| Sharda Cropchem Limited | ||||
| Rating reaffirmed at 'CRISIL A1+ ' | ||||
| Rating Action | ||||
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| 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 the company driven by healthy product registrations, dominant presence in 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 agrochemicals industry.
Operating performance improved substantially in fiscal 2022, with revenue growth of 49.3% aided by volume growth of 24% This was driven by 46% growth in the agrochemical sector (Rs 3,004 crore against Rs 2,058 crore in the previous fiscal) and 71% growth in the non-agrochemical sector (Rs 576 crore against Rs 338 crores). Strong demand for agrochemicals from the USA and Europe and favourable product mix also aided growth, which is likely to remain steady over the medium term on the back of increasing market penetration and addition of products to the portfolio. The non-agrochemical segment comprising conveyor belts, dyes and intermediates (16% of total revenue in fiscal 2022), posted better than expected recovery in fiscal 2022 was after being impacted by the pandemic in fiscal 2021.
Operating margins stood at 20.3% in fiscal 2022 compared to 20.5% in fiscal 2021 due to a slight rise in raw material and freight costs during the fiscal. With raw material costs escalating sharply, gross margin fell by about 110 basis points for the full fiscal. Over the medium term, margin is expected to remain healthy at 18-20%, driven by increasing share of new products, the company policy of choosing profitable products and geographies, and continuous cost-control measures.
SCL has been consistently investing in product development and registrations. In fiscal 2022, it spent Rs 413 crore for this, funded through internal accrual. The company is expected to spend Rs 400-450 crore per annum towards new product registrations in order to sustain growth momentum.
Financial risk profile should remain healthy, backed by strong capital structure aided by healthy networth of Rs.1913 crores as on March 31, 2022, and an almost debt free balance sheet. Further, strong cash accruals of Rs.600-700 crores per annum, should be adequate to fund capital expenditure (capex) and incremental working capital requirements. Liquidity is supported by estimated cash surpluses of about Rs 300 crore in March 2022. |
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 The annual cash accrual of SCL is expected to be Rs 600-800 crore over the medium term. Total cash equivalents and liquid marketable securities remained healthy at about Rs 300 crore as on March 31, 2022. Though the company does not have a sizeable cash credit facility, it maintains at least Rs 150 crore as unencumbered liquid surplus even during times of peak working capital requirement. Cash accrual and liquid surplus should be comfortable to meet annual capex of Rs 400-450 crore and incremental working capital requirement. |
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 that comprise 86% of overall sales, while the remaining comes 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 March 31, 2022, the Sharda group had 2,686 registrations. Additionally, it has filed 1,130 applications for registrations globally, which are pending at different stages. The group is present in the entire agrochemical 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: 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 Direct subsidiaries:
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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This Annexure has been updated on 05-Jul-2022 in line with the lender-wise facility details as on 18-Aug-2021 received from the rated entity.
Criteria Details
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