| Insecticides (India) Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| 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).
IIL rating reflects healthy business risk profile reflected in turnover of above Rs 1000 Crore over the past four years ending 2021. Revenue was estimated at Rs 1420 Crore in FY 2021 while maintaining healthy operating margin of 11%. ROCE was estimated at 14.7% in FY 2021. However operating margin is expected to moderate in FY 2022 on the back of increasing raw material while revenue to remain around Rs 1400 Crore.
Rating further reflects strong financial risk profile particularly its capital structure. IIL has ploughed back profit generated from the business over the years, which has led to strong networth of Rs 807 Crore and controlled reliance on external debt, reflected in gearing of 0.75 times as on March 31, 2021. Moreover, debt protection metrics were healthy, as reflected in interest coverage and net cash accrual to adjusted debt ratios of 24.85 times and 1.2 time, respectively, in fiscal 2021. With limited external debt, steady accretion to reserve and healthy profitability, IIL should maintain a robust financial risk profile over the medium term.
The ratings continue to reflect the healthy business risk profile of IIL driven by the extensive experience of the promoters in the agrochemicals industry, the company’s 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 in the domestic agrochemicals industry, including ban on certain pesticides by the government. |
Key Rating Drivers & 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 across the country. This helped generate revenue of over Rs 1,000 crore over the four years the fiscal 2021. Revenue is estimated at Rs 1,420 crore in fiscal 2021 while operating margin remained healthy at 11%. Return on capital employed is estimated at 14.7% for the fiscal. The operating margin is expected to moderate in fiscal 2022 because of increasing raw material prices while revenue should remain around Rs 1,400 crore.
Diversified revenue profile The company has diversified revenue streams with an estimated 59% coming from insecticides, 29% from herbicides, and 10% from fungicides in fiscal 2021. Revenue diversity is augmented by presence in both branded formulations (70%) and institutional sales (26%). The large product base in agrochemicals will enable further diversification in revenue streams through regular product launches.’
Robust financial risk profile The financial risk profile, particularly capital structure, remains strong. IIL has ploughed back profit over the years, which has led to strong networth of Rs 807 crore and controlled reliance on external debt, reflected in adjusted gearing of 0.12 time and total outside liabilities to tangible networth (TOLTNW) ratio of 0.75 time as on March 31, 2021. The TOLTNW ratio has been less than 1.5 time over the past five fiscals. Moderate debt and sufficient cash accrual have led to healthy debt protection metrics, as indicated by interest coverage of 24.4 times and net cash accrual to total debt ratio of 1.18 times in fiscal 2021. Controlled dependence on working capital debt and absence of significant debt-funded capital expenditure plan should support the financial risk profile over the medium term.
Weaknesses: Large working capital requirement: Substantial credit extended to farmers results in stretched receivables. Also, seasonality and irregular demand because of the vagaries of monsoon, along with dependence on imported raw materials, entail large inventory (191 days as on March 31, 2021, and usually around 150 days). Gross current assets are estimated at 256 days as on March 31, 2021. CRISIL Ratings believes the working capital requirement will remain large because of the nature of business.
Exposure to risks inherent in the domestic agrochemicals market: The demand for agrochemicals is driven by agricultural production, which depends on monsoon. A substantial area under cultivation in India is still not well irrigated and depends on the monsoon for water requirement. Surplus or inadequate rainfall could affect the domestic 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 policy of these countries will affect Indian agrochemical exporters. Ban on any key molecules will also be a monitorable. |
Liquidity: Strong Annual cash accrual is expected over Rs 90 crore over the medium term, against yearly debt obligation of less than Rs 2 crore in fiscals 2022 and 2023. Fund-based bank limit utilisation averaged 19% for the 12 months through June 2021. The unused bank lines provide financial flexibility. Internal cash accrual, cash and equivalent, and unutilised bank lines should be sufficient to meet debt obligation as well as incremental working capital requirement. The liquidity is expected to remain strong over the medium term. |
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 16% * Reduction in the working capital cycle
Downward factors * Stretch in the working capital cycle with utilisation of fund-based facilities increasing to more than 85% * Significant decline in revenue or operating margin * Large, debt-funded capex weakening the financial risk profile |
About the company Incorporated in 1996 and promoted by Mr Hari Chand Aggarwal and his son Mr Rajesh Aggarwal, IIL commenced operations in the agrochemicals industry in 2002. It manufactures formulations and technicals for plant protection chemicals and household pesticides at its seven facilities'in Chopanki in Rajasthan; Samba and Udhampur in Jammu and Kashmir; and Dahej in Gujarat. The company had an initial public offering in 2007 and its shares are listed on the Bombay Stock Exchange and National Stock Exchange. |
Key financial indicators
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| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | |||||||||||||||||||||||||||||||||
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Criteria Details
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