| NACL Industries Limited | ||||||
| Rating outlook revised to 'Negative'; Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| 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 revised the outlook on the bank facilities of NACL Industries Ltd (NACL; a part of the NACL group) to ‘Negative’ from ‘Stable’ while reaffirming the rating at ‘CRISIL A’. The short term rating has been reaffirmed at ‘CRISIL A1’.
The outlook revision factors the operating loss reported by NACL group owing to decline in net realisable value of the inventories on account of decline in the agrochemical prices globally and dip in revenue due to delay in monsoon which impacted the offtake. Consequently, the group reported operating loss of at consolidated level in Q1 of fiscal 2024. Improvement in operating performance in the subsequent quarters backed by demand recovery, better monsoon and favorable demand from the global markets will remain the key monitorable.
The ratings continue to reflect the strong market presence and brand of NACL in the agrochemical space, supported by the extensive experience of the management team, well-established clientele, geographical diversification in revenue, above average financial risk profile and above average business profile. These strengths are partially offset by large working capital requirement, exposure to competition and susceptibility to regulatory changes and seasonality inherent in the agrochemicals sector. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of NACL and all its subsidiaries and associate companies. This is because all these entities, collectively referred to as the NACL group, are in the same line of business and have common promoters and strong business and financial linkages. Also, NACL holds a 26% stake in Nasense Labs Pvt Ltd and has been consolidated accordingly.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation |
Key Rating Drivers & Detailed Description Strengths: Established market presence Supported by an experienced management team, NACL has built a strong three-decade-long market presence in the agrochemicals segment. The management has established healthy relationships with customers across geographies, comprising established players in India and export markets, such as Syngenta Asia Pacific Pte Ltd, Saraswati Agro Chemicals India Pvt Ltd and Nissan Chemical Corporation. NACL sells a wide range of insecticides, fungicides, herbicides and plant growth regulators. Ability to develop products to meet upcoming demand could enhance growth over the medium term. The company will continue to benefit from the expertise of the promoters and management and leverage its customer relationships.
Above average business profile Business performance has improved consistently in the past, with revenue growing to Rs 2,105 crore in fiscal 2023 from Rs 1,002 crore in fiscal 2020. The growth momentum is expected to continue over the medium term with commencement of operations in the subsidiary, NACL Spec Chem Ltd (NSCL) and the continued demand from the existing products. Operating margins are expected to continue healthy at above 8% in fiscal 2024 despite the operating losses in the first quarter of the fiscal.
Above average financial risk profile The above-average financial risk profile of NACL is reflected in moderate capital structure and comfortable debt protection metrics. Gearing stood at 1.37 times as on March 31, 2023, led by higher reliance on working capital borrowing and the debt availed for capex in the subsidiary. Debt protection metrics were moderate, indicated by interest coverage ratio of 4.34 times and net cash accrual to total debt ratio of 0.15 time in fiscal 2023.
Weakness: Large working capital requirement Gross current assets have been 210-240 days over the four fiscals through 2023. The company offers considerable credit in the domestic formulations business and has to maintain adequate inventory owing to the number of stocks keeping units, import of raw materials and seasonality in operations. Receivables are 100-120 days and inventory at 70-90 days on average. The incremental working capital requirement is managed efficiently through a mix of cash accrual and bank borrowing. Nevertheless, operations will remain working capital intensive, especially in the biological segment, on account of the nature of the industry; prudent working capital management will be critical.
Exposure to competition, regulatory changes and seasonality in the agrochemicals sector The domestic agrochemical formulations industry has numerous organised players with regional presence. As NACL is into generic molecules, it faces intense competition from organised as well as unorganised players in the domestic market. Also, the domestic agrochemicals sector is dependent on monsoon and the level of farm income. Fortunes of this sector are, therefore, linked to the quantum, timing and distribution of rainfall in a year, exposing the players’ revenue to seasonal trends. Besides, surplus or inadequate rainfall could impact profitability of players and lead to build-up in the working capital requirement. The business performance of NACL, like that of other agrochemical manufacturers, may also be impacted by regulatory changes, such as export and import policies, registration policies and product and environment safety requirements in India and abroad. |
Liquidity: Strong Bank limit utilisation was 83% over the 12 months through June 2023. Cash accrual is projected at more than Rs 100 crore per annum, against yearly repayment obligation of around Rs 65 crore over the medium term. Cash and bank balance was healthy at around Rs 41 crore and current ratio moderate at 1.27 times on March 31, 2023 |
Outlook: Negative The outlook is negative on account of the impact of Q1 performance on the full year performance of the company. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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About the Group NACL, incorporated in 1986, manufactures and exports crop protection technical (active ingredient) and formulations. It manufactures all kinds of pesticides, insecticides, herbicides, fungicides and other plant growth chemicals. The formulation business of the company is mainly in the Indian market, and it sells through a large retail dealer network spread across India; it also has a range of branded formulations. The company has two manufacturing units at Srikakulam and Ethakota in Andhra Pradesh and one research and development centre in Telangana. Ms K Lakshmi Raju is the promoter and Mr M Pavan Kumar manages the operations.
NSCL set up a manufacturing unit at Dahej. The unit has installed capacity of 6,000 tonne per annum for manufacturing technical and intermediate for domestic as well as export markets.
Company reported consolidated revenue and operating margin of Rs. 375.91 crores and -7.94% respectively in 3m FY24 as against Rs. 475.34 crores and 6.77% for the corresponding period in the previous fiscal. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Working capital demand loan (WCDL) and pre&post shipment credit are sublimits of cash credit |
Annexure - List of Entities Consolidated
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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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