rating rationale for bharat group
Some key points noted:
Mr. R.P. Gupta, whole of time director of BRL and BRAL and director of BIL, has over 30 years of experience in the agrochemical industry
The group has a market leadership in many technical products including Clodinafop Propargyl (Herbicides), Lambda Cyhalothrin (Insecticides), Thiamethoxam (Insecticides) and Fipronil (Insecticides) among others for which the group is a preferred supplier**. Though there is a product concentration risk as the top 10 products of BRL accounts for around 56% of total net sales of BRL in FY18 (PY: 70%) and around 61% of net sales of BRL in H1FY19.** Further, the group has a large institutional customer base in the domestic market as well as in the international market with long standing relationship and low client concentration risk. In the international market, the group has strong presence in East Asia, South America, Europe and Middle East. Domestic sales account for around 85% of total combined gross sales of Bharat group in FY18 (85% in FY18) and around 90% in H1FY19. The group has a network of approximately 3,500 dealers and 30,000 distributors for supplies spread across the country and have 23 branches in all the operating states. The top 5 customers of the BRL excluding the group companies (BIL & BRAL) accounts for Rs. 223.33 crore of sales in FY18 (Rs. 117.98 crore of sales in FY17 and Rs. 73.81 crore of sales in FY16) which is around 35% of total sales of the company excluding sales to group companies (around 25% of total sales in FY17 and around 22% of total sales in FY16).
al segment of the group by around 36% from Rs. 465 crore in FY17 to Rs. 634 crore in FY18 as a result of good monsoon and increased realizations on back of continued good relationships with their existing clients and further addition of new customer base in both domestic as well as overseas markets. PBILDT margin of the group improved marginally from 19.72% in FY17 to 19.85% in FY18 with increased contribution of technical segment from 35% of total group sales to 42% of total group sales. During FY18, increased prices of crude oil has resulted in high prices of raw material but the company had successfully passed on the increased prices to its customers. Bharat Group is having a good customer base, with whom they are dealing with years and on a fixed gross margin basis. Therefore, increased in raw material doesn’t had a much impact on their profitability margins. PAT Margin of the group also improved from 9.88% in FY17 to 11.85% in FY18 with increase in scale of operations and same interest and depreciation expenses.
. Further, due to the seasonal demand for pesticides, the group is required to stack up variety of products as inventory in advance of the season resulting in high inventory holding period which is a common phenomenon across pesticide industry. This increases the inventory holding cost. Further, since pesticides are the last link in the agricultural operation, after having invested in seeds, fertilizers, etc., the farmers have little surplus money for purchasing pesticides. Therefore, providing credit is necessary to stimulate demand. Also, although BRL receives credit period of 90 days from its suppliers, however, the company makes early payments to its suppliers on account of early payment discount, resulting in average creditor period of around 24 days. Thus, due to such intrinsic nature of business, the group’s working capital requirement continues to remain high.
BRL is also importing raw materials for manufacturing of technical grade pesticides. Imports formed around 50% of total raw material requirements of BRL. So, the foreign exchange fluctuation risk is reduced partially on account of natural hedge