Rating Rationale
August 08, 2022 | Mumbai
NACL Industries Limited
'CRISIL A/Stable/CRISIL A1' assigned to Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.600 Crore
Long Term RatingCRISIL A/Stable (Assigned)
Short Term RatingCRISIL A1 (Assigned)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has assigned its ‘CRISIL A/Stable/CRISIL A1' ratings to the bank facilities of NACL Industries Limited (NACL; part of the NACL group).

 

The ratings reflect the strong market presence of NACL, supported by the extensive experience of the management team, well-established clientele, geographical diversification in revenue and above-average financial risk 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, which are well diversified across geographies and include 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 cater to upcoming demand could enhance growth over the medium term. The company will continue to benefit from the experience and expertise of its promoters and management and leverage its customer relationships.

 

  • Above-average financial risk profile: The above-average financial risk profile of NACL is reflected in its moderate capital structure and comfortable debt protection metrics. Gearing is estimated at less than 1.1 times and total outstanding liabilities to adjusted networth ratio at less than 2.14 times as on March 31, 2022. Debt protection metrics were comfortable, indicated by interest coverage and net cash accrual to total debt ratios estimated at 5.4 times and 0.17 time, respectively, in fiscal 2022.

 

Weaknesses:

  • Large working capital requirement: Operations are working capital intensive, as indicated by gross current assets of 210-240 over the four fiscals through 2022. The company offers considerable credit in the domestic formulations business and has to maintain adequate inventory on account of the number of stock keeping units, import of raw materials and seasonality in operations. Receivables are 100-120 days and inventory 70-90 days on average. The incremental working capital requirement is managed efficiently through a mix of internal accrual and bank borrowings. 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 a large number of 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. The fortunes of the 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 hit the 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 averaged 60% over the 12 months through June 2022. Cash accrual, expected at over Rs 90 crore per annum, will sufficiently cover yearly debt obligation of Rs 29 crore over the medium term. Cash and bank balance was healthy at around Rs 70 crore and current ratio was moderate at 1.3 times on March 31, 2022.

Outlook: Stable

NACL will continue to benefit from the promoters’ extensive experience and healthy relationships with clients.

Rating Sensitivity Factors

Upward factors

  • Steady increase in revenue and sustenance of the operating margin at 9-10% leading to higher cash accrual
  • Efficient working capital management leading to material improvement in the capital structure and debt protection metrics
  • Stabilisation of operations at the Dahej plant (NACL Spec-chem Ltd)

 

Downward factors

  • Sustained decline in revenue, with profitability at below 7%
  • Stretched working capital cycle leading to material increase in debt or debtor write-offs, weakening the financial risk profile

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 company’s formulation business is mainly in the Indian market, and it sells through its 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 of the company, and operations are managed by M Pavan Kumar.

 

NACL Spec-chem Ltd is undertaking a greenfield project at Dahej, Gujarat. The unit is being set up with an installed capacity of 6,000 tonne per annum for manufacturing technical and intermediate for domestic as well as export markets. The total project cost of Rs 202 crore is funded via a debt-equity mix of 3.2:1.

Key financial indicators (Consolidated)

As on/for the period ended March 31

Unit 

2022

2021

Operating income

Rs.Crore

1638

1184

Reported profit after tax (PAT)

Rs.Crore

73

51

PAT margin

%

4.5

4.3

Adjusted debt/adjusted networth

Times

1.1

0.48

Interest coverage

Times

5.47

4.32

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. 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)

ISIN Name of
instrument		 Date of
allotment		 Coupon
rate (%)		 Maturity
date		 Issue size
(Rs crore)		 Complexity 
levels		 Rating assigned
with outlook
NA Cash Credit NA NA NA 118 NA CRISIL A/Stable
NA Non-Fund Based Limit NA NA NA 204 NA CRISIL A1
NA Packing Credit in Foreign Currency NA NA NA 77 NA CRISIL A1
NA Term Loan NA NA Mar-29 36 NA CRISIL A/Stable
NA Working Capital Demand Loan NA NA NA 165 NA CRISIL A/Stable

Annexure – List of Entities Consolidated

Names of entities consolidated

Extent of consolidation

Rationale for consolidation

LR Research Laboratories Pvt Ltd

Full

Same line of business, common promoters and strong business and financial linkages. NACL holds a 26% stake in Nasense Labs Pvt Ltd and has been consolidated accordingly

Nagarjuna Agrichem (Australia) Pvt Ltd

Full

NACL Spec-Chem Ltd

Full

NACL Multichem Pvt Ltd

Full

Nasense Labs Pvt Ltd

26%
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/ST 396.0 CRISIL A1 / CRISIL A/Stable   --   --   --   -- --
Non-Fund Based Facilities ST 204.0 CRISIL A1   --   --   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 10 Bandhan Bank Limited CRISIL A/Stable
Cash Credit 12 SBM Bank (India) Limited CRISIL A/Stable
Cash Credit 1 IndusInd Bank Limited CRISIL A/Stable
Cash Credit 10 The Karnataka Bank Limited CRISIL A/Stable
Cash Credit 26 HDFC Bank Limited CRISIL A/Stable
Cash Credit 14 Kotak Mahindra Bank Limited CRISIL A/Stable
Cash Credit 35 SVC Co-Operative Bank Limited CRISIL A/Stable
Cash Credit 10 RBL Bank Limited CRISIL A/Stable
Non-Fund Based Limit 25 HDFC Bank Limited CRISIL A1
Non-Fund Based Limit 20 Axis Bank Limited CRISIL A1
Non-Fund Based Limit 15 Bandhan Bank Limited CRISIL A1
Non-Fund Based Limit 55 Bank of Bahrain and Kuwait B.S.C. CRISIL A1
Non-Fund Based Limit 30 SBM Bank (India) Limited CRISIL A1
Non-Fund Based Limit 30 YES Bank Limited CRISIL A1
Non-Fund Based Limit 29 IndusInd Bank Limited CRISIL A1
Packing Credit in Foreign Currency 14 YES Bank Limited CRISIL A1
Packing Credit in Foreign Currency 15 Axis Bank Limited CRISIL A1
Packing Credit in Foreign Currency 34 Shinhan Bank CRISIL A1
Packing Credit in Foreign Currency 14 RBL Bank Limited CRISIL A1
Term Loan 36 RBL Bank Limited CRISIL A/Stable
Working Capital Demand Loan 5 Bank of Bahrain and Kuwait B.S.C. CRISIL A/Stable
Working Capital Demand Loan 10 IndusInd Bank Limited CRISIL A/Stable
Working Capital Demand Loan 21 Kotak Mahindra Bank Limited CRISIL A/Stable
Working Capital Demand Loan 39 HDFC Bank Limited CRISIL A/Stable
Working Capital Demand Loan 6 RBL Bank Limited CRISIL A/Stable
Working Capital Demand Loan 15 Axis Bank Limited CRISIL A/Stable
Working Capital Demand Loan 15 Bandhan Bank Limited CRISIL A/Stable
Working Capital Demand Loan 18 SBM Bank (India) Limited CRISIL A/Stable
Working Capital Demand Loan 21 YES Bank Limited CRISIL A/Stable
Working Capital Demand Loan 15 The Karnataka Bank Limited CRISIL A/Stable

This Annexure has been updated on 08-Aug-2022 in line with the lender-wise facility details as on 05-Aug-2022 received from the rated entity.

Criteria Details
Links to related criteria
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Approach to Financial Ratios
CRISILs Criteria for Consolidation

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