CRISIL revises outlook on the long-term bank facilities of Tagros to 'Positive' from 'Stable

The company has a pipeline of three new molecules to be launched between fiscals 2021 and 2022.

CRISIL ratings on the bank facilities of Tagros Chemicals India Private Limited (Tagros) continue to reflect Tagros's healthy market presence and product offerings, presence across geographies, steady increase in product registrations and tie-ups with leading agrochemical (MNCs), and healthy operating efficiency due to backward integrated operations and strong in-house research and development (R&D) capability.

The ratings are also supported by the company's comfortable and improving financial risk profile, and healthy liquidity. These strengths are partially offset by product concentration, exposure to inherent risks in the agrochemical industry and large working capital requirement.

On 7th December 2020, CRISIL had revised its outlook on the long-term bank facilities of Tagros to 'Positive' from 'Stable, while reaffirming the rating at 'CRISIL AA-'; the short-term rating had also been reaffirmed at 'CRISIL A1+'.

The outlook revision follows belief that Tagros's business risk profile will strengthen further over the medium term supported by sustained growth in existing products and expected contributions from new projects in pipeline which will also help augment product diversity. Besides, healthy cash generation along with expected moderation in capital expenditure (capex) should enable the company to improve credit metrics further, while maintaining healthy surplus liquidity.

According to CRISIL, revenue is expected to grow at over 10-12% in the medium term, while operating profitability should remain strong at over 25%. In the current year, Tagros is increasing its capacity at Dahej and is also adding a new multi-product plant at Cuddalore.

The former will be fully operational, in phases, before March 2021 and the latter is expected to commence commercial production in January 2021. Business performance will benefit from scaling up of these new capacities, which in turn, is partly backed by increased off-take from key multinational corporations (MNCs), including top 10 large global agrochemical companies.

Furthermore, the company has a pipeline of three new molecules to be launched between fiscals 2021 and 2022 that along with potential opportunities in new business segments should augur well for strong revenue visibility and improved product diversity over the medium term. Earlier in fiscal 2020, Tagros registered a revenue growth of 32% while the operating margin improved to 30.5% from 23.7% in fiscal 2019.

Tagros was in an expansion mode with cumulative capital spend of about Rs 500 crore since fiscal 2019, including Rs 180 crore in the current fiscal. Going forward, capital spend is expected to moderate to around Rs 80-100 crore per annum over the medium term, which will be largely funded from internal accruals. Gradual reduction of debt, expected healthy cash accruals and further build-up in liquid surplus (cash and cash equivalents were in excess of Rs 400 crore as on Oct 30, 2020) will continue to support financial risk profile; the company's gearing is likely to remain below 0.7 time.

Outlook: Positive

Tagros's business risk profile will improve further over the medium term supported its new capacities, new product launches, strong existing product and registration portfolio, tie-ups with leading agrochemical MNCs, and healthy operating efficiency. The company is also expected to sustain its comfortable financial risk profile and healthy liquidity position.