| UPL Limited | ||||||
| Ratings reaffirmed at 'CRISIL AA+ / Stable / CRISIL A1+ '; rated amount enhanced for Bank Debt | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ratings on the bank facilities and commercial paper of UPL Ltd (UPL) at ‘CRISIL AA+/Stable/CRISIL A1+’.
The reaffirmation factors in expectation of continued improvement in UPL’s debt metrics over the medium term, supported by sizeable cash generation from operations, moderate capital spending and prudent working capital management.
UPL registered a strong operating performance in fiscal 2021, supported by healthy growth across geographies; revenue grew by a healthy 8% year on year. Favorable product mix, cost synergies and cost-optimization measures benefitted operating margins, which improved 220 basis points to 22.1%. During 1H fiscal 2022, the company continued to report healthy growth of 14% Y-o-Y against corresponding period of previous year, supported by steady offtake across geographies. Further, company has been able to maintain its healthy operating margins during the first half despite inflationary environment, due to favorable region mix and price increases.
Supported by company’s healthy business risk profile, strong R&D pipeline, and healthy presence in large markets like Latin America (LATAM), revenue growth should remain in high single digits over the medium term. Further, investments in digital platform (Nurture farm and Natural Plant protection, NPP) is also expected to support revenue growth. Profitability should benefit from rising share of higher margin bio-solutions as well as improving cost efficiencies. Operating margin should remain healthy at ~over 20-22%.
The ratings continue to reflect UPL’s strong business risk profile supported by a strong market position, geographical diversification in revenue, and healthy profitability backed by sound operating efficiencies, leading to sizeable annual cash generation. Financial risk profile is expected to remain adequate and debt metrics improve gradually over the medium term. These strengths are partially offset by large working capital requirement and susceptibility to risks inherent in the agrochemical sector. |
Analytical Approach To arrive at its ratings, CRISIL Ratings has combined the business and financial risk profiles of UPL Ltd and its subsidiaries, collectively known as UPL. This is because all these companies are under a common management and have close operational linkages and fungible cash flows. CRISIL Ratings follows a moderate integration approach for investment in associates and joint ventures in which UPL has significant influence but not a controlling interest—specifically, CRISIL Ratings factors in UPL's share in the profit of these entities and any incremental investment required.
Goodwill on the acquisition of Arysta is being amortised over a period of 15 years commencing from fiscal 2019. Consequently, reported PAT, net worth, and ratio computations are adjusted.
USD denominated Perpetual Subordinated Capital Securities (Bonds) of USD 400 Million (interest coupon rate of 5.25% p.a.) raised by UPL Corporation Ltd (subsidiary of UPL) has been treated as 50% debt and 50% equity
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:
UPL’s management is committed to reducing debt levels further over the medium term. Along with strong operating performance and continuing healthy cash flow generating ability, net debt to EBITDA is expected to reduce to below 2.4 times in fiscal 2022 and below 2.00 times in fiscal 2023. Any sizeable debt funded acquisition will remain a credit monitorable.
UPL Corp's minority investors, Abu Dhabi Investment Authority and TPG Capital Asia, each with ~11% stake, and who had invested in UPL Corp to support the acquisition of Arysta have the option to sell their stakes, to which UPL has right of first refusal. While the stake sale is unlikely in next 1-2 years, any material debt addition by UPL to buy back these stakes in UPL Corp from these investors, and consequent increase in its leverage will be another key credit monitorable.
Weaknesses
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Liquidity: Strong Cash and cash equivalents stood at Rs 2868 crore as on September 30, 2021 (Rs 4,853 crore as on March 31, 2021). Utilisation of domestic fund-based working capital limits was moderate at about 44% (of drawing power) for the 12 months ending October 2021. While the company is expected to reduce its cash surpluses and pay down debt over a period of time, liquidity is still expected to remain strong over the medium term, supported by healthy cash generation (in excess of Rs. 5000 crore annually), and notwithstanding large working capital requirements. Annual capital expenditure (capex) of about Rs 2,500 crore is also expected to be funded largely from internal accruals.
The company has modest annual repayments of Rs 110 crore and Rs 135 crore in fiscal 2022 and 2023, which can be serviced from annual accruals. However, the debt repayments are sizeable at almost Rs 11000 crore in the fourth quarter of fiscal 2024, and will require part refinancing. Given that the company has been able to arrange large funding in timely manner in the past, CRISIL Ratings expects the company will also be able to refinance required portion of their obligations in fiscal 2024. |
Outlook Stable CRISIL Ratings believes the UPL group’s business risk profile has improved significantly by the acquisition of Arysta, propelling it to the position of the fifth-largest player in the global agrochemical space and the fourth-largest seed manufacturer. Better scale and business synergies, as well as product mix in favour of higher margin products, are expected to also help improve sustain operating profitability at over 20-22% over the medium term, benefitting cash generation. This along with progressive debt reduction, will help keep debt metrics at comfortable levels over the medium term. |
Rating Sensitivity factors Upward Factors
Downward Factors
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About the Company Incorporated in 1969 and promoted by Mr Rajnikant Shroff, UPL manufactures, markets, and distributes crop protection products, intermediates, speciality chemicals, and other industrial chemicals; and undertakes research in these segments. Over time, UPL has made several acquisitions and entered into strategic alliances to diversify product profile and increase geographical reach. The group now includes over 200 entities. Apart from UPL, the other key operating companies in the group are United Phosphorus Inc (US), United Phosphorus Ltd (UK), Cerexagri SAS, Icona SA (Argentina), Decco US Post Harvest Inc, and UPL do Brasil Industria e Comercio de SA (Brazil). The company has manufacturing units in India, France, the Netherlands, Argentina, the UK, Vietnam, Turkey, Brazil, the USA, China, Thailand, Italy, Australia, and Columbia. |
Key Financial Indicators
^CRISIL Ratings-adjusted numbers for treatment of goodwill |
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)
# Fully interchangeable between cash credit, working capital demand loan, foreign currency non-resident (Bank) loans, packing credit in INR, packing credit in foreign currency, export bill discounting in INR and foreign currency, buyer's credit for imports and domestic purchases, and domestic sales bill discounting. It can also be converted into non-fund-based facilities. ** It can be converted into non-fund-based facilities. |
Annexure – List of entities consolidated
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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 03-Dec-2021 in line with the lender-wise facility details as on 03-Dec-2021 received from the rated entity.
Criteria Details
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