CRISIL reaffirms Bayer Cropscience rating after Bayer's Schering acquisition

Rs 800 Million Short Term Debt Programme P1+ (Reaffirmed)

CRISIL has re-affirmed the rating on the short-term debt programme of Bayer CropScience Limited (Bayer CropScience). This follows the announcement by Bayer AG (Bayer AG- rated A / A-1 by Standard & Poor's) to acquire Schering AG, (Schering) a Germany-based pharmaceuticals group (rated A/A-1 by Standard & Poor's). Standard & Poor's has placed the ratings of both Bayer AG and Schering AG on 'Credit Watch with Negative Implications'.

The rating of Bayer CropScience reflects the technological, management, and financial support it receives from the parent. The outcome of the Credit Watch with Negative Implications means that Bayer AG's rating could be reaffirmed or lowered. CRISIL believes that even if a downward revision in Bayer AG's rating takes place, it will not materially affect the Indian entity's short-term credit risk profile. Further, in CRISIL's opinion, the Asia-Pacific region, and India in particular are strategically important to Bayer AG's growth plans. CRISIL therefore expects Bayer CropScience to continue to receive support from its parent.

Bayer CropScience's rating also reflects its established position in the domestic agrochemicals market with a 22 per cent market share and its strong financial risk profile. Following the merger of Bayer CropScience India Limited and Bayer (India) Limited, Bayer CropScience's credit profile has improved considerably, with an increase in its net worth. Bayer CropScience enjoys considerable financial flexibility because of a strong liquidity position, as reflected in its current ratio of 1.6 times as on December 31, 2004 and unutilised bank lines of about Rs 1.1 billion.

However, Bayer CropScience's profitability is exposed to risks such as erratic monsoons, intense competition from spurious pesticides and insecticides, and the emergence of BT cotton, a genetically modified (GM) cottonseed variety. Moreover, the company's operations are working capital intensive, engendering high inventory and credit sales.

Bayer CropScience is a subsidiary of Bayer AG the German pharmaceutical, material science, and crop science major. Its brand, Confidor is the country's best selling pesticide. The company manufactures formulations and sources technicals from Bayer AG. For the year ended December 2004, Bayer CropScience reported a profit after tax of Rs 0.26 billion (Rs 0.35 billion in the previous year) on the net sales of Rs 7.2 billion (Rs 8.5 billion).