RATING RATIONALE
21Jan2021
ALM Industries Ltd.
Brickwork Ratings assigns the ratings for the Bank Loan Facilities of Rs.145.73 Crs. of ALM Industries Ltd.
Particulars| Facilities** | Amount (Rs.Crs.) | Tenure | Rating# | ||||
|---|---|---|---|---|---|---|---|
| Fund Based | |||||||
| PC/PCFC/FDB/BRD/FBE Sanctioned | 69.00 | Long Term | BWR BBB - /Stable Assignment | ||||
| Bill Discounted (BD) Sanctioned | 69.00 | ||||||
| Covid -19 Emergency Line Credit Sanctioned | 07.73 | ||||||
| Sub Total | 145.73 | ||||||
| Grand Total | 145.73 | (Rupees One Hundred Forty Five Crores and Seventy Three lakhs Only) | |||||
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure RATING ACTION / OUTLOOK
STABLE
BWR has assigned the long term rating of BWR BBB- (stable) for the bank loan facilities of ALM Industries Limited(AIL).
The outlook is stable as the company has been able to achieve growth in revenues year on year basis. BWR believes that the company will continue to benefit from the healthy demand for buffalo meat in the export market and its established track record in the meat-processing business.
The ratings takes into consideration the extensive experience of the promoter Mr. Fazlur Rehman and Mr. Jamshed Ali for more than 4 decades in the meat processing industry and other allied businesses , a well established customer base diversified across domestic as well as overseas market, consistent growth in revenues with adequate credit metrics. However, the rating is constrained due to intense competition in the industry owing to a large number of unorganized players, thin net profit margins, moderate working capital intensity, leading to high utilization of working capital limits and the fact that the industry is prone to regulatory risks.
BWR has essentially relied upon the audited financial statements of ALM Industries Ltd. of FY18,FY19,FY20 and projected financial statements of FY21,FY22, publicly available information and information / clarifications provided by the entity’s management.
Credit Strengths:
-
Extensive experience of promoters :
Over 4 decades of experience of the promoter Mr. Fazlur Rehman and Mr. Jamshed Ali in the processed meat industry, has helped the company scale up its operations and build strong relationships with customers and suppliers in domestic as well as overseas markets.
-
Improved scale of operations and locational advantage :
Over the last 3 years, from FY18 to FY20, the company has consistently grown at a compounded annual growth rate (CAGR) of around 17%. The revenue soared from Rs. 414.33 crs. in FY17 to Rs.655.44 crs. in FY20 and considering the interim performance in FY21 with a turnover of Rs.548.77 crs. as on end Dec,2020 ;the company is expected to surpass the turnover of Rs.725.00 crs. in FY21. The company’s plant is located at Saharanpur in Uttar Pradesh, which facilities easy availability of raw material with its manufacturing facility being in the agricultural belt of the country.
-
Healthy financial risk profile with an upward growth curve :
The company has a healthy financial risk profile which is reflected by a reasonable scale of operations, comfortable net worth, adequate gearing and debt protection metrics. In FY20, the company's gearing stood at 1.43x. Debt coverage indicators (interest service coverage ratio and debt service coverage ratio) stood at 1.38x and 1.27x respectively in FY20. Tangible net worth for the company stood at 96.72 crs in FY20. However, with an investments of Rs.38.86 crs in group companies, the adjusted tangible net worth and adjusted gearing for FY20 stood at Rs.57.86crs and 2.38x, respectively. The company’s turnover as on end December, 2020 stood at Rs. 548.77 crs and the company is expected to surpass the turnover of Rs.725.00 crs in FY21.
-
Likely Growth in Indian Bovine Exports :
With government support the Indian buffalo meat export market is expected to grow in the medium term due to competitive export pricing, a fast-growing urban population globally, an improvement in domestic transportation and storage practices, and the growing popularity of supermarkets. India is a leading buffalo meat exporter in the world due to high buffalo population and low domestic consumption.
Credit Risks:
-
Susceptibility to changes in government regulations :
Changes in government policies could directly affect sales and raw material supply, as currently the government of Uttar Pradesh is not issuing new licenses for opening up of new slaughter houses or capacity expansion of existing slaughter houses. However, the policies that have affected illegal abattoirs have been positive for licensed abattoirs. But, an adverse change in policy could impact business. Also, products have to meet international quality standards as per the policy and regulations of importing nations.
-
Moderate operating profitability :
The intense competition in the domestic and international markets has kept operating margin low (estimated at 3.46% in fiscal 2020). Though the margin marginally improved in fiscal 2020 due to better realisations from the international market and cash discounts availed from creditors, it is expected to remain low at 3.5%-4.0% over the medium term.
-
Significant Investments in Group Companies :
The company has made significant amount of investment to the tune of Rs. 38.86 crs in group companies. However, a major chunk of it to the tune of Rs.31.71crs has been invested in ALM Food Products Limited. However, it shall be noted that ALM Food Products Limited is a subsidiary of ALM Industries Limited , wherein the company being rated holds a share of 55.36%. In the state of Uttar Pradesh , the policies of the state government are currently not favorable for the slaughter houses, therefore ALM industries Limited had infused the capital in ALM Food Products Limited to start the meat processing unit at Dera Bassi in Punjab in 2017. The entity, ALM Food Products Limited is totally operational as of now and the company's turnover for FY20 stood at Rs.560.76crs.
For arriving at its ratings, BWR has applied its rating methodology as detailed in the Rating Criteria detailed below (hyperlinks provided at the end of this rationale).
RATING SENSITIVITIES
UPWARD: BWR could upgrade the ratings if there is sustained growth in revenues with improved profitability margins and debt coverage indicators, along with an efficient working capital management, leading to improvement in capital structure and liquidity with interest service coverage ratio (ISCR) improving above 2x.
DOWNWARD: BWR may revise the ratings downwards, if the company's scale of operations, operating and net profit margins, liquidity profile deteriorates and interest service coverage ratio (ISCR) deteriorates below 1.25x.
LIQUIDITY INDICATORS - Adequate
Liquidity Analysis :-
In FY20, the company generated an internal cash accrual of Rs. 4.93crs. with no committed repayment obligations, while in FY21, the company is estimated to generate an internal cash accrual of Rs.5.66 crs with a committed repayment obligation of Rs.1.72crs for the year. So, the company can comfortably honour its debt obligation.
The average utilization in fund based account (with 100% interchangeability from PCFC to EBD ) stood at more than 90%. The higher utilization is due to consistently growing turnover.
The current ratio in FY20, stood at 1.29x.
ABOUT THE ENTITY
ALM Industries Ltd was incorporated on 19-09-1996, an ISO 9001:2008 certified organization engaged in processing , sale and export of buffalo meat. The offered buffalo meat comprises frozen boneless buffalo meat, packed buffalo meat, buffalo kidney meat. Saudi Arabia, Iraq, Iran, UAE ,Vietnam are the major countries where the meat is exported. The processing unit is located in village Harora, Distt. Saharanpur, in western Uttar Pradesh.
KEY FINANCIAL INDICATORS (Standalone)| Key Parameters | Units |
FY 19-20 (Audited) |
FY 18-19 (Audited) |
|---|---|---|---|
| Operating Revenue | Rs.Crs. | 655.44 | 627.23 |
| EBITDA | Rs.Crs. | 22.69 | 18.83 |
| PAT | Rs.Crs. | 2.60 | 2.30 |
| Tangible Net Worth | Rs.Crs. | 96.72 | 94.13 |
| Total Debt/Tangible Net Worth | Times | 1.43 | 2.00 |
| Current Ratio | Times | 1.29 | 1.20 |
| Key Parameters | Units |
|
|
|---|---|---|---|
| Operating Revenue | Rs.Crs. | Not Available | Not Available |
| EBITDA | Rs.Crs. | Not Available | Not Available |
| PAT | Rs.Crs. | Not Available | Not Available |
| Tangible Net Worth | Rs.Crs. | Not Available | Not Available |
| Total Debt/Tangible Net Worth | Times | Not Available | Not Available |
| Current Ratio | Times | Not Available | Not Available |
RATING HISTORY FOR LAST THREE YEARS (including withdrawal and suspended)
| Facilities | Current Rating (2021) | Rating History | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Facility | Tenure | Amount | Rating | 2020 | 2019 | 2018 | |||||
| Fund Based | |||||||||||
| PC/PCFC/FDB/BRD/FBE - SanctionedBill Discounted (BD) - SanctionedCovid -19 Emergency Line Credit - Sanctioned | Long Term | 69.0069.0007.73 | BWR BBB-/Stable | NA | NA | NA | |||||
| Grand Total | 145.73 | (Rupees One Hundred Forty Five Crores and Seventy Three lakhs Only) | |||||||||
COMPLEXITY LEVELS OF THE INSTRUMENTS - NA
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.
| Analytical Contacts | |
|---|---|
|
Ankit Dixit Ratings Analyst Board : 91 11 23 413896 ankit.d@brickworkratings.com |
Tanu Sharma Director - Ratings tanusharma@brickworkratings.com |
| 1-860-425-2742 | media@brickworkratings.com | |
| SL.No. | Type Of Facilities | Long Term(Rs.Crs.) | Short Term(Rs.Crs.) | Total(Rs.Crs.) | ||
|---|---|---|---|---|---|---|
| 1 | PC/PCFC/FDB/BRD/FBESanctioned | 69.00 | _ | 69.00 | ||
| 2 | Bill Discounted (BD)Sanctioned | 69.00 | _ | 69.00 | ||
| 3 | Covid -19 Emergency Line CreditSanctioned | 7.73 | _ | 7.73 | ||
| Total | 145.73 | 0.00 | 145.73 | |||
| TOTAL (Rupees One Hundred Forty Five Crores and Seventy Three lakhs Only) | ||||||
| Instrument | Issue Date | Amount (Rs.Crs) | Coupon Rate (%) | Maturity Date | ISIN Particulars |
|---|---|---|---|---|---|
| NA | NA | NA | NA | NA | NA |
| Name of Entity | % Ownership | Extent of consolidation | Rationale for consolidation |
|---|---|---|---|
| NA | NA | NA | NA |
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