Rationale

 The rating reaffirmation for Astec LifeSciences Limited (Astec) continues to factor in its established track record in the agrochemicals business, and reputed clientele comprising large multinational corporations (MNCs) in the domestic and exports market. ICRA also notes the dominant share of exports in the revenue pie, and Astec’s plans to attain higher business diversification, going forward. 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 (64.75% as on December 31, 2024, from 52.28% as on December 31, 2015), which indicates the company’s strategic importance to GAVL and the Godrej Group. GAVL has also been providing financial support to Astec by way of inter-corporate deposits (ICDs) as per its requirements, and ICRA expects GAVL to continue to do so, whenever needed. The ratings, however, continue to remain constrained by the high product concentration risks faced by Astec, due to its dependence on a few key generic molecules for a major proportion of its revenues, demand for which has been volatile in the recent past. ICRA notes that Astec’s operating performance over the past few quarters has been weak on account of subdued demand conditions given the challenges being faced by the global agrochemical industry, especially in its key product segments of triazole fungicides. With higher-than-average channel inventory in these product segments in domestic and overseas markets in the recent quarters on account of multiple reasons such as lower liquidation, unfavourable weather conditions and destocking strategies, the volume off-take from its key customers as well as realisations have been muted over the past few quarters, although the company has liquidated most of its high-cost inventory by December 2024, providing some comfort in this regard. Consequently, Astec’s operating profit margin (OPM) reduced from 13.4% (FY2023) to -0.1% (FY2024) and sizeable operating losses reported in 9M FY2025. The entity is facing unprecedented competition in the global market from the Chinese players, and ICRA expects pricing pressures for few of the Astec’s key products to continue in the coming quarters due to the said competition in the global agrochemicals market. Nevertheless, with demand for few of the key enterprise products gradually picking up in recent months, Astec has liquidated the high-cost inventory in Q2 and Q3 FY2025 and has demonstrated sequential recovery in performance through this period. The credit metrics of the company are likely to remain suppressed over the near term. Nevertheless, ICRA notes that the company has commissioned a research and development (R&D) center at Rabale (Maharashtra) and expanding its presence in the higher margin contract development and manufacturing (CDMO) segment so as to mitigate the risks related to product concentration and protect itself from the volatilities of the commoditised enterprise market. capex outlay over the near to medium term, as focus remains on enhancing the capacity utilization, thereby improving the profitability. In line with the industry trend, the company’s revenues remain susceptible to the vagaries of monsoons and seasonality associated with business. However, these risks are partially mitigated by Astec’s geographically diversified revenue profile, spanning across both domestic and export markets. 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 movements as visible in the performance over the past few quarters. The ratings also 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. While Astec currently has a concentrated portfolio of products in the triazole segment, ICRA notes the company’s planned efforts towards diversification by expanding in the herbicide segment, with the new products are likely to mitigate this going forward. The company has also made investments towards a new R&D facility, which would augment its new product development capabilities and thus benefit from the opportunities that the global demand shift from China may present for the Indian entities. The company also plans to implement process optimization through R&D initiatives, in order to support margin expansion, going forward. The negative rating outlook reflects a sustained deterioration in the profitability and coverage indicators of the company, with the company incurring operating losses in 9M FY2025, and expectations of the slowdown in operational performance to continue over a few more quarters. While the muted performance of Astec’s enterprise segment continuing in 9M FY2025, deferment of a few contracts resulted in underperformance in the contract manufacturing segment as well. Sizeable capex incurred by the company in the past two years (FY2023-FY2024), coupled with suppressed profitability, is expected to exert pressure on the capital structure over the near to medium term