| Tagros Chemicals India Private Limited | ||||||
| Rating Action | ||||||
| ||||||
| 1 crore = 10 million | ||||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
|
CRISIL ratings on the bank facilities of Tagros Chemicals India Private Limited (Tagros) continue to reflect a diversified revenue profile, strong portfolio of product registrations, tie-ups with leading agrochemical multi-national companies (MNCs), and healthy operating efficiency due to backward integrated operations and strong in-house research and development (R&D) capability. These strengths are partially offset by exposure to inherent risks in the agrochemical industry and working capital-intensive operations. |
| Analytical Approach |
|
For arriving at the ratings, CRISIL has combined the business and financial risk profiles of Tagros and its subsidiaries, GAPL, Natagros PTY Ltd, Cropchem PTY Ltd, Calchem PTY Ltd, Tagros Chemicals Andiana SAS, Tagros Argentina SRL, Tagros Brazil Comerico de produtos Quimicos Ltda, Tagros Chemical Corporation De Mexico, S.DE R. L. DE C.V, and Tagros Chemicals (Bangladesh) Pvt Ltd. All these entities have been together referred to herein as Tagros. |
| Key Rating Drivers & Detailed Description |
|
Strengths * Diversified revenue across products, end-user applications, and geographies More than 80% of revenue is derived from exports, while the balance is from the domestic market. The company exports to over 90 countries spread across Asia, Europe, North America, Latin America, and Africa. Pyrethroids, which account for a major share of revenue (60-65%) are used in both crop protection and the non-agricultural space such as public health, veterinary drugs, and household insecticides. Moreover, the company has been diversifying its product portfolio in the past few years by increasing focus on herbicides and enhancing capacities for this. Hence, the concentration towards pyrethroids has reduced from 80% 3-4 years earlier. * Strong portfolio of product registrations across the globe The presence in the global market is supported by an extensive portfolio of product registrations. There are over 460 registrations across North America, Latin America, Europe, Asia, and the Middle East. The company continues to focus on expanding its geographic reach through steady increase in registrations. * Tie-up with leading global agrochemical companies There are strong tie-ups with global players such as BASF SE (rated 'A/Stable/A1' by S&P Global Ratings) and Nufarm Ltd (rated 'BB/Negative', by S&P Global Ratings). The company has been supplying to BASF for over a decade. The strong registration portfolio and process skills have enabled it to strengthen these relationships. Recently, it also secured another supply contract with significant offtake potential for the new capacity. Revenue from sales through tie-ups is expected to be 40-50% compared with 20% 4-5 fiscals earlier. The company is expected to leverage these relationships while introducing new products as well. * Healthy operating efficiency driven by backward integration and in-house R&D capability Operations are almost fully backward integrated. The company has the capability to manufacture a series of key active intermediates in-house and, hence, is one of the low-cost producers of synthetic pyrethroids. Meta phenoxy benzaldehyde (MPB) and cypermethric acid chloride (CMAC) are key intermediates and these are being produced in house or by GAPL. As a result the company's import dependence is also low at about 30%. Further, the company has a strong in-house R&D team which focuses on new product launches and process improvement. Robust process chemistry skills and backward integration should result in sustenance of healthy operating profitability of over 22% over the medium term as well. * Strong financial risk profile The networth is estimated at around Rs 500 crore and the gearing at around 0.71 time as on March 31, 2019. Debt protection metrics were also comfortable, with interest coverage ratio estimated at around 10 times for fiscal 2019. However, prior to fiscal 2016, the gearing was moderately high at around 1.30 times due to debt-funded expansions. Thereafter, improving cash generation driven by healthy profitability and prudent working capital management led to significant improvement in the gearing. Capex is expected to moderate to Rs 60-90 crore per fiscal over the medium term; this, along with healthy cash generation and progressive repayment of project loans should result in further improvement of the gearing and debt protection metrics. Weaknesses * Exposure to inherent risks in the agrochemical sector The agrochemical industry is highly regulated by specific and separate registration processes in different countries, and is subject to various environmental rules and regulations both in domestic and overseas markets. Tagros is mainly an exporter and remains sensitive to changes in government policies and regulations in end-user countries. Any change in export and import policies of these countries will also have an impact on Indian agrochemical manufacturers. Further, any ban on key products will pose a threat to business levels of these players. The company's products are off-patent molecules and the competitive advantage lies in process chemistry. Therefore, it is at risk of addition of newer products to the generics portfolio as molecules go off-patent and also to introduction of newer molecules in the market as substitutes for existing products by innovators. * Working capital-intensive operations Operations of companies in the agrochemical sector are typically working capital intensive. Gross current assets are estimated at around 180 days as on March 31, 2019. Considering the steady growth prospects, prudent working capital management will remain critical to sustain the healthy financial risk profile. |
| Liquidity |
|
Liquidity is healthy, driven by expected cash accrual of above Rs 240 crore per fiscal in fiscals 2020 and 2021, and cash surplus of over Rs 250 crore as on May 31, 2019. Average utilisation of the fund-based bank limit of Rs 297.5 crore was 55% during the six months through May 2019. There is long term repayment obligation of Rs 58 crore and Rs 67 crore in fiscals 2020 and 2021, respectively, which can be adequately serviced from the cash accrual. Besides, as no major capex is planned in the medium term, regular maintenance capex and incremental working capital requirement is expected to be met through available bank lines, cash accrual, and cash surplus. |
| Outlook: Stable |
|
CRISIL believes Tagros's business risk profile will continue to benefit over the medium term from its diversified revenue profile, strong registration portfolio, tie-ups with leading agrochemical MNCs, and healthy operating efficiency. The financial risk profile is expected to benefit from healthy cash generation and reducing capex. The outlook may be revised to 'Positive' in case of further improvement in product diversity and higher-than-expected revenue, while healthy profitability and credit metrics are maintained. The outlook may be revised to 'Negative' if business performance is weaker than expected due to any significant delay in ramping-up operations or low offtake by MNCs. Higher-than-expected, debt-funded capex, or any undue stretch in the working capital cycle, weakening the financial risk profile, may also result in a 'Negative' outlook. |
| About the Company |
|
Tagros is part of the Jhaver group based in Chennai. The group was started in 1894 by Mr R Srikrishna Jhaver as a trading and distribution company. Over time, it expanded into diverse fields such as drugs, pharmaceuticals, agrochemicals, zippers, textile chemicals, coated fabrics, pesticide formulations, and information technology. |
| Key Financial Indicators | ||||||||||||||||||||||||
|
|
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
*Interchangeable with proposed short term, fund based and non-fund based facilities | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - List of entities consolidated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
*Interchangeable with proposed short term, fund based and non-fund based facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| For further information contact: | ||||||
|