ICRA has upgraded the long-term rating of Dhanuka Agritech (DAL) to A+ from A for Rs 500 million fund based facilities.
The outlook for the long-term rating is stable. ICRA has also upgraded the short-term rating to A1+ from A1 for Rs 50 million non-fund based limits of DAL.
The rating action factors in the strong revenue growth witnessed by DAL during H1-FY2014 driven by increased agricultural activity during the Kharif crop season, on the back of good monsoon; increasing revenue contribution for DAL from speciality products (formulations manufactured under tie-ups with established international technical manufacturers); and the marketing initiatives undertaken by the company to enhance its brand presence.
This has enabled DAL to improve its profitability margins, which has consequently led to robust internal accrual generation, strengthening the liquidity profile of the business. Thus the company's working capital requirements are increasingly funded by cash flow generation with low dependence on debt. This has resulted in low gearing levels and robust debt coverage indicators.
ICRA has also taken note of prospects of increased agricultural activity during the ongoing Rabi crop season, on account of good monsoons; thus providing revenue growth opportunities for the industry participants including DAL. The company continues to constantly streamline its product portfolio, regularly introducing new products and discontinuing weaker products. DAL also has some speciality products in the pipeline, to be launched over the next few years; which is expected to support the future revenue growth.
However these products require development and marketing expenses and revenue generation from the same is contingent on their market acceptance. The ratings also continue to factor in the company's established operational track record and long experience of the promoters in the agrochemical industry; DAL's long standing associations with reputed international technical manufacturers; and its diversified presence across all the regions of the country and across product categories, thereby largely mitigating risks related to adverse demand for any particular geography, crop or chemical. DAL is further supported by its established brand and a well entrenched distribution network.
Going forward, the company's ability to maintain its revenue growth and profitability margins in light of competitive pressures, manage its working capital intensity and the capex / investment plans would be the key rating sensitivities.
Shares of the company declined Rs 10.15, or 5.04%, to settle at Rs 191.40. The total volume of shares traded was 57,099 at the BSE (Thursday).
