Focus On Exports Required

Excel Industries Ltd

Fixed deposit programme: FAA (Reaffirmed)

Rationale: The FAA rating assigned to the Fixed Deposit programme of Excel Industries Ltd (Excel) has been reaffirmed, indicating that the degree of saf-ety regarding timely payment of interest and principal is strong.

Excel is engaged in the manufacture and sale of phosphorus based compounds, pesticides and pesticides intermediates. Excel has a strong market position in the business of phosphorus and its compounds, producing a third of yellow phosphorus made in the country and dominating the phosphorus pentasulphide (P2S5) and phosphorous trichloride (PCL3) segments. However it faces stiff competiti-on from United Phosphorus Ltd (UPL) which also has a strong presence in these compounds.

 

Excel has a formidable product mix with pesticides like chlorpyriphos (CLP) and glyphosate (GP) which are the largest selling insecticide and pesticide in the world respectively. However, Excel has not translated this strength into high growth rates in exports of these products. The company would have to increase the thrust on exports in these products and through new product introductions to achieve high sales growth. Considering the seasonality of the domestic agrochemical industry and its high dependence on rainfall, higher quantum of exports would help to insulate Excel from the vagaries of domestic monsoons.

Excel is the largest domestic manufacturer of endosulfan (ES) technical, a broad spectrum pesticide, which contributes to almost 68 per cent of the pesticide sales. Excel has also increased the formulation sales of ES and its profitability from this product is high because of its low cost of production resulting from its backward integration to key intermediate called Butenediol. However, Excel continues to have a high dependence on imports for a key intermediate Hexa Chloro Cycle Pentadine (HCCP). Considering the stiff competition which ES faces from newer generation of pesticides like acephate, quinalphos, etc. Excel would have to concentrate on new products introductions.

Although operating income has grown at a CAGR of 12 per cent over the last four year, margins at the OPBDIT have been consistently falling due to the high employee and power costs and increase in manufacturing and other overheads. Interest and depreciation as a percentage of operating income have almost remained constant. The declining operating margin has resulted in a lower profitability at the APAT level and a general decline in interest coverage ratios (PBDIT/Interest and finance ch-arges). However, gearing has fallen due to higher percentage increase in a accretion to res-erves against total borrowings.

Business: Excel became a public limited company in 1964 and had its maiden public issue in 1971. The day affairs are looked after by the Shroff family who currently are one of the major shareholders of the company, the other major shareholder being the Tata group represented by Darbari Seth.

Excel manufactures endosulfan, a broad spectrum insecticide. Butendiol and HCCP are the key raw materials used in the manufacture of endosulfan. Excel manufactures Butenediol to meet part of its requirement. The balance requirement of butenediol and the total requirement of HCCP is currently imported. Excel has increased the manufacturing capacity of butenediol. Apart from these, Excel also manufactures aluminum phosphide, a fumigant, zinc phosphide, arodenticide and glyphosate, a herbicide.

Excel makes yellow phosphorous by the electric are process which entails a high consumption f electricity. Margins on yellow phosphorous are poor and hence Excel concentrated on making and sale of downstream value added products like phosphorus pentasulphide (P2S5) and phosphorus trichloride (PC-K3), where margins are better.

Prospects: ES is likely to remain the main contributor to pesticide sales in the future. The lower cost of raw materials will reflect positively on the future profitability. Considering the favourable position which products like CLP and GP enjoy in the international market, Excel needs to intensify its export marketing efforts to enhance exp-orts. Excel needs to introduce new products to reduce the dep-endence on endosulfan. The gr-owth in the phosphorous industry is likely to be relatively higher in future due to the higher growth in the major user industries - pesticides and pharma.

Key Issues: Demand for most of Excel