CRISIL said that the rating upgrade reflects a belief that the business and financial risk profiles of DCGL will continue to strengthen, driven by significant increase in revenue and profitability and raising of capital through initial public offering (IPO).
Revenue grew 35% (on-year) to Rs 530 crore in fiscal 2023, backed by increasing branded sales, expanding distributor network and geographic presence foraying into the business-to-consumer segment. The company also manufactures and sells general insect and pest control chemicals for Public Health and Animal Health protection.
Revenue grew to an estimated Rs 414 crore during the first half of fiscal 2024, from Rs 358.81 crore in the first half of fiscal 2023, while the operating margin improved to 12.0% from 10.5%. Further, the project has been completed and ramp up of the operations will remain a key monitorable.
The ratings also factor in comfortable financial risk profile, reflected in high networth of Rs 318.42 crore and low gearing of 0.16 time as on 31 March 2023, which are expected at more than Rs 350 crore and 0.10-0.11 time, respectively, as on 31 March 2024, due to sustained accretion to reserve and gradual debt repayment.
Capital structure is likely to improve further, in the absence of any large, debt-funded capital expenditure (capex). Liquidity is adequate, backed by low bank limit utilisation, sufficient accrual to meet debt obligation, unencumbered cash and cash equivalents and unsecured loans extended by the promoters.
The ratings consider extensive experience of the promoters in the agricultural (agro)-chemicals industry, diversified product portfolio, wide customer base, established distribution network and strong financial risk profile.
These strengths are partially offset by exposure to large working capital requirement, intense competition and inherent risks in the industry.
Dharmaj Crop Guard manufactures agrochemicals such as pesticides, insecticides, herbicides and fungicides at its facility in Ahmedabad, Gujarat.