Rating Rationale
October 31, 2017 | Mumbai
PI Industries Limited
Ratings Reaffirmed
Rating Action
Total Bank Loan Facilities Rated Rs.430 Crore
Long Term Rating CRISIL AA/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its ratings on the bank facilities of PI Industries Ltd (PI; part of the PI group) at 'CRISIL AA/Stable/CRISIL A1+'.
The ratings continue to reflect the group's established position in the domestic agrochemicals business, and growing prominence as one of India's leading players in the custom synthesis and contract manufacturing (CSM) exports, supported by strong tie-ups with global innovators. The ratings also factor in the group's healthy financial risk profile, marked by strong gearing and debt protection metrics. These rating strengths are partially offset by working capital intensity in operations and susceptibility to cyclicality in the agrochemicals industry.
Revenue is expected to record a compound annual growth rate (CAGR) of 12-15% over the medium term, while operating margin is likely to be around 22-23%. A strong order book of USD 1 billion (approx. Rs 6500 crore) in CSM segment, from the existing product basket, improving contributions from recent launches in the domestic market, and revenue from yearly new molecule additions in both CSM and domestic business, will support revenue visibility. Further, improving scale of operations and stronger product portfolio will also translate into higher margin. PI is thus, expected to generate annual cash accrual of over Rs 400-500 crore, going forward.
Financial risk profile is strong, marked by gearing of 0.07 time as on March 31, 2017. Capex of around Rs 150 crore per annum is likely to be undertaken in the medium term, mainly led by increased investments in research & development and capacity additions at existing plants. The group is also exploring significant investments in the pharma intermediates segment. Given the healthy cash accrual and moderate working capital requirement, the group may fund the capex via internal accrual. The balance sheet will become debt-free over the medium term, aided by progressive repayment of long-term debt. The group is also likely to build-up surplus liquidity of over Rs 250 crore, in the medium term.

Analytical Approach

For arriving at the ratings, CRISIL has combined the business and financial risk profiles of PI and its wholly-owned subsidiaries, PIIL Finance & Investments Ltd (PFIL), PI Life Science Research Ltd (PLSRL), and PI Japan Co Ltd (PJCL). This is because all these companies together referred to as the PI group, have the same promoters, and have business and financial linkages. PFIL handles the investment activities of PI, while PLSRL handles its contract research and development activities. PJCL is the group's marketing arm in Japan.

Key Rating Drivers & Detailed Description
* Established position in domestic agrochemical business with healthy in-licensing and co-marketing (ILCM) product pipeline: Over five decades of experience in the domestic agri inputs business, healthy product mix, leadership position in several generic product segments, and increasing number of launches through the ILCM route, have helped the group establish itself as one of the top 10 players in this space. Agri inputs accounted for around 42% of revenue in fiscal 2017, led by generic products of own brand and sale of in-licensed/co-marketed products.
* Growing 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 engaged in this business for over a decade, has built a strong reputation, based on its strong research capabilities. The clientele includes some of the largest agrochemical innovator companies in the world. The group has invested significantly in enhancing manufacturing capacities over the past five years. and has commercialised 25 molecules up to fiscal 2017.
* Healthy financial risk profile: Financial risk profile is healthy, marked by comfortable gearing and debt protection metrics, supported by large equity infusions in the past and healthy cash generation. Revenue registered a healthy CAGR of 16% between fiscals 2013 and 2017, and operating margin has steadily improved from 15% to 23% during this period. As a result, cash accrual rose to around Rs 500 crore in fiscal 2017. Despite the sizeable capex of Rs 650 crore undertaken towards capacity additions over the past three years, capital structure and debt protection metrics improved on the back of growing profitability and cash accrual.
* Moderate working capital requirement: The agrochemical industry is characterised by working capital-intensive operations, due to large inventory requirement, seasonality in demand, and extended credit to farmers. While the PI group has moderately high gross current assets of 140-150 days, these are, nevertheless, lower than the industry average. The group maintains sizeable inventory of 65-70 days, to ensure that dealers' requirements are met on time, and also because bulk of its raw material (technical) is imported. Dealers too need to be offered credit of 75-90 days, given the intense competition. Credit of 90-120 days from suppliers partly mitigates pressure on working capital management.
* Susceptibility to cyclicality in the agrochemicals industry: With half of revenue coming from the domestic agri inputs business, the group remains partly exposed to cyclicality in the agrochemical industry, which is highly dependent on monsoon and level of farm incomes. Fortunes of agrochemicals players are linked to timing and distribution of rainfall during a year. For CSM exports, strong early stage association with global innovators offers stable revenue visibility. Nevertheless, the fact that top 10 products in this division account for around 60-65% of revenue, makes the group partially susceptible to any product failures or lower-than-expected offtake.
Outlook: Stable

CRISIL believes the PI group's business risk profile will continue to benefit from the expanding product portfolio and healthy revenue visibility in both domestic agrochemicals and CSM segments, and steady profitability, leading to healthy cash generation. CRISIL also expects the financial risk profile and liquidity to improve further, supported by prudent working capital management and healthy net cash accrual.
Upside scenario
* Sustained improvement in revenue and profitability, resulting in strong cash flow
* Improving credit metrics
* Build-up and sustenance of healthy liquidity
Downside scenario
* Significantly lower revenue or margin, impacting the group's cash flow
* Large debt-funded capex, acquisition or stretch in the working capital cycle, leading to weak key credit metrics

About the Company

PI was set up in 1946, as an edible oil refinery, by the late Mr PP Singhal, grandfather of its current managing director and chief executive officer, Mr Mayank Singhal. The company later entered the agrochemical formulations business. In 1978, it diversified into mining and mineral processing; this business was hived off into a separate company, Wolkem India Ltd. In the 1980s, PI entered the energy metering business, which was also hived off into a separate company, Secure Meters Ltd. To overcome cyclicality in the agrochemicals industry, PI diversified into the polymer compounding business in the 1990s; the business was sold to Rhodia SA, France, in April 2011. In the mid-1990s, PI diversified into CSM exports for global agrochemical innovator companies.
PI currently operates in the domestic agricultural inputs and CSM exports segments. PI is a leading player in the domestic agricultural inputs sector, primarily dealing in agrochemicals and plant nutrients. In the CSM exports segment, PI's 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 3 agrochemical formulation plants and 5 multipurpose plants in Panoli (Gujarat), three multipurpose plants in Jambusar, and a R&D unit in Udaipur.
For the half-year ended September 30, 2017, profit after tax was Rs 180 crore on operating income of Rs 1146 crore, against Rs.228 crore and Rs.1255 crore, respectively for the corresponding period in the previous fiscal.

Key Financial Indicators*
As on/for the period ended March 31, Unit 2017 2016
Revenue Rs crore 2,277 2,285
Profit After Tax (PAT)  Rs crore 459 315
PAT Margins % 20.2 13.8
Adjusted debt/adjusted net worth Times 0.07 0.13
Interest coverage Times 67.17 40.60
*CRISIL adjusted numbers

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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 cr.)
Rating assigned with outlook
NA Cash Credit & Working Capital Demand Loan NA NA NA 185.00 CRISIL AA/Stable
 NA Letter of credit & Bank Guarantee NA NA NA 245.00 CRISIL A1+
Annexure - Rating History for last 3 Years
  Current 2017 (History) 2016  2015  2014  Start of 2014
Instrument Type Quantum Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  185  CRISIL AA/Stable    No Rating Change  09-06-16  CRISIL AA/Stable  31-07-15  CRISIL AA-/Positive    No Rating Change  CRISIL AA-/Stable 
Non Fund-based Bank Facilities  LT/ST  245  CRISIL A1+    No Rating Change    No Rating Change    No Rating Change    No Rating Change  CRISIL A1+ 
Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit & Working Capital demand loan 185 CRISIL AA/Stable Cash Credit & Working Capital demand loan 185 CRISIL AA/Stable
Letter of credit & Bank Guarantee 245 CRISIL A1+ Letter of credit & Bank Guarantee 245 CRISIL A1+
Total 430 -- Total 430 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Chemical Industry
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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