Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil AA+/Stable/Crisil A1+’ ratings on the bank loan facilities of PI Industries Ltd (PI; a part of the PI group).

 

Revenue of (“PIIL or PI group”) grew by ~5% to Rs.6,191 crore during first nine months of fiscal 2025 from Rs.5,925 crore in first nine months of fiscal 2024 driven by steady growth in Custom Synthesis Manufacturing (CSM) segment (contributes 80% of sales) by 7% to Rs.4940 crore (previous fiscal: Rs.4,617) while domestic segment (17% of sales) de-grew by 3% to Rs.1,060 crore (previous fiscal: Rs.1,098 crore). Recently acquired pharma segment’s revenues de-grew to Rs.130 crore in the April-December 2024 period, from Rs.243 crore in corresponding period of previous fiscal. Growth in CSM was aided by robust offtake for existing products, healthy double-digit growth stemming from newly launched molecules (past 3 years - contributing 18-20% of CSM revenues). Further, 6 new molecules were commercialized during April-December 2024. Domestic segment (In-Licensing & branded generics model) de-grew mainly owing to softness in demand owing to inventory de-stocking challenges as well as pricing pressure given the excess supply situation.  Inventory de-stocking headwinds also impacted pharma CDMO revenues especially in the first half. Demand has eventually started to normalize from the third quarter of fiscal 2025. Revenue growth momentum to continue over fiscals 2026 to 2028 given the strong order book position of USD1.4bn (~Rs.13,000 crore), commercialization of new products/ molecules every year, robust demand for its existing products and ramp up of newly acquired pharma & biological entities.

 

PI group’s operating margin improved to 27.8% during the first nine months of fiscal 2025 (from 26.7% in nine months of fiscal 2024) owing to higher gross margins partly offset by higher overhead expenses in scale up of exports and pharma business. The group has been able to maintain healthy profitability and revenue growth even when the agrochemical industry has been going through unprecedented challenges following sharp drop in realizations and excess channel inventory owing to a huge supply deluge from China. This is because of niche operating model of the group wherein it is involved in CSM of Intellectual Property-backed products (early-stage molecules) for major global innovators wherein the margin is generally stable and healthy.

 

The financial risk profile of the PI group continues to be strong, as reflected in low debt of Rs 107 crore and healthy tangible net worth (Net worth less intangible assets excluding goodwill) of Rs 9,020 crore as on September 30, 2024. Debt protection metrics continues to be strong, led by low debt and strong profitability. Adjusted interest coverage ratio remains healthy at 80 times for the first nine months of fiscal 2025 (90 times in first nine months of fiscal 2204). Liquidity has been strong, driven by healthy unencumbered cash balance of Rs 4,158 crore as on December 31, 2024 which along with net cash accrual (NCA) of over Rs 1,800 crore – 2,000 crore per annum would be sufficient to meet minimal repayment obligations and capital expenditure (capex) requirements. Bank  lines remains largely unutilized which provides additional comfort.

 

The ratings continue to reflect the growing presence of the PI group in the CSM business, supported by strong tie-ups with global innovators and established position in the domestic agrochemicals market, led by in-licensing business. The ratings also factor in healthy financial and liquidity risk profile of the group. These strengths are partially offset by large working capital requirement and susceptibility to risks inherent in the agrochemicals sector.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of PI and its wholly owned subsidiaries, PILL Finance & Investments Ltd (PFIL), PI Life Science Research Ltd (PLSRL), PI Japan Co Ltd (PJCL), PI Fermachem Pvt Ltd, PI Bioferma Pvt Ltd, PI Health Sciences Ltd and Jivagro Ltd. That is because all these companies, collectively referred to as the PI group, have the same promoters and business and financial linkages. PFIL handles the investment activities of PI, while PLSRL handles its contract R&D activities. PJCL is the marketing arm of the group in Japan.

 

Goodwill arising out of acquisition of entities (Isagro, pharma & Biologicals) have been amortized over a period of five years.

 

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 presence in CSM exports: The CSM export segment is marked by a significantly de-risked business model, which provides healthy revenue visibility and stable profitability. The PI group is one of the pioneers of CSM in the agrochemical space in India. The group, which has been in this business for over a decade, has built a strong reputation, based on its sound research capabilities.
   

Its clientele includes some of the largest agrochemical innovator companies in the world. The group has invested significantly in enhancing manufacturing capacities and has commercialized more than 60 molecules up to the first nine months of fiscal. Revenue from the CSM business registered a healthy compound annual growth rate (CAGR) of around 27.4% between fiscals 2018 and 2024 on the back of regular launches of new products and incremental revenue from existing products. Revenue outlook for the CSM business should remain healthy over the medium term, backed by the current order book position of around USD 1.4 billion and incremental revenues from newly launched products,

 

• Established position in the domestic agrochemical business with healthy in-licensing and co-marketing (ILCM) and branded generics product pipeline: The PI group has presence of more than five decades in the domestic agricultural inputs business. A healthy product mix, leadership in several generic product segments and increasing number of launches through the ILCM route helped the group establish itself as one of the top 10 players in this space.

 

Despite above normal rainfall witnessed in fiscal 2025, domestic demand for agro-chemicals was impacted by uneven spread of rainfall. Besides, domestic sales were also impacted by sizeable imports from China. Domestic demand for agrochemicals is likely to gradually rebound in fiscal 2026, driven by In-Licensing & Co-marketing and branded generics products, and expectations of above normal monsoons, as per forecast by the Indian Meteorological Department.

 

During first nine months of fiscal 2025, the group commercialized seven new agricultural brands.  In addition, it is planning to launch 7-8 new products in the domestic market in fiscal 2024 (six products commercialized during the first nine months of the fiscal 2025). Moreover, its focused approach to horticulture through its brand -- JIVAGRO -- coupled with a healthy pipeline of new launches shall boost revenue growth going forward.

 

• Healthy financial and liquidity risk profile: The financial risk profile should remain healthy, marked by strong tangible net worth of Rs 9,020 crore as on September 30, 2024 and low debt of Rs 107 crore, which along with healthy operating profitability ensures robust debt protection metrics. Liquidity has been strong, driven by healthy cash balance of Rs 4,158 crore as on December 31, 2024, which along with NCA of over Rs 1,800 - 2,000 crore per annum over the medium term will be sufficient to meet the yearly maturing debt and annual capex of Rs 800 – 1,000 crore. Bank lines remain largely unutilized which provides additional comfort.

 

Weaknesses:

• Working capital intensive operations: The domestic agrochemical industry is characterized by working capital-intensive operations, due to large inventory requirement, seasonality in demand, extended credit to dealers and distributors and higher dependance on few customers. In line with the industry, the group maintains sizeable inventory of 100-120 days, to ensure that the requirement of dealers are met on time. Credit of 90-120 days from suppliers mitigates pressure on the working capital front.

 

• Susceptibility to risks inherent in the agrochemicals sector: Although crop protection or the agrochemical sector remains susceptible to specific and separate registration processes in different countries, the group has strong early-stage association with global innovators and confirmed order book that mitigates the risk to a great extent. The domestic business, constituting ~17% of revenue (first nine months of fiscal 2025), is exposed to vagaries of the monsoon and level of farm income.

Liquidity: Strong

Liquidity remains robust, driven by healthy unencumbered cash balance of Rs 4,158 crore as on September December 31, 2024. Further, estimated NCA at over Rs 1,800 – 2,000 crore per annum would be sufficient to meet yearly repayment obligation and capex requirement of Rs 800-1000 crore. Bank lines of remain largely unutilized which also provide additional comfort.

 

ESG profile

The environment, social and governance (ESG) profile of the PI group supports its already strong credit risk profile. 
 

The agrochemical sector has a high environmental impact owing to high greenhouse gas (GHG) emissions, extensive water usage and significant hazardous waste generation through core operations. The sector has a social impact because of its large workforce and given the impact of its nature of operations on the health and wellbeing of its workers and on the local community

The group has been focusing on mitigating its environmental and social risks.

 

Key ESG highlights

• GHG emission intensity reduced by ~8% year-on-year in fiscal 2024. The group has articulated its goal of reducing specific carbon dioxide emissions by 25% by fiscal 2025
• In fiscal 2024, share of renewable energy as a share of total electricity consumption has remained at 5.35 percent against a target of 7.2 percent. The group has articulated its goal of increasing share of renewable energy to 20% by 2025
• Gender diversity (% of women in total workforce) increased to 5.3% in fiscal 2024 from 4.8% in fiscal 2023. The group aims to increase participation of women in leadership positions by 25% (from current levels) by 2025
• The lost time injury frequency rate remained low at 0.09 in fiscal 2024, much better compared to peers
• The governance structure of the PI group is characterised by 50% of the board comprising independent directors, a split between the positions of Chairman and Chief Executive Officer, extensive financial and non-financial disclosures and robust internal control systems.

 

There is growing importance of ESG among investors and lenders. Commitment of the group to ESG and integrating sustainability principles throughout its organisation and value chain will play a key role in enhancing stakeholder confidence and access to capital markets.

Outlook: Stable

The business risk profile of the PI group is likely to remain strong, driven by its expanding product portfolio and healthy revenue visibility in both domestic agrochemicals, CSM segments and growing pharma CDMO and biological segments, as well as good profitability, leading to sizeable annual cash generation. The financial risk profile will continue to be supported by healthy cash generating ability, moderate capex spend, and prudent working capital management.

Rating sensitivity factors

Upward factors:

• Sustained healthy double digit revenue growth driven by continuously increasing order book, amid better product and customer diversification, and contribution from new product lines
• Sustaining healthy profitability at over 22-23%, ensuring strong annual cash generation
• Maintaining strong debt protection metrics and heathy liquidity, while pursuing organic and inorganic growth

 

Downward factors:

• Significant moderation in revenue and operating profitability falling below 17-18% on a sustained basis, impacting cash generation
• Large, debt-funded capex or acquisition or a further stretch in the working capital cycle
• Material decline in liquid surplus due to share buyback, large dividend payout or sizeable acquisitions

About the Group

PIIL was set up in 1946 as an edible oil refinery by the late Mr P P Singhal. The company later entered the agrochemical formulations business. In the mid-1990s, PIIL diversified into CSM exports for global agrochemical innovator companies.
 

It is a leading player in CSM exports and in the domestic agricultural inputs sector, which is primarily agrochemicals and plant nutrients. In the CSM exports segment, its business interests include dealing in custom synthesis and contract manufacturing of chemicals, which constitutes techno commercial evaluation of chemical processes, process development, lab and pilot scale-up, as well as commercial production. The PI group has 15 Fully automated Multipurpose plans with Distributed Control System spread across 5 locations. and an R&D unit in Udaipur, Rajasthan. In December 2019, PIIL acquired Isagro (Asia) Agrochemicals Pvt Ltd, whose manufacturing facility is located at Panoli in Gujarat.

 

During the first half of fiscal 2024, PIIL ventured into the pharma segment by completing acquisitions of the wholly owned Indian subsidiary of TRM US along with the US-based assets of TRM US and Italy-based Archimica SpA for total consideration of ~Rs 775 crore.

 

TRM: TRM is an innovative, chemistry-driven solution provider in medicinal chemistry research and process R&D, specialising in rare diseases. It provides services and products to pharma and biopharma companies in preclinical and clinical stages. It has manufacturing facilities in India and R&D facilities in India and US.

 

Archimica SpA: Archimica SpA is a small CDMO player dealing in generic API and intermediate products across wide therapeutic and substance classes such as oncology, antiulcer and antiarthritics.

Any other information: Not applicable