Rationale

 The ratings factor in the healthy credit profile of the company and expectations of the trend continuing, going forward, though the operating margins are likely to moderate in the current fiscal owing to elevated raw material prices. The ratings also factor in the planned backward integration into manufacturing technicals which is expected to provide raw material security as well as expand the contribution levels. ICRA expects the cash generation from operations along with ~Rs. 222.67 crore of cash at hand at the end of FY2022 to remain adequate to meet the capex requirements as well as cash outflow to investors in the form of dividends/buybacks, leading to no reliance on external debt. The performance of the company in FY2022 was marked by healthy revenue growth with the increase in realisation and volume growth. The operating margins continued to be healthy, leading to strong cash generation and net cash position. The performance is expected to moderate marginally in FY2023 given the increase in the raw material prices which has impacted the operating margins. Nevertheless, the cash flows are expected to remain robust to keep the credit profile healthy, going forward. Additionally, the ratings factor in DAL's established market position, supported by its diverse product portfolio (across all agrochemical categories), strong brand presence, wide distribution network and geographical presence in the domestic market. Its long-standing relations with reputed international technical manufacturers, which enable it to regularly introduce specialty formulations, also support the ratings. DAL's liquidity position remains comfortable on the back of healthy internal accrual generation, robust free cash balances/liquid investments, undrawn bank lines and no debt repayment liability. However, the ratings are constrained by the moderately high working capital intensity of the business, intense competition in the industry that limits the pricing flexibility of industry participants, including DAL, and the susceptibility of operations to any adverse regulatory development related to manufacturing/sales of agrochemicals or any discontinuation of tie-ups with international technical manufacturers. Moreover, DAL's revenues and profitability remain vulnerable to agroclimatic conditions, volatility in raw material prices and foreign exchange rates, given that part of the raw material requirement is met through imports. ICRA notes that the management had in the past demonstrated support towards the inorganic growth plans of DLL, although currently no support has been extended to the entity. Any materially large support to the Group's ventures would remain a key monitorable. The Stable outlook on the rating reflects ICRA's expectation that DAL's credit profile will remain comfortable, going forward, driven by healthy cash generation coupled and large cash balances at hand which should allow the company to comfortably meet the capex requirement and remain free from long-term debt.