| R3 Crop Care Private Limited | ||||||
| Ratings upgraded to 'CRISIL A/Stable/CRISIL A1'; Rated amount enhanced | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has upgraded its ratings on the bank facilities of R3 Crop Care Private Limited (R3) to ‘CRISIL A/Stable/CRISIL A1’ from ‘CRISIL A-/Stable/CRISIL A2+’
The upgrade reflects the restoration of performance of R3 crop care in fiscal 2021, after a fire accident in fiscal 2020, and the expected sustenance of growth and profitability over the medium term. The upgrade also reflects the increasing criticality of R3 Crop to its parent Sulphur Mills Limited, (SML, rated CRISIL AA-/Stable/A1+) and benefits that are likely to accrue on account of increasing integration with the parent.
Revenues has increased 95% in fiscal 2021 (compared to low base of previous fiscal on account of loss of sale caused due to fire outbreak at the unit between Dec 2019 to Feb 2020), the unit is up and running at optimal capacity currently. Margins too improved in fiscal 2021 to 10.6% vs 7.9% in fiscal 2020 driven by steady prices of technical and healthy plant utilisation.
CRISIL Ratings expects R3 to post robust revenue growth of over 20% in medium term with profitability being maintained at 9-11% and annual cash accruals improving to Rs 15-20 crore. Company is also expected to not avail any long term debt in the medium term and all capex and working capital requirements are expected to be met through accruals and need based support from SML.
The rating reflects long vintage of the company in the agrochemical sector, and strong parentage and need based support of SML in operational and financial matters of R3. These strengths are partly offset by the moderate financial risk profile and working capital intensive nature of operations. |
Analytical Approach For arriving at the ratings for R3, CRISIL Ratings has factored support from SML. |
Key Rating Drivers & Detailed Description Strengths: Strong parentage and expectation of operational and need-based financial support from SML Being a 67% subsidiary of SML, R3 receives continuous support from SML for financial and operational needs. R3 is a key supplier of intermediates to SML and SML is the largest customer for R3 contributing around 20% of overall revenues.
SML helps in procuring of raw materials and has also extended financial support by way of inter-corporate deposits (ICD’s) of Rs 8 crore to R3 for meeting fund requirements. Furthermore, SML has provided corporate guarantees to the bank borrowings of R3.
R3 had delays in regularization of discounted bills in the past (till fiscal 2020) due to timing mismatches in collections and repayment. Sanctioned cash credit limits were almost fully utilized resulting in low headroom for regularizing overdue bills. However, subsequently R3’s internal financial control systems have been completely integrated with SML. Further SML infused ICD’s into R3 and the company cleared all overdue bill payments and there have been no instances of delay subsequently. The company is also gradually reducing utilization of bill discounting limits. SML is also monitoring treasury operations of R3 and is expected to step in to provide timely financial support in case any cash flow mismatch arises. Further the forthcoming enhanced of bank limits by Rs 10 Cr crore will create liquidity cushion.
Long vintage in the agrochemical sector R3 has experience of over 2 decades in the manufacturing and sales of agrochemical active ingredients and has built up a relationship with large agrochemical players. R3 also serves a diverse base of customers with no single customer (other than SML) accounting for more than 10% of revenues.
Improving financial risk profile: R3’s financial risk profile improved with net worth increasing to Rs 55 Cr in fiscal 2021 from Rs 24 Cr in fiscal 2018 and improved cash accruals of Rs 15 Cr in fiscal 2021 from Rs 2 Cr in fiscal 2018. The financial risk profile benefits from the relatively low leverage on the balance sheet as past capacity expansions have been modest and funded entirely through accruals with minimal reliance on debt. Consequently, TOL/TNW was comfortable at about 1.23 times in fiscal 2021 along with adequate debt protection metrics.
Company has plans to incur capex of around Rs 15-20 crore in fiscal 2022 for expanding its product portfolio and increasing capacity. Cash accruals of over Rs 15-20 crore and need based support from SML are expected to be sufficient for meeting capex requirements and working capital requirements and no additional long term debt is expected. Hence, CRISIL expects the company’s credit metrics to gradually improve over the medium term with ramp up in operations and higher accruals expected.
Weakness: Working capital intensive operations The operations of the company are working capital intensive with gross current assets of almost 115 days as of March 2021 due higher inventory. The company’s customers are mainly large agrochem and fertilizer players who are dependent on collection from dealers which in turn results in stretching of R3’s collection period. Inventory holding is also seasonal which results in high working capital requirements during peak seasons. All this had resulted in high utilization of working capital limits. R3 has now started taking advances from clients to meet working capital requirements which is expected to reduce working capital intensity gradually over the medium term. |
Liquidity: Strong R3’s strong liquidity is driven by the timely funding support from parent, SML. On standalone basis, R3’s liquidity is moderate marked by almost full utilization of bank limits and modest accruals of Rs 10-15 Cr per annum. Due to working capital intensive nature of business, cash credit limits of Rs 3 crore are almost fully utilized with average utilization at over 95% in the past 12 months ended August 2021. Additionally, cash and cash equivalents were low at were Rs 1.1 Cr. As on March 31, 2021. However, nil debt repayments and support from SML is expected to support overall liquidity. Also Company is planning to increase its Cash credit limits from Rs 3 Cr to Rs 20 Cr, which will provide liquidity support. Any cash flow shortfall will be funded by SML, thereby making sure that all obligations are met on timely basis. |
Outlook: Stable CRISIL Ratings believes R3 will continue to be of strategic importance to SML and hence will continue to receive financial and operational support from SML in the medium term. |
Rating Sensitivity factors Upward Factors:
Downward factors:
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About the Company R3 was incorporated in 1998 by Mr. Harish Trivedi, Mr. Rajiv Pandit and Mr. Mukundray Bhatt as Rotam India Ltd. The name was subsequently changed to R3 Crop Care Private Limited in 2013.
In 2019, Sulphur Mills Ltd (SML) acquired a 67% stake in the company for a consideration of Rs 49 crore. R3 is engaged into manufacturing and sales of technical for agrochemical formulators. R3 has its manufacturing facility at Vapi, Gujarat with manufacturing capacity of around 6000 MTPA.
R3’s board is formed of Mr. Rajiv Pandit (existing promoter), Mr. Deepak Shah (Chairman and Managing Director – SML) and Mr. Binoy Shah (Director – SML). |
Key Financial Indicators
^Provisional financials |
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 - 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 29-Oct-2021 in line with the lender-wise facility details as on 28-Oct-2021 received from the rated entity.
Criteria Details
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