

  • Healthy business risk profile:

The company has maintained a healthy business risk profile backed by its established industry presence, introduction of new products in the domestic market and robust sales network. It generated revenue of Rs 1,504 crore in fiscal 2022, compared with Rs 1,420 crore in fiscal 2021. Revenue grew by 25.29% to Rs 1,143 crore in the first half of fiscal 2023 from Rs 912 crore in the corresponding period of fiscal 2022 mainly driven by institutional sales and increased acceptance of newly launched products. The company is expected to clock revenue of more than Rs 1,700 crore in fiscal 2023. The operating margin stood at 11-12% and RoCE at ~15% in fiscal 2022. The operating margin is expected at 11-12% over the medium term as well.

 

  • Diversified revenue profile

The company has diversified revenue streams, with ~53% of the revenue coming from insecticides, 33% from herbicides and 11% from fungicides in fiscal 2022. Revenue diversity is augmented by presence in both branded formulations (70%) and institutional sales (27%). Its large product base in agrochemicals will enable further diversification in revenue aided by regular product launches. It caters to an extensive customer profile, which includes over 70,000 dealers across India. 

 

  • Robust financial risk profile

Capital structure was strong, as reflected in networth, adjusted gearing and total outside liabilities to tangible networth ratio of Rs 855 crore, 0.06 time and 0.61 time, respectively, as on March 31, 2022. Debt protection metrics were comfortable, as indicated by interest coverage and net cash accrual to total debt ratios of 31 times and 2.7 times, respectively, in fiscal 2022. Limited dependence on working capital debt and absence of significant debt-funded capital expenditure (capex) plan should support the financial risk profile over the medium term.

 

Weaknesses:

  • Large working capital requirement

Substantial credit extended to farmers results in sizeable receivables. Also, the company is vulnerable to seasonality and irregular demand because of the vagaries of monsoon, along with dependence on imported raw materials, and hence maintains large inventory (173 days as on March 31, 2022). Gross current assets (GCAs) were at 238 days as on March 31, 2022. The working capital requirement will remain large over the medium term.

 

  • Exposure to risks inherent in the agrochemical industry

Demand for agrochemicals is driven by agricultural production, which depends on monsoons. A substantial area under cultivation in India is still not well irrigated and depends on rainfall. Surplus or inadequate rainfall may affect the revenue and profitability of IIL. Furthermore, the agrochemicals industry is regulated by specific and separate registration processes in different countries. Changes in the export and import policies of these countries will affect Indian agrochemical exporters such as IIL. Ban on key molecules will be a monitorable.

Liquidity: Strong

Cash accrual, expected at Rs 130-160 crore per annum, will comfortably cover yearly debt obligation of Rs 2-6 crore over the medium term. Bank limit utilisation averaged 34% for the 12 months through October 2022. Internal cash accrual, cash and equivalent of ~Rs 21 crore as on September 30, 2022, and unutilised bank lines will be sufficient to meet debt obligation and working capital requirement. 

Outlook: Stable

CRISIL Ratings believes IIL will continue to benefit from its established market position in the domestic agrochemicals industry.

Rating sensitivity factors

Upward factors:

  • Sustained net cash accrual of over Rs 150 crore, aided by increase in revenue from value-added products and improvement in operating margin to 15%
  • Improvement in the working capital cycle, with reduction in GCA days below 230 days

 

Downward factors

  • Further stretch in the working capital cycle with bank limit utilisation increasing to more than 85%, or large, debt-funded capex weakening the financial risk profile
  • Decline in revenue below Rs 1,000 crore or operating margin falling below 9%

About the company

Incorporated in 1996 and promoted by Mr Hari Chand Aggarwal and Mr Rajesh Aggarwal, IIL commenced operations in 2002. The company manufactures formulations and technicals for plant protection chemicals and household pesticides; its facilities are in Chopanki, Rajasthan; Samba and Udhampur, Jammu and Kashmir; and Dahej, Gujarat. It had an initial public offering in 2007 and its shares are listed on the Bombay Stock Exchange and the National Stock Exchange.

Key financial indicators

As on / for the period ended March 31

 

2022

2021

Operating income

Rs crore

1,503.96

1,420.23

Reported profit after tax (PAT)

Rs crore

106.16

88.52

PAT margin

%

7.12

6.58

Adjusted debt / adjusted networth

Times

0.06

0.12

Interest coverage

Times

31.55

24.42

 

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` 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.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. 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 crore)

Complexity level

Rating assigned with outlook

NA

Cash Credit

NA

NA

NA

50

NA

CRISIL A/Stable

NA

Composite Working Capital Limit

NA

NA

NA

160

NA

CRISIL A/Stable

NA

Fund-Based Facilities

NA

NA

NA

55

NA

CRISIL A/Stable

NA

Letter of Credit

NA

NA

NA

105

NA

CRISIL A1

NA

Proposed Working Capital Facility

NA

NA

NA

120

NA

CRISIL A/Stable

NA

Working Capital Facility

NA

NA

NA

160

NA

CRISIL A/Stable

 

Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 545.0 CRISIL A/Stable 13-01-22 CRISIL A/Stable 29-10-21 CRISIL A/Stable 16-07-20 CRISIL A1 / CRISIL A/Stable   -- CRISIL A/Stable
      --   --   -- 19-03-20 CRISIL A1 / CRISIL A/Stable   -- --
Non-Fund Based Facilities ST 105.0 CRISIL A1 13-01-22 CRISIL A1 29-10-21 CRISIL A1 / CRISIL A/Stable 16-07-20 CRISIL A1 / CRISIL A/Stable   -- CRISIL A1
      --   --   -- 19-03-20 CRISIL A1 / CRISIL A/Stable   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 50 HDFC Bank Limited CRISIL A/Stable
Composite Working Capital Limit 160 The Hongkong and Shanghai Banking Corporation Limited CRISIL A/Stable
Fund-Based Facilities 55 ICICI Bank Limited CRISIL A/Stable
Letter of Credit 105 HDFC Bank Limited CRISIL A1
Proposed Working Capital Facility 120 Not Applicable CRISIL A/Stable
Working Capital Facility 160 Citibank N. A. CRISIL A/Stable

This Annexure has been updated on 09-Feb-23 in line with the lender-wise facility details as on 18-Jan-23 received from the rated entity.

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
Rating Criteria for Chemical Industry
Understanding CRISILs Ratings and Rating Scales

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