| UPL Limited | ||||||
| Long-term rating placed on 'Watch negative'; short-term rating reaffirmed | ||||||
| Rating Action | ||||||
| ||||||
| ||||||
| 1 crore = 10 million | ||||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
|
CRISIL has placed its 'CRISIL AA+' rating on the long-term bank facilities and non-convertible debentures of UPL Ltd (UPL; part of the UPL group) on 'Rating Watch with Negative Implications', and reaffirmed its 'CRISIL A1+' rating on the company's short-term bank facility and commercial paper programme. |
| Analytical Approach |
|
CRISIL has combined the business and financial risk profiles of UPL and its subsidiaries, as all the companies, collectively referred to as the UPL group, are under a common management and have close operational linkages and fungible cash flow. CRISIL 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 factors in UPL's share in the profit of these entities and any incremental investment required. |
| Key Rating Drivers & Detailed Description |
|
Strengths * Large scale with diverse geographical presence and wide product portfolio The UPL group is one of the top players in the global agrochemicals industry. The revenue base is well diversified, with 80% generated from markets such as Latin America, Europe, and the US, in fiscal 2017. Wider geographic reach reduces susceptibility to cyclicality in demand from any one region. The group is also present across the crop lifecycle, from seeds, seed-treatment products, pre- and post-harvest products, to storage-treatment products. CRISIL believes UPL's business risk profile will remain healthy, post the acquisition, also aided by a combined portfolio of 13,000 registrations and over 200 active ingredients. * Sound operating efficiencies supporting healthy profitability Backward integration and supply-chain management have strengthened operating efficiencies. As a sizeable portion of raw material and power requirement is met in-house, the group is assured a steady supply, with lesser price volatility. Flexible and multi-product manufacturing facilities, and the robust supply chain and distribution network have kept operating margin healthy at 16-20% over the five fiscals through March 2018. Post-acquisition, with backward integration likely to result in significant cost saving for the combined entity, operational efficiencies could be enhanced further. * Adequate financial risk profile; albeit moderation expected in credit metrics in near term Financial risk profile is supported by sufficient operational cash flows and sizeable adjusted networth of Rs 8,732 crore as on March 31, 2018. Healthy cash balance of Rs 2,894 crore, and gearing and net gearing, at 0.84 time and 0.51 time, respectively, as on March 31, 2018, lend further comfort. With improved profitability, gross and net debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) ratios were steady at 2.09 and 1.26 times, respectively in fiscal 2018 (2.16 and 1.18 times in fiscal 2017). Interest coverage and net cash accrual to total debt ratios were also adequate for fiscal 2018. The proposed acquisition is likely to be funded through a substantial debt component (~ USD 3 billion), and may result in increased leverage over the near to medium term. Post-acquisition, the gross debt-to-EBITDA of the combined entity is expected to weaken, and be in the range of 4-4.3 times in fiscal 2019. The management is however, committed to reducing debt levels over the long term. Nevertheless, CRISIL believes improvement in the financial risk profile is dependent on successful implementation of the acquisition plan, and benefits from synergies through the acquired entity. Weaknesses * Large working capital requirement The crop protection business is seasonal in nature. Sales occur at the start of the season, but payment is realised post-harvest, thus resulting in large receivables. Further, as goods are manufactured at one place and distributed to other locations, sizeable stock of finished goods needs to be maintained. The large credit required by customers in key Latin American markets also leads to a stretch in the working capital cycle (316 days of gross current asset days). However, CRISIL believes the company will contain the exposure to markets with long credit cycle to less than one-third of its revenue, thereby mitigating impact of a stretched cycle on the overall credit profile. * Susceptibility to risks inherent in the agrochemicals sector The crop-protection sector remains susceptible to specific and separate registration processes in different countries, and various environmental rules and regulations. Change in regulatory requirements, such as export and import policies, and environmental and safety requirements in countries where the company has significant exposure, could weaken growth prospects. Further, the sector is also highly dependent on monsoon and level of farm income. Hence, timing and distribution of rainfall during a year, plays a crucial role. About the UPL Group Incorporated in 1969 and promoted by Mr Rajju Shroff, UPL manufactures, markets, and distributes crop protection products, intermediates, specialty 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 its product profile and increase its geographical reach. The UPL group now includes 96 entities. Apart from UPL Ltd, 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 group has manufacturing units in India, France, the Netherlands, Argentina, the UK, Vietnam, Turkey, Brazil, and Columbia. About Arysta Arysta is an agrochemical company with almost entire production process outsourced from third parties in various geographies, such as China, Eastern Europe, and India. Arysta owns about 800 domestic and foreign patents, and approximately 6,800 product registrations. Arysta specializes in the development, formulation, registration, marketing and distribution of differentiated crop Protection solutions, including BioSolutions and Seed treatments, for a variety of crops and applications. The company has presence in over 100 countries globally. |
| 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) | |||||||||||||||||||||||||||||||||||||||||||||||||
#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. |
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
| For further information contact: | ||||||
|