| Sharda Cropchem Limited | ||||
| Rating reaffirmed at 'CRISIL A1+' | ||||
| Rating Action | ||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||
| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL A1+’ rating on the short-term bank facilities of Sharda Cropchem Ltd (SCL).
The rating continues to reflect the healthy business risk profile of SCL, driven by healthy product registrations, dominant presence in the regulated markets of NAFTA and Europe, and healthy financial risk profile. These strengths are partially offset by inherently working capital-intensive operations that peak during January-March, and susceptibility of operations to uneven monsoon and regulatory changes inherent in the agricultural chemicals (agrochem) industry.
SCL saw revenue decline 28% decline to Rs 1,851 crore in the first nine months of fiscal 2024 (Rs 2,563 crore in the corresponding period of fiscal 2023), led by a 30% fall in the agrochem segment and ~20% in the non-agrochem segment. The lower revenue was a result of ~6.6% decline in volume and ~21% fall in realizations. Revenue from the agrochem segment (contributed 77% to overall revenue during the first nine months of fiscal 2024) declined to Rs 1,424 crore from Rs 2,032 in the corresponding period of the previous fiscal, owing to slowdown in demand with distributors/customers delaying purchases because of excess inventory, and a sharp dip in realizations. Within the agrochem segment, revenue from Europe and NAFTA, the major geographies, suffered owing to drought conditions in Europe and adverse weather conditions in NAFTA. Revenue from Europe declined ~21% to Rs 678 crore in the first nine months of fiscal 2024 from Rs 857 crore in the first nine months of fiscal 2023, while NAFTA was down 41% to Rs 484 crore from Rs 818 crore.
Gross margin corrected steeply to 19.8% for the first nine months of fiscal 2024 from 28.0% in the corresponding period of the previous fiscal, majorly due to fall in realizations and inventory write-downs and sales returns, especially during the first quarter of fiscal 2024. Though the operating margin improved on a quarter-on-quarter basis to 11% in the third quarter of fiscal 2024 (3.70% in the second quarter and negative 9.30% in the first quarter), it contracted on a nine-month basis to 1.7% from12.7% in the first nine months of fiscal 2023. With realizations stabilizing and demand conditions likely improving, the profitability is expected to improve gradually. Longer-than-anticipated turnaround in operating performance due to ongoing macro challenges and its impact on the business profile will remain monitorable.
SCL has been consistently investing in product development and registrations. In the first nine months of fiscal 2024, it spent Rs 276 crore on product registrations, funded through internal accrual. The company may continue investing in product developments and registrations to build a pipeline for sustained growth.
The financial risk profile should remain healthy, backed by strong capital structure aided by healthy tangible networth of Rs 2097 crore as on December 31, 2023, and an almost debt-free balance sheet. Healthy cash surplus and strong cash accrual should be adequate to fund capital expenditure (capex) and incremental working capital requirement. Liquidity is supported by estimated cash surplus of about Rs 370 crore as on December 31, 2023. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of SCL and its subsidiaries as all the entities, collectively referred to as the Sharda group, are in the same business and managed by common promoters.
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:
Weaknesses:
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Liquidity: Strong SCL had a healthy liquid surplus of Rs 370 crore as on December 31, 2023 (Rs 329 crore as on March 31, 2023). Net cash accrual is expected to moderate to Rs 170-180 crore in fiscal 2024, but, along with cash surplus and efficient working capital management, will be adequate to meet capex of Rs 350 crore during the fiscal (Rs 276 crore of capex already undertaken in the first nine months of the fiscal). Net cash accrual is expected to increase gradually over the medium term and will be sufficient to fund capex of Rs 300-350 crore annually. Though the company does not have a sizeable cash credit facility, it maintains at least Rs 200 crore as unencumbered liquid surplus even during times of peak working capital requirement, supporting its liquidity profile. |
Rating Sensitivity factors Downward factors:
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About the Group SCL was formed in 2004 through a merger of two proprietorship firms, Sharda International and Bubna Enterprises, founded in 1987 and 1988, respectively. The company primarily deals in generic agrochemicals, which comprise 86% of overall sales, with the remaining coming from trading in dyes and dye intermediates, and conveyor belts. In 2004, SCL set up Sharda International FZE (SI), a wholly owned subsidiary, in Dubai. In 2012, SI was merged with SCL. A new entity, Sharda International DMCC, was formed in fiscal 2013.
As on Sep 30, 2023, the Sharda group had 2,885 registrations. Additionally, it has filed 1130 applications for registrations globally, which are pending at different stages. The group is present in the entire agrochem value chain with 500 third-party distributors and over 400 sales personnel serving clientele in more than 80 countries. |
Key Financial Indicators
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Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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Annexure – List of entities consolidated
Indirect subsidiaries
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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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Criteria Details
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