CRISIL’ ratings on the debt instruments and bank facilities of Rallis India Ltd (Rallis) continue to reflect Rallis’s established position in India’s crop protection market, its strong focus on research and development, and its strong financial risk profile marked by low gearing. These rating strengths are partially offset by Rallis’s vulnerability to risks inherent in the agrochemicals market in India.

Rallis has established itself as one of the major players in the Indian crop protection market over the past few years, staving off competition from global and domestic majors. The company has a strong position in all the three major segments of the pesticide industry–insecticides, fungicides, and herbicides; this has enabled it to diversify its revenue base.

Rallis, through its farmer relationship programme, Rallis Kissan Kutumba (RKK), has enhanced its engagement with customers by providing them with information on new and improved agricultural practices. Rallis’ other initiative, More Pulses (MoPu), which was launched two years back in Tamil Nadu to increase pulses productivity, extended to Maharashtra and Karnataka. Rallis has continually introduced new products to maintain its competitive position and meet market requirements. Rallis’s seven brands feature among the top 12 recalled brands in the Gallup customer engagement survey. Furthermore, Rallis has been consistently improving its product-mix, thereby maintaining its strong operating performance. CRISIL believes that Rallis will maintain its competitive position in the domestic agrochemicals market, supported by its strong brand image, over the medium term.

Rallis has a strong financial risk profile marked by low gearing. As on March 31, 2011, Rallis had a gearing of 0.24 times. The company’s debt protection metrics are also at comfortable levels, with interest coverage ratio 27 times for 2010-11 (refers to financial year, April 1 to March 31). The company is likely to grow through the organic and inorganic routes. CRISIL believes that Rallis will fund its capital expenditure (capex) with a prudent mix of debt and equity, which will help it maintain its financial risk profile.

Rallis is exposed to seasonality in the domestic agrochemical industry, which is highly dependent on the monsoon and the level of farm income. The company derives a large portion of its total revenues from the domestic market (about 75 per cent of sales in 2010-11). In order to diversify its revenue profile, the company has set up a facility to meet increasing demands of its international customers including contract manufacturing. CRISIL believes that increase in revenues from the international business, including contract-manufacturing business, will improve Rallis’s business risk profile further over the medium term.

For arriving at the ratings, CRISIL has combined the business and financial risk profile of Rallis and its subsidiary, Metahelix Life Sciences (MLS).This is because of the close operational and financial linkages between the entities.