KKV Agro Powers Ltd.

Brickwork Ratings assigns the ratings for the Bank Loan Facilities of Rs. 7.15 Crs. of KKV Agro Powers Ltd.

Particulars

Facilities**	Amount(Rs.Crs.)	Tenure	Rating#
Fund Based	7.15	Long Term	BWR BBB - /Stable Assignment
Grand Total	7.15	(Rupees Seven Crores and Fifteen lakhs Only)

#Please refer to BWR website www.brickworkratings.com for definition of the ratings
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure RATING ACTION / OUTLOOK

The assignment of bank loan ratings factors in the established and long track record of the promoter group (erstwhile Chennai Silks group), benefits from the group synergy rendering operational flexibility/ comfort, extensive industry experience of the promoters and the above average financial profile. The ratings, however, are constrained by the low profitability margins in the jewellery segment, susceptibility to volatile in gold prices and the company's exposure to the credit risk profile of its group entities. The ratings are further offset by the susceptibility to regulatory risks associated with the jewellery industry and power generation, limited geographical diversity and high intensity of competition in the jewellery industry. Also, the company’s profitability and debt protection metrics remain sensitive to its operational performance of its wind and solar power plants.

Brickwork Ratings (BWR) notes that KKV Agro had not availed relief under the Covid-19 moratorium package from March-August 2020 in the form of deferred interest payment on Cash Credit facility. BWR also notes the company has not applied for one time restructuring (OTR) of loans under RBI Resolution Framework for Covid-19 related Stress.

The ‘Stable’ outlook indicates a low likelihood of rating change over the medium term. The outlook may be revised to Positive if a sustained significant increase in the scale of operations along with improvement in profitability, diversification in business profile with lowered reliance on group entities, improved geographical presence leading to an overall improvement in the financial risk profile of the company. The outlook may be revised to Negative on decline in credit risk profile of the group companies, change in regulatory environment and significant decline in the operational efficiencies of windmills and solar plant resulting in adverse effect on the financial risk profile of the company.

KEY RATING DRIVERS

Credit Strengths:

Experienced Management :
The company is a part of the erstwhile Chennai Silks group which was founded in 1962 by Mr A Kulandaivel Mudaliar. The group went through the process of demerger among the family members in 2012 with Mr T.K. Chandiran, son of Mr A Kulandaivel Mudaliar entrusted with 2 showrooms at Coimbatore under the brand ‘Sree Kumaran Thanga Maligai’ (SKTM). He possesses around four decades of experience in the jewellery and textile trading as well as power generation plants. The promoter is supported by a team of professionals who carry extensive experience in renewable energy sector. The company continues to benefit from the management’s understanding of the dynamics of the industry.
Above average financial risk profile :
The company's financial risk profile is considered above average as reflected in the total operating income of Rs.319.62 crs in FY21. The profitability margins remained low as reflected in operating margin at 0.57% and net margin at 0.14% in FY21. Tangible Networth is average at Rs. 19.70 Crs as on 31 March 2021. The Gearing is comfortable at 0.15 time as on 31 March 2021. Debt protection metrics were strong with ISCR and DSCR at 30.07 times and 28.01 times as on 31 March 2021 respectively. On a provisional basis as on 31 Jul 21, the company has achieved sales of Rs.80 crs.
Group synergy rendering operational flexibility/ comfort :
The erstwhile Chennai Silks group has been engaged in textile retailing business for nearly five decades under the brand ‘The Chennai Silks’ (TCS) and jewellery retailing business for over two decades under the brand ‘Sree Kumaran Thanga Maligai’ (SKTM). Post demerger also, the group entities continue to carry on their textile/jewellery retailing business under these brands. The company's major portion of revenue is contributed by group companies through sale of power and jewellery. As such the company enjoys preferred supplier status amongst its group companies on account of optimisation of procurement costs.

Credit Risks:

Regulatory risks in the jewellery industry and Renewable power generation. :
The regulatory environment of the retail jewellery industry has impacted the operating environment and consequently, the performance of jewellers in the past. Measures such as limited access to gold metal loans, mandatory permanent account number disclosure requirement for purchases, limitation on jewellery saving schemes, demonetisation and the implementation of the Goods and Service Tax affected both demand and supply in the past, and recently introduced mandatory hallmarking from June 2021 is likely to impact the jewellery industry further. Additionally, the revenue and profitability have direct linkages with demand for renewable energy and development of the industry, and government policies related to promoting the industry with incentives such as accelerated depreciation and tax exemption. Any adverse industry scenario may impact the company's business risk profile.
Intense competition in the jewellery retail industry : :
Jewellery retail industry in India is highly fragmented, with the presence of numerous unorganised players in addition to the large integrated manufacturers, leading to a high level of competition. Presently, the the company's sales are predominantly to its group entities. Apart from TKJL they also supplying to few other retailers like AVR Kumbakonam Silver Shop, Swathi Traders, Sivam Traders etc. BWR notes that the company plans to target B2C segment and improve its modest scale of operation. The company's ability to improve its share of B2C sales and reduction in reliance on business from group companies remains a key rating sensitivity.
Geographical concentration of business and Vulnerability of cash flows to variations in weather conditions :
The company currently operates nine wind power generating assets located at (2) Tirunelveli, (5) Coimbatore districts in Tamil Nadu and (2) Ananthapuram district in Andhra Pradesh apart from a Solar plant in Tirupur, Tamil Nadu. As such, the company’s business is mainly concentrated in southern Tamil Nadu and parts of Andhra Pradesh, thereby exposed to any kind of socio-economic risks in the region. Additionally, the power generating assets are exposed to inherent risks of weather fluctuations leading to variations in wind patterns which can affect the Power Load Factor, the achievement of desired PLF levels is important to sustain revenue and profitability.
Exposure to the credit risk profile of the Group entities and impact of Second wave of COVID 19 : :
The company's power generation and sales from the jewellery segment are primarily for captive needs of the group companies. The company's margins/ profitability and cash flow generation is vulnerable to agreed terms amongst the group entities. Further, BWR expects muted demand in the short term as the credit profile of the group companies is also impacted by the ongoing Covid-19 pandemic with spend on jewellery being considered as discretionary in nature. The present stable credit profile of the group entities viz, The KTM Jewellery Ltd (which is rated BWR BBB+/Stable) amongst others mitigates the associated risks to a certain extent.

ANALYTICAL APPROACH - Standalone

While assigning the ratings, BWR has adopted a standalone approach and applied its rating methodology as detailed in the Rating Criteria

RATING SENSITIVITIES

Ability of the company to significantly scale up its operations and profitability, achieve geographical diversification and the sustenance of the operating performance of its power plant with PLFs remaining above P-90 are key rating sensitivities.
Positive :

Healthy growth in revenues and earnings with improvement in competitive position on a sustained basis.
Significant improvement in the share of B2C sales and reduction in reliance on business from group companies on sustained basis.

Negative :

Weakening of operational revenue on sustained bases.
Material impact on the financial risk profile due to delay in realization of receivables / debt-funded capital expenditure
Specific credit metrics which may result in a rating downgrade include DSCR below unity and gearing above 1.50 times on a sustained basis

LIQUIDITY INDICATORS - Stretched

The liquidity is considered stretched on account of low current ratio at 0.61 time as on 31 Mar 2021 and low level of net cash accruals in FY21. The EBITDA at Rs.1.82 Crs for FY 21 was sufficient to cover the interest and finance charges for FY21 and Net cash accruals covered debt repayments in FY21. However, with the availment of the Term loan during FY22 for the company's ongoing capex on Solar plant, it is expected to increase the interest charges and may impact the already thin margins. BWR also notes the uncertainty of the cash flow from the sale of power to group entities as reflected in the significant downward revision in power tariffs during FY21. The Cash and cash equivalents stood at Rs. 2.30 Crs as on 31 Mar 2021. BWR notes that the company has prepaid ~Rs.0.80 crs during FY22. BWR expects the liquidity profile to supported by the undrawn credit line and the timely infusion of funds by the directors.

ABOUT THE ENTITY

KKV Agro Power Limited was incorporated in June 2012 at Coimbatore TN as Nachas Wind Energy Private Limited to develop and operate power generating assets, particularly in the renewable energy space. The company was converted from a Private limited company to a Public limited company and was rechristened as KKV Agro Powers Limited during the FY16.

The company is a part of Chennai Silks group which is an established player in the textile and jewellery segments in Tamil Nadu. The company is now engaged in manufacturing and trading of gold coins/ bullions to its group entities from FY20 and in trading of Khadi clothes from Q4FY21.

Additionally, it operates nine wind power generating assets with a combined capacity of 7,600 KW located at (2) Tirunelveli, (5) Coimbatore districts in Tamil Nadu and (2) Ananthapuram district in Andhra Pradesh. The company also operates a 1000 KW Solar Power plant at Tirupur district in Tamil Nadu. Power generated from these assets located in TamilNadu is for captive needs of the group companies viz, The KTM Jewellery Limited, Space Textiles Private Limited (STPL) etc and power generated from assets located in Andhra pradesh unit is sold to Government of Andhra Pradesh.

Mr. T. K. Chandiran and Ms. C Selvi. A.C. Vineeth Kumar, Arunkumar Chandrasekaran, B Mohan and VN Chandrasekaran are the directors in this company.

The company shares are listed on the SME platform of the National Stock Exchange of India Ltd

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	319.62	39.28
EBITDA	Rs.Crs.	1.82	3.47
PAT	Rs.Crs.	0.46	2.90
Tangible Net Worth	Rs.Crs.	19.70	19.53
Total Debt/Tangible Net Worth	Times	0.15	Not Available
Current Ratio	Times	0.61	1.77

RATING HISTORY FOR LAST THREE YEARS (including withdrawal and suspended)

Facilities	Current Rating (2021)			2020		2019		2018
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating
Fund Based	LT	7.15	BWR BBB-/Stable (Assignment)	NA	NA	NA	NA	NA	NA
Grand Total		7.15	(Rupees Seven Crores and Fifteen lakhs Only)

COMPLEXITY LEVELS OF THE INSTRUMENTS - Simple

BWR complexity levels are meant for educating investors. The BWR complexity levels are available at www.brickworkratings.com / download / ComplexityLevels.pdf. Investors queries can be sent to info@brickworkratings.com.

Hyperlink/Reference to applicable Criteria

Analytical Contacts
Kaushik Srikanth V Rating Analyst kaushik.s@brickworkratings.com	Saakshi Kanwar Senior Manager Ratings saakshi.k@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

KKV Agro Powers Ltd.

ANNEXURE-I

Details of Bank Facilities rated by BWR

SL.No.	Name of the Bank/Lender	Type Of Facilities	Long Term(Rs.Crs.)	Short Term(Rs.Crs.)	Total(Rs.Crs.)
1	HDFC Bank	Cash Credit - Sanctioned	1.25	_	1.25
2	HDFC Bank	Term Loan - Sanctioned	5.90	_	5.90
Total			7.15	0.00	7.15
TOTAL (Rupees Seven Crores and Fifteen lakhs Only)

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