Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 549.95 Crs. of Kanpur Edibles Pvt Ltd
ParticularsFacilities** | Amount (Rs.Crs.) | Tenure | Rating# | ||
---|---|---|---|---|---|
Previous | Present | Previous (27 May 2020) |
Present | ||
Fund Based | 57.54 | 49.95 | Long Term |
BWR A-(Stable)
Reaffirmation |
BWR A -
/Stable Reaffirmation |
Non Fund Based | 500.00 | 500.00 | Short Term |
BWR A2
Reaffirmation |
BWR A2
Reaffirmation |
Grand Total | 557.54 | 549.95 | (Rupees Five Hundred Forty Nine Crores and Ninety Five lakhs Only) |
Brickwork Ratings (BWR) has reaffirmed the long- and short-term ratings of Kanpur Edibles Private limited (KEPL or the company), underpinned by an improvement in KEPL’s credit profile and financial performance in FY20 and FY21, which in turn is driven by an improving EBITDA and PAT in its resilient edible oil refining business, along with comfortable credit ratios.
The rating is reaffirmed as it continues to factor in the long track record of the promoters in the refining and processing of edible oil, comfortable financial risk profile marked by an adequate tangible net worth, comfortable scale of operations over the years and financial risk profile over the years. The rating is, however, constrained by low profit margins owing to intense competition from organized and unorganized players in the industry, volatility in raw material prices and exposure to currency and commodity price risk.
The rating outlook is Stable on account of a sound demand outlook for the edible oil industry for both short and medium term due to its essential nature and is hence, not impacted by the Covid-19 pandemic.
KEY RATING DRIVERSCredit Strengths:
KEPL is a part of the Mayur group, an established group in Uttar Pradesh. The company has its presence in the entire north market for edible oil through its brand name Mayur. The company is mainly managed by Mr. Sunil Kumar Gupta and Mr. Manoj Kumar Gupta, who have more than 27 years of experience in the same line of business. The experience of the management also helps the company maintain efficient risk management policies. It covers its forex exposure through a forward cover and by incorporating suitable clauses to manage revisions in refined palm oil prices. The company has a track record of operation since 1990.
The company achieved an operating income of Rs 3367.58 Crs in FY20, against Rs 3915.59 Crs in FY19 at a de-growth rate of 14% due to a weaker price realization by 17%, offset by an improvement in volumes by 4% . Furthermore, the company’s operating income grew by ~36% to Rs 4587.08 Crs as per the FY21 provisional balance sheet due to an improvement in volumes by ~10%, coupled with an improvement in the price realization by 23%. The company invested ~Rs 20-25 Crs in a refinery plant in FY21 and increased the capacity by 80,000 MT/year. This plant is mustard- and rice-bran-based. The company’s blended product is in high demand, and hence, the company has installed this plant, which will help save costs in manufacturing blended oil. Both raw materials are easily available in Uttar Pradesh and its vicinity. This capex has been completed as per timelines, and commercial operations for the same started in FY21. The company also invested ~Rs 20 Crs in the solvent plant in FY20 and increased the capacity by 1,20,000 MT/year. The company also plans to invest ~Rs 23 Crs and increase the capacity of the refinery by 1,40,000 MT/year in FY23. All this growth capex will increase the company’s scale of operations in the medium term.
The gearing (analyzed) improved to 0.29 x in FY20, as compared to 2.44 x in FY19, and it stood at 0.33 x in FY21. The improvement in the gearing is due to an improvement in the company’s capital structure over the years. The tangible net worth analyzed stood at ~Rs 288 Crs in FY20, as against Rs 228 Crs in FY19, and further at Rs 372 Crs in FY21. This strength is partially offset as TOL/TNW stood at 3.25 x in FY 20 and 3.19 x in FY 21 due to high trade payables which comprises majorly of LC payables. Overall, there is an improvement in debt protection metrics over the years. The interest service coverage ratio (ISCR) improved to 3.61 x in FY20 compared to 3.52 x in FY19, and it stood at 7.37 x in FY21. The debt service coverage ratio (DSCR) improved to 2.70 x in FY20, as compared to 2.41 x in FY19, and further at 4.85 x in FY21.
The long-term outlook of edible oil demand in India is favorable on the expectation of an increasing population, increase in per capita consumption (which in turn would be driven by changing lifestyles), growing urbanization, increasing proportion of middle-class population and steadily rising affluence levels.
The company has a well-diversified portfolio in various types of edible oils, such as palm oil, mustard oil, sunflower oil and soya bean oil, along with other products such as cattle feed, soap and detergent, soya bari and oil used for bakery products. A diversified portfolio reduces dependence on a single product.
Credit Risks:
The operating margins of edible oil refiners are generally low owing to low value addition involved in the business and fragmented nature of the industry with the presence of a large number of small-sized players and few large players in the branded segment. However KEPL's operating margin has improved in FY 20 and term as the company has set-up an in-house power plant (operational since August 2017), which will help reduce power costs, and a cattle feed plant (operational since January 2018), which has integrated operations. The company has done backward integration in the past. The operating profit and net profit margin have been following an increasing trend over the years until FY 20 ( operating profit margin , FY21:2.32 % FY20:2.82 %) however it still remains low and volatile owing to demand and supply dynamics in the country and government regulation.
KEPL imports most of its raw material in the form of crude edible oil, which it refines and sells domestically. Hence, it faces forex/currency risk and commodity price risk. However, the company has efficient risk management policies. It covers its forex exposure through a forward cover and by incorporating a revision in refined palm oil prices. The company also hedges commodity price risk by selling on commodity exchanges MCX and NCDEX.
BWR has applied standalone approach as all group companies does not have parent subsidiary relationship .
RATING SENSITIVITIES
Upward: BWR may revise the ratings upward, if the company’s scale of operations improves , along with improvement in operating and net profitability and other metrics such as DSCR improving above 3.0 x on a sustained basis, and liquidity also favoring an upgrade.
Downward: BWR may revise the ratings downwards, if the company’s scale of operations declines on sustained basis , DSCR deteriorates below 1.5 x on a sustained basis and/or a weakening liquidity position.
LIQUIDITY INDICATORS - Strong
Current ratio stood at 1.23 x in FY 20 and 1.08 in FY 21. Working capital utilization is 50 % for fund based limits for last six months ending July 2021. Company reported cash accruals 57.25 Crores in FY 20 against repayment of Rs 4.69 crores .Company reported cash accruals of Rs 73.75 Crores in FY 21 against repayment of Rs 4.20 crores. KEPL also has cash equivalents in the form of FDRs and mutual fund investments worth ~ Rs 407.Crs as of FY21 which are used as margin money against LCs.
ABOUT THE ENTITY
Kanpur Edibles Private Limited is the flagship company of the Mayur group. The company was incorporated in 1990 to produce refined oil at its manufacturing unit at Rania with a capacity of 25 TPD, which currently is at 1000 TPD. KEPL has a well-equipped and sophisticated modern plant for production. The company procures soya bean oil, rice bran oil, mustard oil and various other oils for the purpose of refining. It also procures soya seed, mustard seed for the solvent plant producing raw oil, and from its by-products, it manufactures bari. It sells its products under the brand name Mayur. The capacity utilization of the refinery was 75% in FY 21, with the installed capacity at 3,70000 MT/ annum. which is expected to increase to 5,10,000 MT/annum in FY 23 .
KEY FINANCIAL INDICATORS (Standalone)Key Parameters | Units |
FY 19-20 (Audited) |
FY 18-19 (Audited) |
---|---|---|---|
Operating Revenue | Rs.Crs. | 3367.58 | 3915.59 |
EBITDA | Rs.Crs. | 94.93 | 80.77 |
PAT | Rs.Crs. | 45.08 | 32.46 |
Tangible Net Worth | Rs.Crs. | 241.01 | 196.18 |
Total Debt/Tangible Net Worth | Times | 0.54 | 2.99 |
Current Ratio | Times | 1.23 | 1.14 |
Facilities | Current Rating (2021) | 2020 | 2019 | 2018 | |||||
---|---|---|---|---|---|---|---|---|---|
Type | Tenure | Amount (Rs.Crs.) |
Rating | Date | Rating | Date | Rating | Date | Rating |
Fund Based | LT | 49.95 |
BWR A-/Stable
(Reaffirmation) |
27May2020 |
BWR A-(Stable)
(Reaffirmation) |
29Apr2019 |
BWR A-(Stable)
(Reaffirmation) |
26Feb2018 |
BWR A-(Stable)
(Assignment) |
Non Fund Based | ST | 500.00 |
BWR A2
(Reaffirmation) |
27May2020 |
BWR A2
(Reaffirmation) |
29Apr2019 |
BWR A2
(Reaffirmation) |
26Feb2018 |
BWR A2
(Assignment) |
Grand Total | 549.95 | (Rupees Five Hundred Forty Nine Crores and Ninety Five lakhs Only) |
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Hyperlink/Reference to applicable CriteriaAnalytical Contacts | |
---|---|
Karan Ahluwalia Senior Rating Analyst Board : +91 11 2341 2232 karan.a@brickworkratings.com |
Tanu Sharma Director - Ratings tanusharma@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 | Punjab National Bank | Cash CreditSanctioned | 40.00 | _ | 40.00 |
2 | Punjab National Bank | Term LoanSanctioned | 9.95 | _ | 9.95 |
3 | Punjab National Bank | ILC/FLCSanctioned | _ | 500.00 | 500.00 |
Total | 49.95 | 500.00 | 549.95 | ||
TOTAL (Rupees Five Hundred Forty Nine Crores and Ninety Five lakhs Only) |
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