Euro India Fresh Foods Limited

Brickwork Ratings reaffirms the ratings with a revision in outlook for the Bank Loan Facilities of Rs. 32.84 Crs. of Euro India Fresh Foods Limited

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (22 Jan 2020)	Present
Fund Based	19.08	32.54	Long Term	BWR BB (Stable) Upgraded	BWR BB /Stable to Negative Reaffirmation
Non Fund Based	0.30	0.30	Short Term	BWR A4 Reaffirmed	BWR A4 Reaffirmation
Grand Total	19.38	32.84	(Rupees Thirty Two Crores and Eighty Four 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

BWR has reaffirmed the rating of Euro India Fresh Foods Limited ("EIFFL" or "The Company") at BWR BB/BWR A4, with a revision in outlook from "Stable" to "Negative". The rating reaffirmation factors in the extensive experience of the promoters, growth in the revnue of the company for FY20 (A), diversified product portfolio, and moderate capital structure. The rating is constrained on account of the declining and weak profitability margins, stressed working capital cycle, and stretched liquidty, along with the presence in the highly competitve industry. BWR has essentially relied upon the Audited Financials of the company for FY20, and half yearly limited review financials for H1FY21.

The rating outlook has been revised to "Negative" from Stable, on account of continuous declining profitabiltiy of the company, presence in the highly competitive industry facing competition from big established players, and high utilisation of its working capital limits. The company has withdrawn its various discount schemes during H2FY21, and is estimating an improvement in the profitability, the impact of which remains to be seen.

KEY RATING DRIVERS

Credit Strengths:

Experienced Promoters :
The promoters possess experience of more than two decades in the industry. Due to the long-standing presence, the promoters have established relationships with the customers and suppliers and an understanding of the market dynamics.
Diversified Product Portfolio :
The company has a diversified product portfolio in snack foods like potato chips, Euro Getmore, Euro Farali wafers, Euro Namkeen, such as moong dal, peanuts, khatta meetha, mixtures, mamra, farali chiwda, extruder snacks such as Euro Funfill, Ringoli, Bubbles, Puffs, Euro Wheels. In beverages, they provide fruit juices by the name Euro Fresho, Euro Lemoni and packaged drinking water under the name Euro Aquaspa. The company has also introduced new products during FY21, which includes a herbal drink, Green apple soda, musk melon juice, alkaline water and varities of khakhra snack.
Moderate Scale of Operations :
There has been an improvement of ~30% in the scale of operations during FY20. The company has recorded TOI of Rs 92.79crs during FY20 and Rs 45.59crs during H1FY21 as the company added beverages to its product portfolio with penetrative marketing to increase product awareness.
Moderate Capital Structure :
The overall capital structure of the company is moderately driven by a low gearing of 0.31x during FY20 (0.48x during H1FY21) on the back of a moderate net worth base of Rs 60.35 crs during FY20 and Rs 58.35crs during FY H1FY21. There has been a rise in the Term Borrowings of the company on account of the machinery loans taken by the company and COVID emergency loans. However, the overall gearing has still remained below 1x. The TOL/TNW stood at 0.65x during FY20 and 0.86x during H1FY21.

Credit Risks:

Declining Profitability :
Despite a rise in the TOI, there has been a decline in the profit margins of the company due to rising raw material prices and an increase in selling and distribution expenses due to the company's penetrative marketing strategies to increase brand awareness. The OPM and NPM stood at 5.45% and 0.38% during FY20 (6.41% and 1.23% during FY19). The company has registered operating as well as net losses during H1FY21 due to increased raw material prices and various discount schemes introduced by the company for boosting the sales. The company has withdrawn its various discount schemes during H2FY21, and is estimating an improvement in the profitability, the impact of which remains to be seen.
Geographical Concentration Risk :
The company faces a geographical concentration risk due to the product dominance and bulk revenue drawn from majorly Maharashtra and Gujarat.
Declining Debt Service Indicators :
Due to a decline in profit margins and additional borrowings for new machinery, the debt service indicators have declined during H1FY21. The DSCR and ISCR stood at 1.98x and 2.29x during FY20 and registered operating losses as well as net losses during H1FY21. Going ahead, the ability of the company to improve its debt-servicing capacity would remain a key rating sensitivity.
Stressed Working Capital Cycle :
The working capital cycle of the company has remained stressed on account of higher inventory days and receivable days. The conversion cycle stood at 229 days during FY20 as against 281 days in FY19. The company maintains higher inventory holding period to counter the fluctuating raw material price impact.
Intense competition and susceptibility to the volatility in raw material prices :
The operating margins remain susceptible to volatility in prices of raw materials such as oil, flour, and packaging material. The company faces direct competition from several retailers and brands, such as Everest Namkeen, Real Namkeen, Balaji wafers, etc.

ANALYTICAL APPROACH

For arriving at its ratings, BWR has considered the standalone performance of Euro India Fresh Foods Ltd. BWR has applied its rating methodology as detailed in the Rating Criteria (hyperlinks provided at the end of this rationale).

RATING SENSITIVITIES

Going forward, the ability of the company to accelerate its scale of operations, and improve its profit margins, efficiently manage its working capital and cash flows for timely servicing of interest/debt obligations and strengthening of overall financial risk profile shall be the key rating sensitivities.

Positive: The rating will be upgraded if the company is able to achieve significant growth in revenue and profitability, and sustained improvement in working capital management.

Negative: The rating may be downgraded if there is lower than expected revenues affecting the profitability margins, coverage ratios, liquidity, and gearing ratios adversely.

LIQUIDITY INDICATORS - Stretched

The current ratio of the company stood at 0.88x during H1FY21 with cash and cash equivalents balance of Rs 1.00crs. The company is required to service maturing debt obligation of ~ Rs 2.98crs during FY22. The CC limit of the company are utilized to the extent of 90% on average.

ABOUT THE ENTITY

Euro India Fresh Foods Limited (EIFFL) is an ISO 22000: 2005 certified FMCG Company which was incorporated in 2009 with an objective to have an international standard FMCG brand in India. The registered office of the company is situated in Surat. The company commenced operations in 2012 and got listed on NSE in 2017. EIFFL is engaged in the manufacturing of high quality, ready to eat snacks, savories & beverages. The company manufactures snack foods like potato chips, fried and baked extruded products, namkeen, cookies, and beverages like packaged drinking water and juices. The company is promoted by Manhabhai Sanspara, Dinesh Sanspara, Mahesh Mavani.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 19-20 (Audited)	FY 18-19 (Audited)
Operating Revenue	Rs.Crs.	92.79	71.58
EBITDA	Rs.Crs.	5.05	4.59
PAT	Rs.Crs.	0.35	0.88
Tangible Net Worth	Rs.Crs.	60.35	60.01
Total Debt/Tangible Net Worth	Times	0.31	0.26
Current Ratio	Times	1.95	2.07

STATUS OF NON-COOPERATION WITH PREVIOUS CRA

CRISIL has migrated the rating of the company under the "Issuer Not Co-operating" category as the company has not shared the information for monitoring of the ratings.

RATING HISTORY FOR THE PREVIOUS 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	32.54	BWR BB/Stable to Negative (Reaffirmation)	22Jan2020	BWR BB (Stable) (Upgraded)	NA	NA	14Nov2018	BWR BB- (Stable) (Assigned)
Non Fund Based	ST	0.30	BWR A4 (Reaffirmation)	22Jan2020	BWR A4 (Reaffirmed)	NA	NA	14Nov2018	BWR A4 (Assigned)
Grand Total		32.84	(Rupees Thirty Two Crores and Eighty Four 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
Srishti Kaushik Rating Analyst srishti.k@brickworkratings.com	Sushil Kumar Chitkara Director - Ratings Board : +91 22 2831 1426, +91 22 2831 1439 sushilkumar.c@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

Euro India Fresh Foods Limited

ANNEXURE-I

Details of Bank Facilities rated by BWR

SL.No.	Type Of Facilities	Long Term(Rs.Crs.)	Short Term(Rs.Crs.)	Total(Rs.Crs.)
1	Cash Credit - Sanctioned	24.75	_	24.75
2	Term Loan - Sanctioned	6.03	_	6.03
3	Bank Guarantee - Sanctioned	_	0.30	0.30
4	Covid -19 Emergency Line Credit - Sanctioned	1.76	_	1.76
Total		32.54	0.30	32.84
TOTAL (Rupees Thirty Two Crores and Eighty Four lakhs Only)

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