Farmgate Agro Milch Pvt Ltd

Brickwork Ratings reaffirms/revises the ratings for the Bank Loan Facilities of Rs. 112.03 Crs. of Farmgate Agro Milch Pvt Ltd

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (24 May 2022)	Present
Fund Based	140.84	112.03	Long Term	BWR BBB+ /Stable Upgrade	BWR BBB + /Stable Reaffirmation
	(34.00)	(34.00)
	(6.00)	(6.00)
	(3.30)	(3.30)
	(10.00)	(10.00)
	(2.00)	(2.00)
	(20.00)	(20.00)
	(18.50)	(18.50)
	(20.00)	(0.00)
Grand Total	140.84	112.03	(Rupees One Hundred Twelve Crores and Three 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

Brickwork Ratings (BWR) reaffirms the long-term rating to BWR BBB+ (Stable) for the bank loan facilities of Rs. 112.03 crores of Farmgate Agro Milch Pvt. Ltd. ("FAMPL" or ‘the company’). The reaffirmation of the rating reflects the steady scale-up of operations in audited FY22, increasing diversification in terms of geographies (foray in South India) and in milk and milk products, as well as improved credit profile in FY22 supported by the repeated satisfactory feedbacks from all the bankers of the company. The bankers also informed that the repayment is made on time for all the loan facilities availed from the respective banks and there has been no overdues in the company’s account for last more than 6 months. The rating continues to derive strength from the moderate liquidity position, experienced management team and established track record of operations. The working capital management continues to remain efficient marked by a conversion cycle of 60 days in FY22 driven by low inventory and acceptable debtors days which remained in line with inventory and debtors days of FY21. The rating is, however, constrained by the intense competition and inherent risks in the dairy industry.

These strengths are partially offset by low profitability amid intense competition and susceptibility to volatility in milk prices, changes in government regulations and epidemics in the dairy industry.

Outlook: Stable
BWR believes that the business and financial risk profile of FAMPL will be maintained over the medium term. The ‘Stable’ outlook indicates a low likelihood of rating change over the medium term. The outlook may be revised to 'Positive' in case revenue, profitability and solvency position show a sustained improvement leading to an improved financial and liquidity profile. The rating outlook may be revised to 'Negative' in case the profitability generated is much lower than anticipated, there are aggressive debt-funded capex plans, or there is a significant deterioration in the overall liquidity profile of the company.

KEY RATING DRIVERS

Credit Strengths:

Established track record of operations and experienced management :
The company commenced its operations in 1992 and has a successful track record of around three decades in the existing dairy business line. FAM’s long track record and the extensive experience of promoters have helped establish relations with various stakeholders for its business. The company was established and is managed by the Prabhakar family. Furthermore, the promoters are assisted by a team of experienced professionals in managing the company’s daily business operations.
Improved total operating income (TOI) and net worth :
TOI has improved to Rs. 909.32 crs in FY22 from 675.62 crs in FY21. There are interest free unsecured loan from directors/family members of Rs. 5.80 crs, considering the same as a part of equity, the tangible net worth (analyzed) of the company has improved from Rs. 89.04 crs in FY21 to Rs. 101.95 crs in FY22 mainly due to retention of profits.
Moderate gearing and debt protection metrics :
The gearing [Total debt/ TNW (analyzed)] of the company has improved to 1.22x in FY22 as against 1.31x in FY21. Leverage (Debt/EBITDA) stood at 4.34x in FY22 (FY20: 4.33x). Comfortable Debt Protection metrics with ISCR & DSCR at 2.77x and 1.45x respectively in FY22.
Moderate working capital management :
The working capital management continues to remain efficient marked by a conversion cycle of 60 days in FY22 driven by low inventory and acceptable debtors days which remained in line with inventory and debtors days of FY21.
Established procurement base :
The company gets its operational support from its existing fully functional plants which have an established milk processing capacity of 10.50 lakhs liters per day (LLPD). The company procures 80% - 85% milk from more than 2000 VLCC across Delhi, Haryana, Rajasthan and Andhra Pradesh. Company has developed village level collection centers (VLCC) and robust relationship with contractors. Company procure milk through VLCC and then move same to chilling center. The company has six chilling centers (four in north India and two are in Southern part). Such an established procurement base ensures regular supply of liquid milk for the company at competitive prices and provides consistency in milk quality.

Credit Risks:

Intense competition in the Dairy Industry :
FAM faces intense competition from the unorganized sector, comprising a staggering 70% of the industry, with further competition from cooperatives and other private dairies within the organized sector. This has resulted in limited pricing flexibility for the company.
Exposure to inherent risks in the Dairy Industry :
Milk prices are sensitive to government policies and environmental conditions. Like all other agriculture-based products, pricing of milk products is sensitive to environmental conditions. Milk is procured from dairy farmers, and dairy-product manufacturers face the risk of lack of direct control over production, and are vulnerable to risks of low milk production because of factors such as variations in climatic conditions or livestock diseases.

ANALYTICAL APPROACH - Standalone

For arriving at its ratings, BWR has applied its rating methodology as detailed in the Rating Criteria below (hyperlinks provided at the end of this rationale). BWR has considered the standalone approach to arrive at the rating.

RATING SENSITIVITIES

Upward: BWR may revise the ratings upward in the case of a substantial improvement in the scale of operations, EBIDTA margins, and debt protection metrics.

Downward: BWR may revise the rating downward in the case of a reduction in the EBITDA margins, deterioration in debt protection metrics and scale of operations.

LIQUIDITY INDICATORS - Adequate

Cash and Bank Balance of the company stood at Rs 37 Lakh in FY22 as against Rs 1.07 crore in FY21. Current ratio stood at 1.31x in FY22 as against 1.27x in FY21. However, the CPLTD in FY 22 was noted at Rs 6.79 crs while the company had a cash accruals of Rs. 16.69 crs in FY22. Moderate Debt Protection metrics with ISCR & DSCR at 2.77x and 1.45x respectively in FY22. Tangible net worth (analyzed) of the company has improved from Rs. 89.04 crs in FY21 to Rs. 101.95 crs in FY22, which is mainly due to retention of profits and expansion of unit in Chittoor. Total Debt/ TNW (analyzed) has improved to 1.22x in FY22 as against 1.31x in FY21. The working capital management continues to remain efficient marked by a conversion cycle of 60 days in FY22 driven by low inventory and acceptable debtors days. As per 9MFY23 (unaudited financials) the current ratio stood at 1.28x and the cash and cash balance for 9MFY23 stood at Rs. 1.09 Crores.

ABOUT THE ENTITY

Farmgate Agro Milch Pvt. Ltd. (FAM), formerly known as Daily Foods (India), is a three decade old dairy manufacturing company under the leadership of Mr. Rakesh Kumar. The company is engaged in manufacturing of milk powder, standard milk, poly pack milk, dairy whitener, butter, curd, butter milk and ghee. They have two plants which are located in Kundli, Haryana and Chittoor, Andhra Pradesh. Both plants are functioning under the name of FAM. The Kundli plant has a capacity of 1,65,000 metric ton per annum (MTPA) and Chittoor plant has a capacity of 1,81,500 MTPA. The company is promoting its milk products under the brand name of ‘Rajat’ and ‘Dairy Angel’. The combined milk processing capacity at both plants is 10.50 lakhs liters per day (LLPD).

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 21-22 (Audited)	FY 20-21 (Audited)	FY 22-23 (Audited)
Operating Revenue	Rs.Crs.	909.32	675.62	Not Available
EBITDA	Rs.Crs.	29.26	27.61	Not Available
PAT	Rs.Crs.	12.91	10.30	Not Available
Tangible Net Worth	Rs.Crs.	99.05	86.14	Not Available
Total Debt/TNW	Times	1.28	1.39	Not Available
Current Ratio	Times	1.31	1.27	Not Available

KEY COVENANTS OF THE FACILITY RATED

STATUS OF NON-COOPERATION WITH PREVIOUS CRA

ANY OTHER INFORMATION

RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)

Facilities	Current Rating (2023)			2022		2021		2020
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating
Fund Based	LT	112.03	BWR BBB+/Stable (Reaffirmation)	24May2022	BWR BBB+ Stable (Upgrade)	04Jan2021	BWR BBB- Stable (Downgrade/ISSUER NOT COOPERATING*)	03Jan2020	BWR BBB Stable (Upgrade)
		0.00	NA	NA	NA	26Feb2021	BWR BBB Stable (Upgrade)	NA	NA
FB SubLimit	LT	(34.00)	BWR BBB+/Stable (Reaffirmation)	NA	NA	NA	NA	NA	NA
		(6.00)	BWR BBB+/Stable (Reaffirmation)	NA	NA	NA	NA	NA	NA
		(3.30)	BWR BBB+/Stable (Reaffirmation)	NA	NA	NA	NA	NA	NA
		(10.00)	BWR BBB+/Stable (Reaffirmation)	NA	NA	NA	NA	NA	NA
		(2.00)	BWR BBB+/Stable (Reaffirmation)	NA	NA	NA	NA	NA	NA
		(20.00)	BWR BBB+/Stable (Reaffirmation)	NA	NA	NA	NA	NA	NA
		(18.50)	BWR BBB+/Stable (Reaffirmation)	NA	NA	NA	NA	NA	NA
Non Fund Based	ST	0.00	NA	NA	NA	04Jan2021	BWR A3 (Downgrade/ISSUER NOT COOPERATING*)	03Jan2020	BWR A3+ (Assignment)
		0.00	NA	NA	NA	26Feb2021	BWR A3+ (Upgrade)	NA	NA
Grand Total		112.03	(Rupees One Hundred Twelve Crores and Three 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
Diksha Jain Rating Analyst diksha.j@brickworkratings.com	Ravi Rashmi Dhar Associate Director - Ratings ravi.d@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

Farmgate Agro Milch Pvt 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	Axis Bank Ltd.	Cash Credit - Sanctioned	20.00	_	20.00
	Sub-Limit (WCDL) - Sanctioned	(20.00)
2	Federal Bank	Term Loan - Sanctioned	_	_	0.00
3	Federal Bank	Cash Credit - Sanctioned	20.69	_	20.69
4	HDFC Bank	Term Loan - Sanctioned	3.84	_	3.84
5	HDFC Bank	Cash Credit - Sanctioned	34.00	_	34.00
	Sub-Limit (Post Shipment Finance) - Sanctioned	(3.30)
	Sub-Limit (Pre Shipment Finance) - Sanctioned	(6.00)
	Sub-Limit (WCDL) - Sanctioned	(34.00)
6	HSBC	Cash Credit - Sanctioned	18.50	_	18.50
	Sub-Limit (WCDL) - Sanctioned	(18.50)
7	Standard Chartered Bank	Over Draft - Sanctioned	_	_	0.00
	Sub-Limit (Short Term Loan Facility) - Sanctioned	(0.00)
8	Yes Bank	Cash Credit - Sanctioned	15.00	_	15.00
	Sub-Limit (Pre/ Post Shipment) - Sanctioned	(2.00)
	Sub-Limit (WCDL) - Sanctioned	(10.00)
Total			112.03	0.00	112.03
TOTAL (Rupees One Hundred Twelve Crores and Three lakhs Only)

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