Rationale

 The revision in the outlook on the long-term rating of Astec LifeSciences Limited (Astec or the Company) factors in the continued improvement in its business performance as demonstrated in FY2022. While healthy demand scenario, especially in the overseas markets, provided a fillip to the company's revenues, cost optimisation measures such as backward integration, steady supply of raw material at cost effective rates supported the improvement in operating profit margins (OPM). ICRA also notes the increasing share of exports in the revenue pie, and Astec's plans to attain higher business diversification going forward. The company commercialised its herbicides plant in August 2021. Incremental revenue contribution from this new business division is expected to provide higher diversification to the company over the medium term. The ratings continue to factor in the established track record of Astec in the agrochemicals business, and its reputed clientele comprising largemultinational corporations (MNCs) in the domestic and exports market. The ratings also derive comfort from Astec's strong parentage as part of the Godrej Group, which imparts financial flexibility. ICRA notes that Godrej Agrovet Limited (GAVL, Astec's parent entity, rated [ICRA]AA (Stable)/[ICRA]A1+) has been gradually increasing its stake in Astec (63.29% as on March 31, 2022), which indicates the company's strategic importance to GAVL and the Godrej Group. ICRA expects GAVL to provide financial support to Astec, should there be a need. Given the strong linkages between Astec and GAVL, the movement in the credit profile of GAVL would be a key rating monitorable for Astec. The ratings factor in the company's healthy financial profile characterised by comfortable capitalisation and moderate coverage indicators as reflected in Total Debt/Net Worth or TD/TNW of 0.7 times, Total Debt/ OPBDITA1 of 1.8 times and interest coverage of 17.3 times as on March 31, 2022. While there might be some interim weakening of debt metrics over the near term due to the ongoing and planned sizeable capital expenditure, expected cash flows from the same once operations commence would strengthen the financial profile of the company. In line with the industry trend, the company's revenues remain susceptible to the vagaries of monsoons and the regulatory risks associated with the ban of products by regulatory authorities upon review or change in regulations. However, these risks are partially mitigated by Astec's geographically diversified revenue profile, spanning across both domestic and exports market. Exports contributed ~58% to Astec's revenues in FY2022, highlighting the healthy geographic diversification. However, since Astec operates in the off-patent and commodity chemical markets, its revenues remain susceptible to global demand and supply dynamics and the resultant pricing pressures. One of Astec's key products, Propiconazole, was banned in the European markets in June 2019. Despite the impact of ban, the share of Propiconazole in company's total sales has increased over the last two fiscals as the demand for this product remained strong in other geographies. The ratings consider the vulnerability of Astec's profit margins to the fluctuations in raw material prices and its ability to pass on the same to its customers in a timely manner. However, its backward-integrated operations mitigate this risk to a certain extent. Astec currently has concentrated portfolio of products in the triazole segment. However, ICRA notes the company's planned efforts towards diversification by setting up the herbicides manufacturing facility, which commenced operations in August 2021. The new products are likely to result in margin expansion and reduce product concentration risk, going forward. Furthermore, it is making investments for setting up a new research and development (R&D) facility, which is expected to significantly enhance its R&D capabilities and will facilitate its new product development plans and thus benefit from the opportunities that the global demand shift from China may present for the Indian entities.