Tota Utpannagala Marata Sahakara Sangha N

Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 147.50 Crs. of Tota Utpannagala Marata Sahakara Sangha N

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (08 Jul 2020)	Present
Fund Based	160.00	147.50	Long Term	BWR BBB- /Stable Reaffirmation	BWR BBB - /Stable Reaffirmation
Grand Total	160.00	147.50	(Rupees One Hundred Forty Seven Crores and Fifty 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

The reaffirmation of rating continues to factor the established track record, experienced management, locational advantages, diversified revenue stream and moderate financial risk profile and adequate liquidity. However, the rating remains constrained by susceptibility to volatility in the price of areca nuts, exposure to agro climatic risks, presence in a highly regulated industry regulatory and limitations on promotion & consumption from time to time. BWR also notes the risks inherent in the cooperative societies sector such as delays in realisation of interest/principal amounts from its members and the overall impact of COVID 19 on business operations.

BWR notes that the society did not not avail relief under the Covid-19 moratorium from its lender. Further, the society has not applied for one time restructuring (OTR) of loans under RBI Resolution Framework for Covid-19 related stress.

BWR believes the business risk profile will be maintained over the medium term. The outlook may be revised to Positive on a sustained increase in the scale of operations, along with stable margins, improved working capital management strengthening the financial and business risk of the society. The outlook may be revised to Negative in case of adverse movement in the price of areca nuts resulting a decline in revenue and profitability of the society on a sustained basis, adverse changes in regulatory environment resulting in deterioration of overall credit and liquidity profiles, COVID-19 and its subsequent waves resulting in significant disruptions in supply chain or demand thereby impacting the financial risk profile of the society.

KEY RATING DRIVERS

Credit Strengths:

Established Operations :
TUMCOS is a well established player among arecanut marketing cooperative societies in Karnataka with over three decades’ experience. The society is engaged in the marketing of arecanut, black pepper produce grown by the members and it also provides loans and other facilities such as storage of produce to its members. The society has additional revenue stream from the supermarket for selling agricultural produce, fertilizers, PVC pipes etc. BWR notes that the society has recently set up a filling station under the dealership of Hindustan Petroleum Limited at Channagiri district and is in the process of opening another Supermarket store at Davengere district. The society’s established relationships with customers and suppliers and experienced management support its business risk profile.
Locational advantage :
The society enjoys locational advantages with a strong procurement and distribution network due to its presence in one of the key areca nut producing regions in Karnataka viz., Shivamogga, Chitradurga, Chikmagalur and Davanagere districts
Moderate and Consistent Financial Risk Profile :
Total operating income of Rs 93.46 Crs in FY20 remained stable with marginal decline from Rs 98.03 Crs in FY19. The EBITDA remained static at Rs. 31.35 Crs in FY20 and PAT has declined to Rs. 10.85 Crs in FY 20 from 12.26 Crs in FY19. Networth was Rs.94.24 Crs as on 31 March 2020 with a decline in gearing 1.27 times as on 31 March 2020 on account of retention of profits and increased corpus. ISCR and DSCR remained adequate at 1.42 times and 1.37 times in FY20. On a provisional basis, the society has earned a revenue of Rs. 119.02 Crs with EBITDA of Rs. 33.44 Crs and PAT of Rs. 11.91 Crs in FY21

Credit Risks:

Volatility in prices of areca nuts :
Margins are highly susceptible to volatility in the prices of areca nuts. Due to competition from local traders and imports and exposure to agro climatic risks, prices of areca nuts continue to be highly volatile.
Industry Risk :
The society operates in a highly regulated industry with limitations on promotion & consumption from time to time and hence, any changes in the regulatory environment will be a key rating sensitivity.
Inherent risk of delays in recovery of loans :
TUMCOS offers various loans such as member processing loans and pledge loans to its members. Since most of these loans are backed by agricultural produce, any crop failure or delay in crop arrival may result in delays/defaults by the members in repayment of the loans. Hence, it is exposed to the inherent risk in cooperative societies of delays in realisation of interest/principal amounts from its members.
Impact of COVID 19 outbreak :
Due to curtailment measures taken by the central and state government to prevent the spread of Covid 19 pandemic led to some business loss for the company in the Q1FY22. The trading was halted for about a month in April and May 2021. Due to the sudden halt in trading, the entire supply chain was hit leading to low demand and volatility in prices. However, as lockdown restrictions are being relaxed, the demand for domestic commodities is expected to increase as imports have reduced drastically. Additionally, due its established network for procurement and diversified revenue stream across interest income, commission income, sales from filling station and sales from the supermarket, the society is expected to be able to mitigate the risks to some extent.

ANALYTICAL APPROACH - Standalone

The society does not have any subsidiary. BWR has taken the standalone approach towards the rating of the bank loan facilities of the society

RATING SENSITIVITIES

The society’s ability to scale up its operations while maintaining asset quality, efficiently manage its working capital requirements and strengthen its liquidity and overall credit profile would be the key rating sensitivities. The impact of Covid 19 on the price of arecanut, the demand supply situation as well as any regulatory developments in this sector would be key monitorables.

Positive:

Improvement in turnover with considerable improvement in the profitability, debt protection metrics, capital and liquidity on a sustained basis

Negative :

Decline in revenue and profitability on a sustained basis.
Specific credit metrics which may result in a rating downgrade include ISCR, DSCR below unity and gearing above 1.50 times on a sustained basis.
Deterioration in the asset quality of its loan book.
High volatility in the price of areca nuts or any adverse changes in regulatory environment resulting in deterioration of overall credit and liquidity profiles

LIQUIDITY INDICATORS - Adequate

EBITDA at Rs.31.35 Crs for FY 20 was sufficient to cover the interest and finance charges of Rs.22.03 Crs for FY20. The society does not have any long term debt and the current debt consists only of working capital facilities. Utilisation of the working capital facility was less than 50% over the last one year ensuring adequate buffer to meet working capital requirements. Cash and cash equivalents have improved to Rs.54.67 Crs as on 31 Mar 2020 Current ratio is adequate at 3.30 times as on 31 Mar 2020. As per provisional FY21 financials, the EBITDA of Rs. 33.44 Crs is sufficient to cover interest and finance charges of Rs. 22.26 Crs and the company has adequate cash and cash equivalents of Rs.29.50 Crs as on 31 Mar2021.

ABOUT THE ENTITY

Tota Utpannagala Marata Sahakara Sangha Niyamith, Channagiri, Davangere is a co-operative society registered under Karnataka Co–Operative Societies Act 1959. The corporate office is situated at Channagiri, Davangere, Karnataka. The society was incorporated in 1984 to market horticulture produce like areca nut and black pepper grown by the members of the society. It also provides loans and other facilities such as storage of commodities to its members. The society runs a supermarket that sells fertilizers, pesticides, PVC pipes, seeds etc along with a pharmacy and fuel filling station of petrol and diesel under the dealership of Hindustan Petroleum Limited in Channagiri district, Karnataka. The society consists of 13,663 members as on 31 Mar 2021 as against 12,661 members as on March 31, 2020.

The society is managed by a Board of Directors chaired by Mr. RM Ravi, President. Mr.Madhu N.P is the Managing Director.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 19-20 (Audited)	FY 18-19 (Audited)
Operating Revenue	Rs.Crs.	93.46	98.03
EBITDA	Rs.Crs.	31.35	31.69
PAT	Rs.Crs.	10.85	12.26
Tangible Net Worth	Rs.Crs.	94.24	80.14
Total Debt/Tangible Net Worth	Times	1.27	1.43
Current Ratio	Times	3.30	3.77

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	147.50	BWR BBB-/Stable (Reaffirmation)	08Jul2020	BWR BBB-/Stable (Reaffirmation)	12Aug2019	BWR BBB-/Stable/A3 (Reaffirmation)	07Aug2018	BWR BBB-/Stable/A3 (Reaffirmation)
Grand Total		147.50	(Rupees One Hundred Forty Seven Crores and Fifty lakhs Only)

Rating Advisory, as on 09Jul2021
Press Release, as on 09Jul2021
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Hyperlink/Reference to applicable Criteria

Analytical Contacts
Kaushik Srikanth V Rating Analyst kaushik.s@brickworkratings.com	Saakshi Kanwar Senior Manager Ratings saakshi.k@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

Tota Utpannagala Marata Sahakara Sangha N

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	HDFC Bank	Cash Credit - Sanctioned	10.00	_	10.00
2	Karnataka Bank Ltd	Over Draft - Sanctioned	50.00	_	50.00
3	State Bank Of India (SBI)	Cash Credit - Sanctioned	87.50	_	87.50
Total			147.50	0.00	147.50
TOTAL (Rupees One Hundred Forty Seven Crores and Fifty lakhs Only)

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