Brickwork Ratings reaffirms the ratings with a change in outlook from 'stable' to 'negative' for the Bank Loan Facilities of Rs. 73.23 Crs. of MilkFood Ltd.
ParticularsFacilities** | Amount (Rs.Crs.) | Tenure | Rating# | ||
---|---|---|---|---|---|
Previous | Present | Previous (27 Apr 2021) |
Present | ||
Fund Based | 67.73 | 67.73 | Long Term |
BWR BBB- (Stable)
Downgraded |
BWR BBB -
/Negative Reaffirmation and change in Outlook |
Non Fund Based | 5.50 | 5.50 | Short Term |
BWR A3
Downgraded |
BWR A3
Reaffirmation |
Grand Total | 73.23 | 73.23 | (Rupees Seventy Three Crores and Twenty Three lakhs Only) |
The revision in the outlook for the ratings of the bank loan facilities of Milkfood Limited (MFL or ‘the company’) from ‘Stable’ to ‘Negative’ factors in decline in the financial performance of the company against the expectations of moderate improvements in revenues and profitability in Q4FY21. The company’s liquidity continues to remain stretched, indicated by a deterioration in the debt service coverage ratio to 0.89x in FY21 and the uncertainty revolving around the outcome of the ongoing GST investigation for some alleged transactions involving inadmissible input tax credit.
OUTLOOK: NEGATIVE
‘Negative’ outlook indicates a high likelihood of rating change over the medium term. The outlook may be revised to ‘stable’ if the company’s revenues and profitability show sustained improvement.
KEY RATING DRIVERSCredit Strengths:
MFL enjoys high brand visibility amongst its customers and has a history of more than four decades in the dairy industry. The company derives almost all of its revenues by selling ‘Desi Ghee’ under the brand ‘Milkfood’. The company enjoys association with retail chains such as Big Bazar, Walmart, Reliance Fresh, Nestle, GSK & Cadbury. On the supply side, the company has a robust relationship with its suppliers and contractors providing the Fat/SNF to Milkfood which processes it into ghee.
Demand for ghee and milk products in Indian households is expected to sustain due to their essential nature. The bulk consumption in the restaurants, banquet halls, religious places etc. should revert to normal as the rules on social gathering are lifted post COVID. The spurt in demand is expected to augur well for companies like MFL which have established distribution networks across north Indian states.
The company has a comfortable net worth of ~ Rs 66 Crs, debt:equity ratio of ~1.13x and an ISCR of 2.42x in FY21.
Credit Risks:
The company’s profitability took a hit as the sales declined by ~33% and profit by ~71% in FY21 compared to previous year. The company did not meet the expectations of higher revenues and profitability in Q4FY21 as evident from a decline in revenues of ~10% and profitability by ~15% on Q3FY21 numbers. As the lockdown prevailed in most states due to the surge in COVID infections in April-May’21, the company’s Q1FY22 performance is also expected to remain subdued.
The milk product industry is marred with high competition from large numbers of organised and unorganised players. Moreover, procurement of raw material (milk/SMP/fat) is exposed to seasonality, perishability & procurement related challenges. However, unavailability of quality products and consumer shift to branded products provides competitive advantage to organised players like MFL.
Due to lower than expected cash accruals and higher debt repayments, the DSCR of the company declined to a modest level of 0.89x in FY21. Also. the company has partially deposited a sum of Rs 16.27 crores as tax voluntarily under protest in the ongoing investigation by the authorities. In the event of an adverse outcome of this investigation, the company’s liquidity position may deteriorate further, unless the financial support is extended by the promoters or their associate companies.
The ratings of Milkfood Ltd. are arrived at on a standalone basis after independent evaluation of its financial risk profile. 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
Positive: Ratings may be upgraded if the company is able to restore its revenues and profitability backed by a strong recovery in demand while also improving its liquidity position as a result of a favorable outcome of the ongoing GST related investigation.
Negative: Ratings may be downgraded if there is a further stretch on the liquidity either due to lower cash accruals to repay the maturing debt or due to an adverse outcome of the ongoing investigation.
LIQUIDITY INDICATORS - Stretched
Stretched liquidity is indicated by tightly matched cash accruals of ~Rs. 11 Crs vis-a-vis debt repayments of Rs 13.56 Crs resulting in a skewed DSCR of 0.89x in FY21. The company has availed Rs 12.26 Crs of GECL loan to cater to its contingency requirements of working capital. The utilisation of cash credit limits has also remained high at ~95% for the past 9 months. With high uncertainty of the sales normalising in FY22, the maturing debt repayments of Rs 12-13 Crs may remain tightly matched with the cash accruals in FY22.
ABOUT THE ENTITYMilkfood Limited (MFL), incorporated in 1973, promoted by Jaiswal family is engaged in manufacturing of pure ghee, skimmed and whole milk powder, dairy whitener, casein, and whey powder. Pure ghee is marketed under the ‘Milkfood’ brand in the domestic markets. Milk products, other than Ghee, have almost been discontinued. Manufacturing plants are located at Patiala (Punjab) and Moradabad (Uttar Pradesh). Around 99% of the revenue comes from Ghee manufacturing.
KEY FINANCIAL INDICATORS (Standalone)Key Parameters | Units |
FY 20-21 (Audited) |
FY 19-20 (Audited) |
---|---|---|---|
Operating Revenue | Rs.Crs. | 367.91 | 551.41 |
EBITDA | Rs.Crs. | 19.83 | 24.59 |
PAT | Rs.Crs. | 2.44 | 8.39 |
Tangible Net Worth | Rs.Crs. | 66.59 | 63.83 |
Total Debt/Tangible Net Worth | Times | 1.13 | 1.19 |
Current Ratio | Times | 1.24 | 1.05 |
The terms of sanction include standard covenants normally stipulated for such facilities.
Facilities | Current Rating (2021) | 2021 (History) | 2020 | 2019 | 2018 | ||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Type | Tenure | Amount (Rs.Crs.) |
Rating | Date | Rating | Date | Rating | Date | Rating | Date | Rating |
Fund Based | LT | 67.73 |
BWR BBB-/Negative
(Reaffirmation and change in Outlook) |
27Apr2021 |
BWR BBB- (Stable)
(Downgraded) |
09Mar2020 |
BWR BBB (Stable)
(Reaffirmed) |
22Feb2019 |
BWR BBB (Stable)
(Upgraded) |
21Feb2018 |
BWR BBB- (Stable)
(Assigned) |
Non Fund Based | ST | 5.50 |
BWR A3
(Reaffirmation) |
27Apr2021 |
BWR A3
(Downgraded) |
09Mar2020 |
BWR A3+
(Reaffirmed) |
22Feb2019 |
BWR A3+
(Upgraded) |
21Feb2018 |
BWR A3
(Assigned) |
Grand Total | 73.23 | (Rupees Seventy Three Crores and Twenty Three lakhs Only) |
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 CriteriaAnalytical Contacts | |
---|---|
Sumit Saharan Senior Rating Analyst Board : +91 172 5032 295 / 6 sumit.s@brickworkratings.com |
Ashwini Mital Director - Ratings Board : +91 172 5032 295 / 6 ashwinimital@brickworkratings.com |
1-860-425-2742 | media@brickworkratings.com |
SL.No. | Name of the Bank/Lender | Type Of Facilities | Long Term(Rs.Crs.) | Short Term(Rs.Crs.) | Total(Rs.Crs.) |
---|---|---|---|---|---|
1 | Canara Bank | Cash CreditSanctioned | 6.00 | _ | 6.00 |
2 | Canara Bank | Term LoanOut-standing | 5.00 | _ | 5.00 |
3 | Canara Bank | GECLOut-standing | 3.00 | _ | 3.00 |
4 | Canara Bank | Bank GuaranteeSanctioned | _ | 2.00 | 2.00 |
5 | State Bank Of India (SBI) | Cash CreditSanctioned | 44.00 | _ | 44.00 |
6 | State Bank Of India (SBI) | Term LoanOut-standing | 0.48 | _ | 0.48 |
7 | State Bank Of India (SBI) | GECLOut-standing | 9.25 | _ | 9.25 |
8 | State Bank Of India (SBI) | ILC/IBGSanctioned | _ | 3.50 | 3.50 |
Total | 67.73 | 5.50 | 73.23 | ||
TOTAL (Rupees Seventy Three Crores and Twenty Three lakhs Only) |
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