Rating Rationale
October 29, 2020 | Mumbai
Rallis India Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.400 Crore
Long Term Rating CRISIL AA+/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
 
Rs.75 Crore Commercial Paper 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 and commercial paper programme of Rallis India Limited (Rallis) at 'CRISIL AA+/Stable/CRISIL A1+'.
 
Operating performance remained healthy in fiscal 2020, marked by revenue growth of 12% driven by strong performance in domestic as well as international business. While Covid-induced lockdown created disturbance in operations in the initial period in March 2020, the same abated subsequently with the Government classifying agrochemicals as essential goods. This coupled with timely and well-spread monsoon and healthy reservoir levels will favourably impact acreage under cultivation in fiscal 2021. Rallis, which derives 67% of its revenues from the domestic market will benefit by this trend, and is likely to post a revenue growth of ~9-11% this fiscal. Operating margin should remain healthy at 14% supported by softer raw material prices and favourable product mix. For the six months ending September 2020, the company posted a revenue of Rs. 1387 Cr (growth of 1.27%) and operating margin of 17.6% 
 
Rallis's financial risk profile should continue to benefit from strong capital structure, negligible debt and healthy surplus liquidity. Capital expenditure (capex) is expected to Rs 200-220 crore per annum for fiscal 2021 and 2022 and it will largely be funded from internal accrual. Healthy cash accruals and prudent funding of capex and working capital requirements will continue to support credit metrics. Liquidity is further supported by cash surplus of Rs 465 crore as on September 30, 2020 and unutilized bank limits of Rs 75 crore in the past 9 months ended May 2020
 
The ratings continue to reflect Rallis's established position in India's crop protection market, strong focus on exports, branding and farmer relationship, and a comfortable financial risk profile. The ratings also factor in the strategic importance to the parent, Tata Chemicals Ltd (TCL; rated 'CRISIL A1+'), and the consequent operational and need-based funding support available from TCL. These rating strengths are partially offset by vulnerability to risks inherent in the crop protection market in India, and working capital-intensive operations.

Analytical Approach

Notch up
The ratings of Rallis factor in support expected from its parent Tata Chemicals Limited (CRISIL A1+). CRISIL believes that Rallis will, in case of exigencies, receive support from its parent.

Consolidation
For arriving at the ratings, CRISIL has combined the business and financial risk profiles of Rallis and its subsidiary (annex) because of the close operational and financial linkages among these companies, together referred to herein as Rallis.

Goodwill Amortization
CRISIL has amortised goodwill on acquisitions over a period of 10 years

Please refer Annexure - Details of Consolidation, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description
Strengths
* Established market position: Rallis is a major player in the crop protection sector with a strong presence in all three segments of the pesticide industry (insecticides, fungicides, and herbicides) in India and abroad. Moreover, the company has entered into contract manufacturing by partnering with reputed players for developing new products and services. It is also focused on providing end-to-end solutions in the agriculture input chain and has thus entered into related sectors such as seeds (largely through MLSL, which has a commercialised portfolio of hybrid seeds), plant growth nutrients, and organic compost, helping to diversify the revenue base.

* Strong focus on branding and relationship with farmers: Strong brand and steady engagement with farmers facilitated regular launch of new products. The company undertakes farmer relationship programmes such as Rallis Kisan Kutumba, through which it provides them information on new and improved practices in agriculture. Further, in fiscal 2017, it launched Rallis Samrudh Krishi, through which agricultural solutions are provided to farmers and has also been working on improving productivity of crops. Other initiatives like Sampark which is a mobile app launched to support on filed crop advisers with the goal of creating better engagement with farmers. Also Rallis launched an initiative, Drishti which is remote sensing and artificial intelligence enabled predictive advisory services which will provide farmers information such as pest forecast for Key crops, short and medium term weather and season progress information.

* Comfortable financial risk profile: The networth was large at Rs 1,334 crore, and the gearing healthy at 0.05 time, as on March 31, 2020. Debt protection metrics were also strong in fiscal 2020. Overall liquidity is backed by healthy build-up of cash and cash equivalents (Rs 465 crore as on Sep 30, 2020).

* Support from the parent: Managerial and operational support from TCL continues to benefit the company.

Weakness
* Vulnerability to risks inherent in the crop protection sector: The domestic crop protection segment is affected by irregular monsoon and volatility in farm income. Also, the sector is highly regulated by specific registration processes in different countries and is subject to various environmental rules and regulations.

* Working capital-intensive operations: The domestic crop protection industry is highly working capital intensive. Inventory of the company has been increasing due to higher stocking of raw materials in the anticipation of supply shortages from China and stocking of Metribuzin due to weak demand in FY20. The stretch in working capital is expected to remain over the next two years since the industry is undergoing disruptions caused by short-supply of raw material from China due to Covid-19
Liquidity Strong

Rallis is expected to generate cash accruals of Rs 220-290 cr between FY21-23. Further, as on Sep 30, 2020, the company also had cash and cash equivalents of about Rs 465 cr. Additionally, the unutilized bank lines were Rs 75 crore over the past 9 months ending May 2020. The cash surplus, and cash accrual should be sufficient to fund any additional working capital requirements and capex of Rs 200-220 crore per annum in FY21 and FY22.

Presently there are negligible long term debt obligations and management reliance on debt for funding of capex is very low. However, in case Rallis requires debt funding, the adjusted gearing is 0.05 time as on March 31, 2020 provide sufficient headroom for additional debt.

Outlook: Stable

CRISIL believes the business risk profile will continue to be supported by steady demand prospects for Rallis' products in the domestic market, and improving focus on exports. Large scale capex over the medium term is expected to result in better market share and mitigate impact on profitability caused by increasing raw material prices. Rallis will continue to remain critical for TCL and keep receiving operational, managerial and financial support.

Rating Sensitivity factors
Upward factors
* Sustained revenue growth of >13% and EBITDA margin > 17%
* Substantial improvement in working capital situation with lower inventory days, lower debtor days and higher cash surplus
* Upward revision in parent rating

Downward scenario
* Revenue degrowth or EBITDA margin <12%
* Larger-than-expected, debt-funded capital spending, or substantial acquisition resulting in total Debt / EBITDA > 1
* Material stretch in working capital levels
* Downward revision in parent rating

About the Company

Rallis, a part of the Tata group, is one of the leading players in the domestic crop protection sector and manufactures pesticides, herbicides, and fungicides at its factories in four locations. These agrochemicals are spread across 80% of India's districts through an extensive distribution network. The Rallis Innovation Chemistry Hub (RICH) caters to global requirements and plays a key role in contract manufacturing. In fiscal 2010, Rallis became a subsidiary of TCL; earlier, it was jointly owned by multiple Tata group companies.
 
Rallis acquired a majority stake in MLSL, a Bengaluru-based seeds company, in fiscal 2011. MLSL was established in 2000 by scientists to focus on seed research and manufacturing. The company has proprietary bacillus thuringiensis trait and cry1C approvals for its cotton business. In fiscal 2013, Rallis acquired a stake in Maharashtra-based ZWAOL, which manufactures scientifically prepared organic compost from waste derived from the sugar industry. Currently, both the companies are merged with Rallis India Ltd.
 
About the Parent
TCL was incorporated in 1939 to manufacture soda ash and related chemicals, including sodium bicarbonate, caustic soda, and bromides. The company commenced operations in 1944 with a 30,000 tpa plant at Mithapur. Over the years, it has expanded its gross soda ash capacity to 917,700 tpa. It entered the iodised vacuum salt business in 1986. Tata Salt is the leading iodised edible salt brand in India. TCL also has a 440,000-tpa cement plant in Mithapur, which was set up to effectively utilise the solid waste generated during soda ash production.

Key Financial Indicators^
Particulars Unit 2020 2019
Operating income Rs crore 2262 1998
Profit after tax Rs crore 184 154
Adjusted Profit after tax (PAT)* Rs crore 164 135
PAT margin % 7.3 6.8
Adjusted debt/adjusted networth Times 0.05 0.06
Interest coverage Times 29.83 34.42
^ CRISIL adjusted numbers
* Adjusted for goodwill amortization
 
Key Financial Indicators - Year to date financials
Particulars Unit 2021 2020
Operating income Rs crore 725 748
PAT Rs crore 83 85
PAT margin % 11.40 11.30
Interest coverage Times 92.7 66.71

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
Annexure - Details of Instrument(s)
ISIN Name of Instrument Date of Allotment Coupon Rate (%) Date of Maturity Issue Size (Rs.Cr) Complexity level Rating Assigned with Outlook
NA Cash Credit* NA NA NA 150.5 NA CRISIL AA+/Stable
NA Rupee Term loan NA NA Feb-2023 13.0 NA CRISIL AA+/Stable
NA Letter of Credit# NA NA NA 236.5 NA CRISIL A1+
NA Commercial Paper NA NA 7-365 days 75.0 Simple CRISIL A1+
*interchangeable with other fund-based facilities
#interchangeable with other non-fund based facilities
 
Annexure - List of entities consolidated
Name of the entity Extent of consolidation Rationale for consolidation
Rallis Chemistry Exports Ltd Full Close operational and financial linkages among Rallis Chemistry and Rallis India
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  75.00  CRISIL A1+      09-10-19  CRISIL A1+  29-11-18  CRISIL A1+  15-12-17  CRISIL A1+  CRISIL A1+ 
                    08-02-17  CRISIL A1+   
Fund-based Bank Facilities  LT/ST  163.50  CRISIL AA+/Stable      09-10-19  CRISIL AA+/Stable  29-11-18  CRISIL AA+/Stable/ CRISIL A1+  15-12-17  CRISIL AA+/Stable  CRISIL AA/Stable 
                    08-02-17  CRISIL AA/Positive   
Non Fund-based Bank Facilities  LT/ST  236.50  CRISIL A1+      09-10-19  CRISIL A1+  29-11-18  CRISIL A1+  15-12-17  CRISIL A1+  CRISIL A1+ 
                    08-02-17  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* 150.5 CRISIL AA+/Stable Cash Credit* 150.5 CRISIL AA+/Stable
Letter of Credit# 236.5 CRISIL A1+ Letter of Credit# 236.5 CRISIL A1+
Rupee Term Loan 13 CRISIL AA+/Stable Rupee Term Loan 13 CRISIL AA+/Stable
Total 400 -- Total 400 --
*interchangeable with other fund-based facilities
#interchangeable with other non-fund based facilities
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
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

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