Rating Rationale
August 07, 2020 | Mumbai
Rivulis Irrigation India Private Limited
Rated amount enhanced
 
Rating Action
Total Bank Loan Facilities Rated Rs.43 Crore (Enhanced from Rs.20 Crore)
Long Term Rating CRISIL BBB+/Stable (Reaffirmed)
Short Term Rating CRISIL A2 (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL BBB+/Stable/CRISIL A2' ratings on the bank facilities of Rivulis Irrigation India Private Limited (Rivulis).

The ratings factor in the impact of the novel coronavirus (CoVID-19) with operations impacted in the months' of April-May. Rivulis has since resumed operations with reduced capacity. Revenue increased to Rs 202 crore in fiscal 2020 (year on year growth of 19%) supported by increasing reach and distribution however lower than earlier expectation due to lower sales in states like AP. Revenue is expected to grow at annual growth rate of 15-20% in the current fiscal 2021 supported by expansion potential and increased dealer based sales states like Maharashtra and Uttar Pradesh.

Higher capacity utilisation with improving scale has led to better absorption of fixed costs for Rivulis thereby rendering benefits of operating leverage and thus turnaround in operating profitability to 4.2% in fiscal 2020 from 3% in fiscal 2019. Net cash accruals are expected at Rs 10-12 crore by fiscal 2021 compared to earlier expectation of Rs 28 crore, on account of slower than expected ramp up. Though improvement in operating profitability is slower than earlier expectation, it is expected to be over 9-10% in the medium term supported by improving capacity utilization and healthy product mix.

However, working capital intensity has increased in fiscal 2020, with Debtors remaining high at Rs 126 crore as on March 31, 2020 (Rs 114 crore as on September 30, 2019). This is due to elongated debtor collection from Andhra Pradesh (AP) resulting in debtor pending at Rs 60-63 crore out of total debtors of Rs 126 crore. However, continued higher working capital intensity as AP contribute 20% of revenue is expected to result in higher dependence on external borrowings this fiscal. This increase in working capital was partially offset by control on inventory and renegotiation with suppliers and funded through infusion by promoters limiting dependence on external borrowings. The company's short term debt decreased to Rs 22 crore as on March 31, 2020 from Rs 26 crore as on September 30, 2019. Financial profile is expected to remain comfortable with expected support from the promoters. Further, working capital intensity and liquidity position will be key monitorables.

The ratings continue to reflect the strong business and financial support the company receives from parent Rivulis Irrigation Ltd, Israel (Rivulis Israel), and the parent's established position in the global market for micro irrigation systems (MIS). The rating also factors Rivulis' healthy business risk profile driven by increasing geographic reach, and comfortable financial risk profile backed by improving operating performance, sound capital structure and adequate liquidity. These strengths are partially offset by susceptibility to changes in government policies, and large, increasing working capital requirement.

Analytical Approach

For arriving at the rating, CRISIL has applied its parent notch-up framework to factor support from Rivulis Israel. CRISIL has changed its treatment of loans from promoters to equity from neither debt nor equity as these loans are expected to be converted to equity during the current fiscal.

Key Rating Drivers & Detailed Description
Strengths: 
* Adequate business and financial support from parent: Rivulis, a 51% subsidiary of Rivulis Israel (third-largest player globally in micro-drip irrigation), is strategically important to the parent as it provides access to a large market and strong growth being the 5th largest market globally contributing about 10% to global revenues. The Firodia group, which holds 49% stake, is committed to support Rivulis in growing its business in India. Rivulis receives strong financial, operational, and technical support for product innovation from Rivulis Israel, and leverages the parent's extensive experience in the global market. Rivulis Israel has a diversified revenue profile with presence in 18 countries and a wide range of offerings. The parent and the Firodia group have planned equity infusion in fiscal 2021 and have extended equity support in the past through infusion of funds of Rs 25 crore in fiscal 2016 and outstanding promoter loans of Rs 21.9 crore as on date and will continue to provide need-based financial support as needed. Liquidity is also aided by flexible credit from the parent.

* Healthy business risk profile supported by increasing geographic reach: The company has a professional management team with adequate experience in agriculture and related fields, enabling fast growth. The company is gradually increasing its dealership network (450 dealers across the country). Revenue grew at 19% year-on-year in fiscal 2020, and is likely to grow at 25-30% over the medium term on account of significant potential in the MIS industry backed by government subsidy to increase use of MIS. The company has presence in Gujarat, Andhra Pradesh, Maharashtra, Telangana, Tamil Nadu, Karnataka, and Madhya Pradesh, and is likely to increase presence in Bihar and Uttar Pradesh. Continued focus on growth from subsidy-backed sales and improving contribution from cash and carry sales will support the business risk profile. High contribution of AP for which industry has faced elongation of debtor collection is likely to key monitorable and constraining factor for the business risk till the time debtor collection normalizes or the company diversifies the profile to mitigate the impact.

* Comfortable financial risk profile: Financial risk profile remains adequate, backed by net worth of Rs 42 crore and gearing of 0.53 time as on March 31, 2020. Debt protection metrics are expected to improve further with gearing expected to remain low at 0.4 time in fiscal 2021. Cash accruals are expected to increase to Rs 12 crore in fiscal 2021 which will be largely utilized towards funding incremental working capital requirement as capex remains minimal during this fiscal. Expected equity infusion in fiscal 2021 will support capital structure and increasing working capital cycle, and will be a key sensitivity factor. ST borrowings are expected to remain around Rs 20-25 crore as on March 31, 2021 from Rs 22 crore as on March 31, 2020.

Weaknesses:
* Susceptibility to changes in government policies: Government subsidies are a major driver of growth of MIS in India. Subsidies should continue in light of the growing concern over the drop in water level and agriculture productivity. However, players in the MIS sector, including Rivulis, will remain sensitive to government policies as any change in policies or reduction in subsidies could impact demand for MIS. Delay in receipt of subsidies can lead to a stretched working capital cycle.

* Large working capital requirement: The MIS business has large working capital requirement, mainly because of stretched receivables due to significant exposure to government agencies. Rivulis' receivable days have increased to 208 days as on March 31, 2020, from 198 days a year earlier, and 101 Days in fiscal 2017 highlighting the sharp increase over the years, primarily on account of rising exposure to subsidy-linked sales to certain states with longer payment cycle like Andhra Pradesh. Given 20% revenue contribution from AP and expected delay in receipt of debtors from AP, debtors days are expected to remain at current levels in fiscal 2021. The exposure to these states will be mitigated by sound receivables cycle from other states with direct dealer based sales. Operations will remain working capital intensive.
Liquidity Adequate

The Company has adequate liquidity, indicated by an average utilization of 73% (limit of Rs 33 crore) over 6 months ending June 2020. The liquidity is supported by expected cash accruals of Rs 10-15 crore in fiscal 2021. It is further strengthened by the expected equity infusion in fiscal 2021. Rivulis has nil external long term borrowings. Further, the adequate liquidity is backed by support from Rivulis Israel and the Firodia group.

Outlook: Stable

CRISIL believes Rivulis will benefit from its improving market position, backed by its established relationships with farmers, widespread distribution network, and strong research and development capabilities of its parent. Also, Rivulis will maintain its moderate financial risk profile backed by strong support from promoters.

Rating Sensitivity factors
Upward factors
* Substantial increase in revenue and operating profitability, i.e. sustained improvement in operating margin to over 8% and revenue more than Rs 400 crore
* Improvement in debt metrics driven by increase in cash accrual and modest capex or equity infusion from the promoters
 
Downward factors
* Sharp, unanticipated rise in working capital requirement with receivable days rising beyond 220 days resulting higher dependence on external debt
* Any change in government policies regarding subsidies for MIS, or lower revenue growth leading to decline in profitability and deterioration in debt metrics
* Change in parent support or credit risk profile of parent
About the Company

Rivulis was incorporated in 2014 as a 51% subsidiary of Rivulis Israel, with the remaining 49% stake held by the Pune, Maharashtra-based Firodia group.

Rivulis Israel was an erstwhile water business of John Deere & Co and was acquired by private equity player FIMI Opportunity Fund, Israel in 2014. The Firodia group acquired 20% stake in Rivulis Israel in 2015 for Rs 200 crore, and acquired 49% stake in the Indian entity.

Rivulis offers the full line of irrigation products, including drip lines, drip tapes, filters, hose and tubing, sprinklers, sprays and valves and offers. It offers irrigation solutions to farmers through dealers and government nodal agencies. Its products are sold through a network of dealer partners and are used in several segments, including agriculture, horticulture, landscape, and mining. Its manufacturing plant is in Vadodara, Gujarat. Rivulis has 236 employees.

Rivulis is registered as an approved MIS supplier in most states, such as Maharashtra, Gujarat, Karnataka, Kerala, Telangana, Andhra Pradesh, Chhattisgarh, Rajasthan, Punjab, Haryana, Uttar Pradesh, and Uttarakhand. Its products are registered with various Indian government departments under the drip irrigation subsidy scheme.

For 3 months ended June 30, 2020, Rivulis reported Rs 1.8 crore EBITDA on net revenue of Rs 41.7 crore

Key Financial Indicators
 Ending March 31,2019  Unit  2020* 2019
Revenue  Rs.Cr 202 170
Profit After Tax (PAT)  Rs.Cr -2 1
PAT margin  % -0.9 0.5
Adjusted interest coverage  Times 1.76 1.8
Adjusted debt/Adjusted net worth  Times 1.06 0.34
*Provisional

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 (%) Maturity Date Issue Size (Rs.Crs) Complexity Levels Rating Assigned with Outlook
NA Cash Credit* NA NA NA 33 NA CRISIL BBB+/Stable
NA Bank Guarantee NA NA NA 10 NA CRISIL A2
*Interchangeable with non-fund based limit
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
Fund-based Bank Facilities  LT/ST  33.00  CRISIL BBB+/Stable      27-12-19  CRISIL BBB+/Stable      29-12-17  CRISIL BBB/Stable  -- 
            30-03-19  CRISIL BBB+/Stable           
Non Fund-based Bank Facilities  LT/ST  10.00  CRISIL A2      27-12-19  CRISIL A2    --    --  -- 
            30-03-19  CRISIL A2           
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
Bank Guarantee 10 CRISIL A2 Cash Credit* 17 CRISIL BBB+/Stable
Cash Credit* 33 CRISIL BBB+/Stable Letter of Credit 3 CRISIL A2
Total 43 -- Total 20 --
*Interchangeable with non-fund based limit
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 Construction Industry
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support
Mapping global scale ratings onto CRISIL scale

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