CRISIL Ratings has reaffirmed its 'CRISIL BBB/Stable' rating on the long-term bank facilities of Crop Chemicals India Ltd (CCIL).

The rating continues to reflect the extensive experience of CCIL's promoters in the agricultural chemicals industry. The rating also factors in the diversified product portfolio and customer base of the company, its established distribution network, and comfortable financial risk profile. These rating strengths are partially offset by the modest scale of operations, large working capital requirement and exposure to intense competition and inherent risks in the agrochemicals business

Strengths:

Extensive experience of the promoters in the agro-chemicals industry: The promoters started trading in agro chemicals in the 1970s, and over the years, they have diversified into manufacturing of formulations. Mahla Ram Goyal, the Managing Director, has spent almost five decades in the industry, while his sons, Vinod Goyal, Mr Rajinder Goyal and Chander Goyal have an experience of over two and half decades each. Their longstanding presence, strong understanding of market dynamics and healthy relationships with suppliers and customers, have supported revenue growth amidst the pandemic.

Diversified product portfolio, wide customer base and established distribution network: The company manufactures a wide variety of pesticides, weedicides, fungicides, biofertilisers, herbicides, micro-nutrients and various plant growth regulators, and has an active portfolio of over 200 products. Pesticides contribute to nearly 60% of the overall revenue, followed by herbicides and other bio-fertilisers (16%), and plant growth regulators, (15%). The top five products have accounted for 18-23% of revenue over the past three fiscals. A diverse product portfolio has enabled the company to establish a wide customer base, wherein the top 10 customers constituted 25-30% of total operating revenue over the same period. The strong dealer network has helped expand the company's reach across various cities. CCIL has a network of around 5,000 distributors and 15 depots across India.

Comfortable financial risk profile: Networth stood at Rs 37.9 crore as on March 31, 2020, and is likely to improve, backed by steady accretion to reserves over the medium term. Gearing and total outside liabilities to tangible networth ratios were moderate at 1.25 times and 1.96 times, respectively, as on March 31, 2020, aided by modest reliance on payables. Debt protection metrics were comfortable, reflected in interest coverage ratio of 2.73 times for fiscal 2020. Net cash accrual to adjusted debt ratio was slightly low at 0.07 time as on March 31, 2020, though bulk of the existing debt is short-term in nature.

Weaknesses:

Modest scale of operations: CCIL has entered new markets in the past two fiscals, and set up depots in Jaipur, Raipur, Aurangabad and New Delhi. Operating income rose to Rs 147 crore in fiscal 2021, from Rs 125 crore in fiscal 2020. Revenue and margin will be realised from the new depots gradually, as it will take time to establish the brand and sustain customer loyalty. Hence, scale of operations may remain modest in the medium term. 

Exposure to intense competition and inherent risks in the agro-chemicals industry: The domestic agrochemicals industry remains vulnerable to erratic monsoons and the ban on products by the government. Further, presence of spurious pesticides and insecticides, could endanger the brand equity of players and damage crop production. Intense price and product competition among local players and multinational corporations (MNCs), further limits the bargaining power with customers.

Highly working capital-intensive nature of operations: Gross current assets (GCAs) were high at 289 days as on March 31, 2021, driven by receivables and inventory of 175 days and 107 days, respectively, owing to an increase in the number of sales depots. Bulk of inventory is in the form of finished goods at depots, and the company has to offer longer credit to new depots, to increase sales and retain customers. However, working capital management is aided by payables (125 days as on March 31, 2021) and bank debt. Delay in payments from farmers amid the pandemic and farmer protests in the country, led to a stretch in receivables, and this remains a key monitorable.

Liquidity: Adequate

Bank limit utilisation was moderate, averaging around 75% for the 12 months ended June 30, 2021. Expected cash accrual of Rs 4.5-5 crore should comfortably cover the term debt obligation of Rs 2.3 crore over the medium term. Current ratio was healthy at 1.51 times on March 31, 2021. Cash and bank balance was around Rs 3 crore as on the same date.  

Outlook Stable

CRISIL Ratings believes CCIL will continue to benefit from the extensive experience of its promoters in the agrochemical business, and its diversified product portfolio and customer base and established distribution network.