| PJ Margo Private Limited | ||||||
| 'CRISIL BBB+/Stable/CRISIL A2' assigned to Bank Debt | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has assigned its ‘CRISIL BBB+/Stable/CRISIL A2’ ratings to the bank facilities of PJ Margo Private Limited (PJMPL; part of the PJM group).
The ratings reflect the extensive experience of the promoters in the neem extracts segment, strong operational support from the joint venture (JV) partner, sound operating efficiency and risk management policies and healthy financial risk profile. These strengths are partially offset by limited product diversity constraining the scale and sustainability, susceptibility to volatility in raw material prices and foreign exchange (forex) rates and working capital intensive operations. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of PJMPL with its wholly owned subsidiary, Margo Biocontrols Pvt Ltd (MBPL). This is because both these entities, collectively referred to as the PJM group, are in the same line of business and have common promoters and strong business and financial linkages.
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: Extensive experience of the promoters, with strong operational support from the JV partner: The group's JV agreement with Certis LLC (Certis), a subsidiary of Mitsui, Japan, bounds the latter to purchase neem-based extracts only from the PJM group in India. Certis, headquartered in Columbia in the US, is a leading manufacturer and supplier of biopesticides that fill specialty niches in the agricultural and horticultural markets. The group's promoters have established relationships of more than two decades in the industry.
Sound operating efficiency and risk management policies: The group’s sound operating efficiency is reflected in healthy operating margin of 22-28% over the past four fiscals through 2022 and is likely to sustain over the medium term. Return on capital employed is healthy as well. The company derives a large part of its revenue (60-70%) from USA through its JV partner Certis; all the transactions are backed by letter of credit, and the agreement with Certis provides for passing on of any material deviation in input prices. These measures should help the group sustain its profitability over the medium term.
Healthy financial risk profile: The group capital structure has been at healthy level due to lower reliance on external funds yielding gearing of 0.06 time and total outside liabilities to adjusted networth of 0.21 time as on March 31, 2022. The group’s debt protection metrics have been healthy because of leverage and comfortable profitability. Interest coverage and net cash accrual to total debt ratios stood at 57.4 times and 4.17 times, respectively, in fiscal 2022.The financial risk profile is expected to remain stable, supported by healthy cash accrual.
Weaknesses: Limited product diversity constraining scale and sustainability: Despite an established track record of over 20 years, the company’s scale of operations remains modest. The relatively small size of the industry and intense competition from the unorganised segment and low-priced imports are the key limitations. Furthermore, the group’s product basket is not diversified, exposing it to the risk of obsolescence in case of new entrants in the market. The proposed capacity addition and expected strong demand from the JV partner should support the scale of operations over the medium term.
Susceptibility to volatility in raw material prices and forex rates: The group is exposed to volatility in the prices and procurement cost of neem seed, the key raw material. Operating profitability has declined to 22% from 27% in the past three fiscals, mainly because of volatility in input prices. Any similar volatility is likely to impact the profitability of the group over the medium term. As most of the revenue is derived from the international market, any sharp fluctuation in forex rates affects realisations and cash accrual. This exposes the operating margin to volatility in forex rates. The group manages the forex risk by hedging of its forex exposures.
Working capital intensive operations and supply related issues: Gross current assets were 186-209 days over the three fiscals ended March 31, 2022 due to its high receivables and inventory levels. (208.9 days as on March 31, 2022 driven by receivables and inventory of 73 and 98 days respectively) The group is required to hold large inventory because of seasonality in raw material procurement—the company procures adequate inventory of raw materials during July-September to ensure production throughout the year. Inventory levels are expected to remain at 4-5 months during March and are likely to moderate in the off season. Receivables are expected to remain at 60-70 days. Operations will likely remain working capital intensive over the medium term.
The major raw material, neem seed, is procured from multiple suppliers across different geographies in India. Any shortage in the supply of neem seeds can interrupt production and impact the business risk profile. However, longstanding relationships with suppliers across regions mitigates this risk. |
Liquidity: Adequate Bank limit utilisation averaged 22% over the 12 months through March 2022. Cash accrual, expected at Rs 30-48 crore per annum, will sufficiently cover yearly debt obligation of Rs 2-5 crore over the medium term. Current ratio was healthy at 5.48 times as on March 31, 2022. Low gearing and moderate networth provide the financial cushion to weather any adverse conditions or downturns in the business. |
Outlook: Stable The group will continue to benefit from the promoters’ extensive experience and healthy relationships with clients. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company PJMPL was incorporated in 1991 as a 50:50 JV between the Jaipuria family, comprising Mr Pradeep Jaipuria and Mr Praveen Jaipuria, and Certis. The company sells neem-based extracts (Azadirachtin and neem oil), which are used as raw material for the manufacturing of biopesticides in the horticulture/organic farming industry, primarily for fruits and vegetables. The company’s processing facility in Tumkur, Karnataka, has neem seeds capacity of 30 tonne per day. |
Key Financial Indicators
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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)
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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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This Annexure has been updated on 06-Jul-2022 in line with the lender-wise facility details as on 06-Jul-2022 received from the rated entity.
Criteria Details
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