Rating Rationale
September 20, 2019 | Mumbai
PI Industries Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.500 Crore
Long Term Rating CRISIL AA/Positive (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 Limited (PI; part of the PI group at 'CRISIL AA/Positive/CRISIL A1+'.
 
On September 12, 2019, PI announced that it has entered into an exclusivity agreement with lsagro S.P.A, for acquisition of the business of its wholly owned subsidiary, Isagro (Asia) Agrochemicals Private Limited [IAPL; rated 'CRISIL A/Stable/CRISIL A1'], for a consideration of Rs.345 crore, net of cash and debt, subject to closing adjustments. The acquisition will be funded using a mix of internal accrual, cash surpluses and debt, and is expected to be completed by December 2019, subject to finalisation of definitive agreements, customary closing conditions and regulatory approvals.
 
The proposed acquisition will provide PI access to additional manufacturing capacities to meet growing demand and also strengthen its position in the domestic market by leveraging complementary product portfolio and distribution channel of IAPL. PI is also expected to benefit from synergy benefits of adjacent manufacturing site while de-risking the supply chain of few products. Further, considering the group's strong balance sheet and low reliance on debt, the acquisition related debt is unlikely to materially impact the group's strong credit metrics.
 
PI group's revenue is expected to grow at a healthy rate of over 15% over the medium term while operating profitability is expected to be sustained at over 20%. A strong order book of USD 1.4 billion (around Rs 10,000 crore) in the custom synthesis and contract manufacturing (CSM) segment from the existing product basket, improving contributions from recent new launches in the domestic market, and revenue from new molecule additions every year in both CSM and the domestic business supports revenue visibility. The improving scale of operations and stronger product portfolio should translate into sustenance of the operating margin, and lead to cash accrual of Rs 500-600 crore per fiscal over the medium term.
 
The ratings continue to reflect an established position in the domestic agrochemicals business, and strengthening presence as one of India's major players in CSM exports supported by strong tie-ups with global innovators. The ratings also factor the group's healthy financial risk profile. These rating strengths are partially offset by working capital-intensive operations and susceptibility to cyclicality in the agrochemicals industry.

Analytical Approach

For arriving at the ratings, CRISIL 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), and PI Japan Co Ltd (PJCL). That's because all these companies, together 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 research and development activities. PJCL is the group's marketing arm in Japan.

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 position in the domestic agrochemical business with healthy in-licensing and co-marketing (ILCM) product pipeline: A presence of over 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 have helped the group establish itself as one of the top 10 players in this space. Agricultural inputs accounted for around 39% of gross revenue in fiscal 2019, led by generic products of own brand and sale of ILCM 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 sound 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 fiscals and has commercialised 32 molecules up to fiscal 2019.
 
* 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 15% between fiscals 2013 and 2019, and operating margin has steadily improved during this period. Despite the sizeable capex undertaken towards capacity additions over the past three years, capital structure and debt protection metrics improved on the back of healthy cash accruals. The company is expected to incur capex of Rs 500-600 crore annually in fiscals 2020 and 2021, to expand capacities, and limited debt addition is likely given the healthy cash accruals expected.
 
Weaknesses
* 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 dealers and distributors. 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 about 40% of revenue coming from the domestic agricultural inputs business, the group remains partly exposed to cyclicality in the agrochemicals 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, as the top 10 products in this division account for 60-65% of revenue, the group is partially susceptible to any product failures or lower-than-expected offtake.
 
Liquidity: Strong
The PI group enjoys strong liquidity. Annual cash accruals of Rs 500-600 crore in fiscals 2020 and 2021 and cash and cash equivalents of Rs 195 crore as on March 31, 2019 should comfortably cover capex, minimal maturing debt obligations and incremental working capital requirements. The group also has access to fund based bank lines of Rs 200 crore (enhanced from Rs 185 crore in March 2019), utilized sparsely over the 12 months through August 2019. With a gearing of 0.02 times as on March 31, 2019, the group has sufficient gearing headroom, to raise additional debt to fund its capex and acquisition.
 
Surplus cash available with the PI group may moderate in the near term, due to part funding of the IAPL acquisition, but is expected to be gradually restored over the medium term.
Outlook: Positive

CRISIL believes the PI group's business risk profile should 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.

Rating sensitivity factors
Upward factor
* Revenue growth of over 15% and operating margin in excess of 20%, supported largely by the CSM business
* Sustenance of healthy credit metrics ' gearing below 0.8-1 times
 
Downward factor
* Significant decline in revenues by over 15% and deterioration of operating margin to 15-16%, affecting the group's cash flows
* Large debt-funded capex or acquisition or elongation of working capital cycle leading to deterioration in key credit metrics

About the Group

PI 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 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. It is a leading player in the domestic agricultural inputs sector, primarily dealing in 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 three agrochemical formulation plants and five multipurpose plants in Panoli, Gujarat, three multipurpose plants in Jambusar, Gujarat, and an R&D unit in Udaipur, Rajasthan.
 
Profit after tax (PAT) on a standalone basis was Rs. 101 crore on revenue of Rs. 754 crore in the quarter ended June 30, 2019, against Rs. 82 crore and Rs. 606 crore, respectively, in the corresponding period of the previous fiscal.

About IAPL
IAPL, a wholly owned subsidiary of Isagro SPA, manufactures agrochemical products, with focus on the proprietary new generation molecules of its parent. The company was formerly the agrochemicals division of RPG Life Sciences Ltd, and was acquired by Isagro in November 2001. Manufacturing facility is in Panoli, Gujarat; it also has a third-party facility in Ahmedabad. Products include insecticides, fungicides, herbicides, and bio-stimulants.

Key Financial Indicators (Consolidated)*
As on/for the period ended March 31, Unit 2019 2018
Revenue Rs crore 2846 2279
Profit After Tax (PAT)  Rs crore 410 368
PAT margin % 14.4 16.1
Adjusted debt/adjusted networth Times 0.02 0.04
Interest coverage Times 91.11 74.83
*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 200.00 CRISIL AA/Positive
 NA Letter of credit & Bank Guarantee NA NA NA 285.00 CRISIL A1+
NA Proposed Letter of credit & Bank Guarantee NA NA NA 15.00 CRISIL A1+

Annexure - List of entities consolidated
Names of Entities Consolidated Extent of Consolidation Rationale for Consolidation
PILL Finance & Investments Ltd Full common management, similar line of business, business and financial linkages, and common promoters
PI Life Science Research Ltd Full common management, similar line of business, business and financial linkages, and common promoters
PI Japan Co Ltd Full common management, similar line of business, business and financial linkages, and common promoters
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  200.00  CRISIL AA/Positive  07-06-19  CRISIL AA/Positive  28-11-18  CRISIL AA/Positive  31-10-17  CRISIL AA/Stable  20-07-16  CRISIL AA/Stable  CRISIL AA-/Positive 
                    09-06-16  CRISIL AA/Stable   
Non Fund-based Bank Facilities  LT/ST  300.00  CRISIL A1+  07-06-19  CRISIL A1+  28-11-18  CRISIL A1+  31-10-17  CRISIL A1+  20-07-16  CRISIL A1+  CRISIL A1+ 
                    09-06-16  CRISIL A1+   
All amounts are in Rs.Cr.
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 200 CRISIL AA/Positive Cash Credit & Working Capital demand loan 200 CRISIL AA/Positive
Letter of credit & Bank Guarantee 285 CRISIL A1+ Letter of credit & Bank Guarantee 285 CRISIL A1+
Proposed Letter of Credit & Bank Guarantee 15 CRISIL A1+ Proposed Letter of Credit & Bank Guarantee 15 CRISIL A1+
Total 500 -- Total 500 --
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

For further information contact:
Media Relations
Analytical Contacts
Customer Service Helpdesk
Saman Khan
Media Relations
CRISIL Limited
D: +91 22 3342 3895
B: +91 22 3342 3000
saman.khan@crisil.com

Naireen Ahmed
Media Relations
CRISIL Limited
D: +91 22 3342 1818
B: +91 22 3342 3000
naireen.ahmed@crisil.com

Vinay Rajani
Media Relations
CRISIL Limited
D: +91 22 3342 1835
M: +91 91 676 42913
B: +91 22 3342 3000
vinay.rajani@ext-crisil.com

Anuj Sethi
Senior Director - CRISIL Ratings
CRISIL Limited
D:+91 44 6656 3100
anuj.sethi@crisil.com


Sameer Charania
Director - CRISIL Ratings
CRISIL Limited
D:+91 22 4097 8205
sameer.charania@crisil.com


Biswa Sukla
Rating Analyst - CRISIL Ratings
CRISIL Limited
D:+91 44 6656 3137
Biswa.Sukla@crisil.com
Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
CRISILratingdesk@crisil.com
 
For Analytical queries:
ratingsinvestordesk@crisil.com


 

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper / magazine / agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL. However, CRISIL alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites, portals etc.


About CRISIL Limited

CRISIL is a leading agile and innovative, global analytics company driven by its mission of making markets function better. We are India’s foremost provider of ratings, data, research, analytics and solutions. A strong track record of growth, culture of innovation and global footprint sets us apart. We have delivered independent opinions, actionable insights, and efficient solutions to over 1,00,000 customers.
 
We are majority owned by S&P Global Inc., a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.
 
For more information, visit www.crisil.com 


Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK

About CRISIL Ratings
CRISIL Ratings is part of CRISIL Limited (“CRISIL”). We pioneered the concept of credit rating in India in 1987. CRISIL is registered in India as a credit rating agency with the Securities and Exchange Board of India (“SEBI”). With a tradition of independence, analytical rigour and innovation, CRISIL sets the standards in the credit rating business. We rate the entire range of debt instruments, such as, bank loans, certificates of deposit, commercial paper, non-convertible / convertible / partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 24,500 large and mid-scale corporates and financial institutions. CRISIL has also instituted several innovations in India in the rating business, including rating municipal bonds, partially guaranteed instruments and microfinance institutions. We also pioneered a globally unique rating service for Micro, Small and Medium Enterprises (MSMEs) and significantly extended the accessibility to rating services to a wider market. Over 1,10,000 MSMEs have been rated by us.


CRISIL PRIVACY
 
CRISIL respects your privacy. We may use your contact information, such as your name, address, and email id to fulfil your request and service your account and to provide you with additional information from CRISIL.For further information on CRISIL’s privacy policy please visit www.crisil.com.


DISCLAIMER

This disclaimer forms part of and applies to each credit rating report and/or credit rating rationale that we provide (each a “Report”). For the avoidance of doubt, the term “Report” includes the information, ratings and other content forming part of the Report. The Report is intended for the jurisdiction of India only. This Report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the Report is to be construed as CRISIL providing or intending to provide any services in jurisdictions where CRISIL does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this Report does not create a client relationship between CRISIL and the user.

We are not aware that any user intends to rely on the Report or of the manner in which a user intends to use the Report. In preparing our Report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the Report is not intended to and does not constitute an investment advice. The Report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind or otherwise enter into any deal or transaction with the entity to which the Report pertains. The Report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Rating are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities / instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL assumes no obligation to update its opinions following publication in any form or format although CRISIL may disseminate its opinions and analysis. CRISIL rating contained in the Report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the Report should rely on their own judgment and take their own professional advice before acting on the Report in any way.CRISIL or its associates may have other commercial transactions with the company/entity.

Neither CRISIL nor its affiliates, third party providers, as well as their directors, officers, shareholders, employees or agents (collectively, “CRISIL Parties”) guarantee the accuracy, completeness or adequacy of the Report, and no CRISIL Party shall have any liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the Report. EACH CRISIL PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the Report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. CRISIL’s public ratings and analysis as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any) are made available on its web sites, www.crisil.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee – more details about CRISIL ratings are available here: www.crisilratings.com.

CRISIL and its affiliates do not act as a fiduciary. While CRISIL has obtained information from sources it believes to be reliable, CRISIL does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and / or relies in its Reports. CRISIL keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of the respective activity. As a result, certain business units of CRISIL may have information that is not available to other CRISIL business units. CRISIL has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL has in place a ratings code of conduct and policies for analytical firewalls and for managing conflict of interest. For details please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html

CRISIL’s rating criteria are generally available without charge to the public on the CRISIL public web site, www.crisil.com. For latest rating information on any instrument of any company rated by CRISIL you may contact CRISIL RATING DESK at CRISILratingdesk@crisil.com, or at (0091) 1800 267 1301.

This Report should not be reproduced or redistributed to any other person or in any form without a prior written consent of CRISIL.

All rights reserved @ CRISIL