Best Agrolife Ltd.

Brickwork Ratings assigns the ratings for the Bank Loan Facilities of Rs. 111.50 Crs. of Best Agrolife Ltd.

Particulars

Facilities**	Amount(Rs.Crs.)	Tenure	Rating#
Fund Based	55.00	Long Term	BWR A - /Stable Assignment
	(25.00)
	(25.00)
	(25.00)
Non Fund Based	56.50	Short Term	BWR A2 + Assignment
	(9.50)
	(37.00)
	(8.50)
	(30.00)
Grand Total	111.50	(Rupees One Hundred Eleven Crores and Fifty lakhs Only)

#Please refer to BWR website www.brickworkratings.com for definition of the ratings
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure RATING ACTION / OUTLOOK

 

Brickwork Ratings (BWR) has assigned the long- and short-term ratings of Best Agro Life Limited (BAL or the company) at BWR A- (Stable) and BWR A2+ respectively for its bank loan facilities, underpinned by its strong business profile and an improvement in the credit/financial risk profile and financial performance in FY21 and H1FY22, in turn driven by a growing EBITDA and PAT in the resilient agrochemical business, along with comfortable credit ratios. The ratings factor in the company’s long and established track record of operation, experienced management, strong distribution network, diversified and branded product profile/portfolio and a shift to value-added products, appropriate risk management policy, expected synergies from the acquisition of group entity Best Crop Science Private Limited, good growth in the scale of operations, and profitability, coupled with a healthy financial risk profile. The rating, however, is constrained by inherent business risks including the susceptibility of profitability margins to an adverse movement in raw material prices, forex rates, competitive nature of the industry, high working capital intensity and susceptibility to changes in regulations and the seasonality inherent in the agrochemicals sector.

The rating outlook is Stable on account of a sound demand outlook for the agrochemical industry for both the short and medium term due to its essential nature; it was hence not much impacted by the Covid-19 pandemic. The outlook is Stable also because the company showed improvements in performance on a sustained basis until H1FY22, and the scale of operations and credit profile are expected to improve further in the near and medium term, as per BWR estimates.

KEY RATING DRIVERS

Credit Strengths:

• Established track record of operation and experienced management :

  Mr. Vimal Kumar is the managing director and has vast experience in the agrochemical industry. He is supported by other directors, who are professionally running the company. The group has a distribution network with more than 3000 distributors and direct dealers, and over 1500 retail points across the country, with 14 stock points. BWR believes the group will continue to benefit from its experienced management and long track record of operation in the agrochemical industry. BAL’s corporate governance is good as it is a listed company and it has two independent directors, leading to a diversified board of directors.

• Good growth in scale of operations and profitability :

  BAL clocked an operating income of Rs. 905.4 Crs in FY21 as compared to Rs. 690.7 Crs in FY20 at a growth rate of 31.1%, led by price realization growth of 49%, offset by volume de growth of 12%. It is anticipated that the entire group will be able to register growth of ~40 % in FY22 due to volume growth of 13% and a 25% improvement in prices, coupled with the expected completion of the acquisition of group entity Best Crop Science Private Limited in FY22 and the commencement of operations of a newly formed 100% subsidiary Seedlings  India Private Limited. BAL’s operating profitability improved to Rs 51.2 Crs in FY21 as against Rs 19.4 Crs in FY20, and the PAT improved from Rs 8.3 Crs in FY20 to Rs 37.1 Crs in FY21. BAL registered an operating income of Rs 668.94 Crs, an EBITDA of Rs 72.41Crs and a PAT of Rs 50.96 Crs in H1FY22 as compared to Rs 650.6 Crs, Rs 14.99 Crs and Rs 9.06 Crs, respectively, in H1FY21. The composition of value-added/specialized products stood at 25% and generic products stood at 75% in FY21, which is expected to improve to 75% and reduce to 25%, respectively, in FY22; this composition is expected to be sustained in future as well, which will improve profitability, going forward. 

• Healthy financial risk profile :

  BAL's financial risk profile remained healthy, marked by a strong net worth, gearing and debt protection metrics. BAL’s net worth stood at Rs.130 Crore as on 31 March 2021, as against Rs.189 Crore as on 31 March 2020; this decline is led by a change in the accounting treatment due to the amalgamation of Best Agro Life Limited and Best Agrochem Private Limited. The gearing level (debt-equity) stood at 0.25 times as on 31 March 2021 as against 0.40 times as on 31 March 2020, and stood at 0.36x as on 30 September 2021. Leverage of BAL is low as Net debt/EBITDA stood at 0.6 x and (0.1) x respectively as on 31st March 2020 and 31st March 2021.  The interest coverage ratio (ISCR) improved to10.80 times in FY21 as against 3.0 times in FY20, and further improved to 26.34 times in H1FY22. The net cash accruals to total debt (NCA/TD) ratio stood high at 1.01 times in FY21 as against 0.42 times in FY20. BWR expects the group’s financial risk profile to remain healthy over the medium term on account of the high net worth and continuation of strong debt protection metrics after the acquisition of group company Best Science Private Limited in the medium term.

• Diversified and branded product profile /portfolio coupled with shift to value added products :

  BAL's product portfolio is well-diversified into the trading of agrochemical products such as insecticides, pesticides, herbicides, fungicides and plant nutrients. This diversified product portfolio results in non-dependence on a single product. While the overall contribution of direct branded sales remained low at ~17% in FY21, most of the wholesale sales, which contributed ~83% of sales in FY21, is to reputed customers with a very low counterparty credit risk. The composition of value-added/specialised products stood at 25% and generic products stood at 75% in FY21, which is expected to improve to 75% and reduce to 25%, respectively, in FY22; this composition is expected to be sustained in future as well, which will improve profitability, going forward.

• Appropriate risk management policy :

  BAL has an appropriate risk management policy in terms of credit risk and commodity price risk. The company manages credit risk by monitoring outstanding debts reviewed regularly by accounts receivable to determine the most appropriate debt recovery action in accordance with outstanding general debtors procedures, which outlines the timely and efficient administration of outstanding general debtors. The company’s standard credit arrangement with debtors is that payments are due within 30-75 days of the invoice date. For commodity price risk, BAL does not keep a large inventory when compared relatively among peers; there is also a pass-through hedge mechanism with end customers.

• Expected synergies from acquisition of group entity Best Crop Science Private Limited :

  The company announced the acquisition of group entity Best Crop Science Private Limited on 22 September 2021, which will result in business and financial synergies from FY22 onwards. This will result in an increased market share, overall increased EBITDA and PAT margins, the resolution of storage and logistic problems, provision of access to experts in the production and R&D divisions and overall risk diversification as one additional manufacturing and R&D division will be added. The acquisition is backward-integrated in nature and is expected to be completed by Q3FY22.

Credit Risks:

• Working capital-intensive nature of operation :

  The company’s working capital management is intensive in nature, marked by gross current assets (GCA) of 124 days in FY21, as against 161 days in FY20. The inventory and debtor levels stood at 49 days and 59 days in FY21 as against 41 and 96 days in FY20, respectively. However, the same are supported by creditors of 59 days in FY21 as against 105 days in FY20. The average utilization of fund based limits stood low, at ~74% in the last six months ending September 2021. The working capital requirements are expected to continue to remain intensive over the medium term on account of high inventory and debtor days.

•  Susceptibility of profitability to volatility in input prices and fluctuations in forex rates :

  Profitability remains susceptible to supply disruptions and a steep increase in input prices due to limited pricing flexibility in the competitive domestic formulations business. Furthermore, the company does not hedge its forex exposure. Consequently, profitability is susceptible to adverse forex movements. However this risk is expected to be mitigated if the company increases it’s share of derivative /forward cover limits, going forward.

• Exposure to competition, and susceptibility to changes in regulations and seasonality inherent in the agrochemicals sector :

  The domestic agrochemical formulations industry has a large number of unorganised players with a regional presence. As BAL was majorly into generic molecules until FY20, it faces intense competition from both organized and unorganized players in the domestic market. Therefore, having an established brand name is relatively essential in this industry, along with the continuous addition of value-added products in the product offerings. Additionally, the domestic agrochemicals sector is dependent on monsoons and the level of farm income. The industry is, therefore, linked to the quantum, timing and distribution of rainfall during a year, exposing the company’s revenue to seasonal trends. Besides, surplus or inadequate rainfall could hit the company’s profitability and lead to a build up in the working capital requirement. BAL’s business performance, like that of other agrochemical manufacturers, may also be impacted by changes in regulatory requirements, such as export and import policies, registration policies, and product and environment safety requirements in India and abroad.

ANALYTICAL APPROACH - Standalone

BWR has applied the consolidated approach to Best Agrolife Limited and group entities Best Crop Science Private Limited , Seedlings India Private Limited . Consolidation of group entity Best Crop Science Private Limited will come effect from Q3 FY 22 as acquisition was announced on 02 Sep 2021. Seedlings India Private Limited and is 100 % subsidiary of Best Agrolife Limited in FY 21. Best Crop Science Private Limited is expected to be a 100 % subsidiary of Best Agrolife Limited in FY 22.. For detailed information view hyperlinks below . BWR has used the consolidated projections for FY 22 and FY 23 to arrive at a consolidated approach of the entire group.

RATING SENSITIVITIES

Positive: BWR may revise the ratings upward if there is a sustained improvement in BAL’s and the group’s scale of operations and credit profile, with the ability to achieve net margins above 10% over the medium term. 

Negative: BWR may revise the ratings downwards if there is a sustained deterioration in the company’s EBITDA and debt protection metrics and/or a stretch in its working capital/liquidity. 

LIQUIDITY INDICATORS - Superior

The company registered cash accruals of Rs 40.03 Crs in FY21 against repayment of Rs 1.08 Crs. The cash and cash equivalents stood at ~ Rs 33 Crs in FY21 as against Rs 22 Crs in FY20 . The cash and cash equivalents stood at Rs 11.45 Crs as on 30 September 2021. The average liquidity index/cover is expected at around 2.36 x in FY22-23. Working capital utilisation for the last six months ending September 2021 stood at 74% for fund-based and 76 % for non-fund based limits.

ABOUT THE ENTITY

Best Agrolife Limited is a public limited listed company incorporated in 1992. The company is engaged in the trading of agrochemical products such as insecticides, pesticides, herbicides, fungicides and plant nutrients. The company’s crop protection chemical products are sold through distributors and co-marketing alliances with leading Indian companies throughout the country. It has a distribution network with more than 3000 distributors and direct dealers, and over 1500 retail points across the country, with 14 stock points. The company also sells products through its own brand name ‘Best’. 

The company has almost 60+ products, 80+ technical manufacturing licenses, 360+ formulation licenses, 30,000+ MTPA manufacturing formulation capacity and a 7000+ MTPA integrated state-of-the-art technical plant, one of the country's most comprehensive portfolios. 

Formulations are registered with the Central Insecticides Board of the Government of India. 

For R&D strength, the company has an NABL accreditation, ISO-certified labs and a state-of-the-art laboratory stocked with the latest instruments and tools. 

• The merger of Best Agrochem Private Limited (Transferor Company) with Best Agrolife Limited (formerly Sahyog Multibase Limited) happened on 05 May 2020. This was a reverse merger, and Sahyog Multibase Limited was a sick unit. 
• Best Agrolife Limited was listed on the BSE /NSE on 05 May 2020. 
• Group company Best Crop Science LLP was converted to Best Crop Science Private Limited on 28 August 2021. The proposed acquisition of Best Crop Science Private Limited was announced on 02 September 2021. Group entity Seedlings India private Limited was incorporated in FY21.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	905.44	689.91
EBITDA	Rs.Crs.	51.18	19.37
PAT	Rs.Crs.	37.07	8.26
Tangible Net Worth	Rs.Crs.	125.10	79.23
Total Debt/Tangible Net Worth	Times	0.25	0.43
Current Ratio	Times	1.51	1.28

RATING HISTORY FOR LAST THREE YEARS (including withdrawal and suspended)

Facilities	Current Rating  (2021)			2020		2019		2018
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating
Fund Based	LT	55.00	BWR A-/Stable (Assignment)	31Mar2020	BWR BBB-Stable (Reaffirmation)	09Apr2019	BWR BBB-Stable (Assignment)	NA	NA
		NA	NA	03Nov2020	BWR Withdrawn (Withdrawn)	NA	NA	NA	NA
FB SubLimit	LT	(25.00)	BWR A-/Stable (Assignment)	NA	NA	NA	NA	NA	NA
		(25.00)	BWR A-/Stable (Assignment)	NA	NA	NA	NA	NA	NA
		(25.00)	BWR A-/Stable (Assignment)	NA	NA	NA	NA	NA	NA
Non Fund Based	ST	56.50	BWR A2+ (Assignment)	31Mar2020	BWR A3 (Reaffirmation)	09Apr2019	BWR A3 (Assignment)	NA	NA
		NA	NA	03Nov2020	BWR Withdrawn (Withdrawn)	NA	NA	NA	NA
NFB SubLimit	ST	(9.50)	BWR A2+ (Assignment)	NA	NA	NA	NA	NA	NA
		(37.00)	BWR A2+ (Assignment)	NA	NA	NA	NA	NA	NA
		(8.50)	BWR A2+ (Assignment)	NA	NA	NA	NA	NA	NA
		(30.00)	BWR A2+ (Assignment)	NA	NA	NA	NA	NA	NA
Grand Total		111.50	(Rupees One Hundred Eleven Crores and Fifty lakhs Only)

COMPLEXITY LEVELS OF THE INSTRUMENTS - Simple

BWR complexity levels are meant for educating investors. The BWR complexity levels are available at www.brickworkratings.com / download / ComplexityLevels.pdf. Investors queries can be sent to info@brickworkratings.com.

Hyperlink/Reference to applicable Criteria

• General Criteria
• Approach to Financial Ratios
• Trading Entities
• Consolidation of Companies

Analytical Contacts
Karan Ahluwalia Senior Rating Analyst Board : +91 11 2341 2232 karan.a@brickworkratings.com	Tanu Sharma Director - Ratings tanusharma@brickworkratings.com
1-860-425-2742 | media@brickworkratings.com

SL.No.	Name of the Bank/Lender	Type Of Facilities	Long Term(Rs.Crs.)	Short Term(Rs.Crs.)	Total(Rs.Crs.)
1	ICICI Bank	Cash Credit - Sanctioned	9.50	_	9.50
	Sub-Limit (ILC) - Sanctioned		(9.50)
2	ICICI Bank	Derivative Limit - Sanctioned	_	1.50	1.50
3	ICICI Bank	Working Capital Demand Loan - Sanctioned	8.50	_	8.50
	Sub-Limit (ILC) - Sanctioned		(8.50)
4	Punjab National Bank	Cash Credit - Sanctioned	37.00	_	37.00
	Sub-Limit (ILC/FLC) - Sanctioned		(37.00)
5	Standard Chartered Bank	ILC/FLC - Sanctioned	_	25.00	25.00
	Sub-Limit (Overdraft and Short term loans) - Sanctioned	(25.00)
6	Yes Bank	ILC/FLC - Sanctioned	_	30.00	30.00
	Sub-Limit (Bank Guarantee) - Sanctioned		(30.00)
	Sub-Limit (Cash Credit) - Sanctioned	(25.00)
	Sub-Limit (Working capital demand loan) - Sanctioned	(25.00)
Total			55.00	56.50	111.50
TOTAL (Rupees One Hundred Eleven Crores and Fifty lakhs Only)