RATING RATIONALE
26Oct2021
Ajanta Raaj Proteins Ltd.
Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 30.98 Crs. of Ajanta Raaj Proteins Ltd.
Particulars| Facilities** | Amount (Rs.Crs.) | Tenure | Rating# | ||
|---|---|---|---|---|---|
| Previous | Present | Previous (23 Jun 2021) |
Present | ||
| Fund Based | 25.00 | 30.98 | Long Term |
BWR BB/Stable
Downgrade/ISSUER NOT COOPERATING* |
BWR BB
/Stable Reaffirmation |
| Grand Total | 25.00 | 30.98 | (Rupees Thirty Crores and Ninety Eight lakhs Only) | ||
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure
RATING ACTION / OUTLOOK
BWR has reaffirmed the ratings of Ajanta Raaj Proteins Limited to BWR BB/Stable. The reaffirmation of rating is on account of various financial risk parameters which have deteriorated from the last valid rating in the year 2020. The TOL/TNW has gone up alarmingly, current ratio of the company has deteriorated, profits have gone down, total debt has increased, profitability margins have deteriorated, debt protection metrics ( i.e ISCR and DSCR ) have deteriorated, overall liquidity of the company is stretched, there is no significant improvement in the tangible net worth of the company. The working capital facilities are being utilized at 95% on an average in the last six months and as per the banker's feedback the account fell into SMA list for a few months on account of delays in servicing of interest obligations in the GECL account. However, the banker confirmed that the account has been standard and satisfactory in the last 6 months. The ‘stable’ outlook indicates a low likelihood of a rating change in the medium term. BWR expects that the company’s performance is likely to be maintained over the next few years.
KEY RATING DRIVERSCredit Strengths:
-
Highly experienced management with proven track record. :
The promoters of the company have decades of experience in successfully running the dairy business. The company has a successful track record in the leadership of Mr. Om Prakash Agarwal who started this venture in 1964.
-
Association with reputed clients for supply of its products. :
Being in the business for so long, the company has established long term relationships with its clients. The company has managed to get repetitive orders over the years, depicting low counterparty credit risk and adequate revenue visibility.
-
Diversified product portfolio :
The company has a diversified product portfolio of dairy products which range from Milk (26.27% contribution in sales in FY20) and Skimmed Milk Powder (SMP) (33.65% contribution in FY20) to Ghee (35.39% contribution in FY20) and Butter (4.70% contribution in FY20 sales).
-
Low profitability margins, moderate networth & gearing position :
The company’s profitability margins have been on a lower side over the years and the operating profit declined to 2.20% in FY20 as compared to 2.69% in FY19. While the Net profit margin of was at 0.46% against 0.63% in FY19. The major contributing factor to low profitability was the high contribution of low margin products like milk and SMP which contributed around 42.61% to total sales in FY21 (59.92% in F20). The company’s tangible networth as on 31 March 2020 was at moderate level of Rs.13.46 Crores supported by Rs.1.80 crores of Unsecured loans from promoters/directors. The overall gearing (TOL/TNW) was high at 6.44 times as on 31 Mar 2020.
-
Risk of weather Conditions and environmental factors :
A temperate weather is more conducive to higher milk production – the raw milk availability declines during summers. A drought or a rainfall deficit results in increased cost of cattle feed and reduced availability of cattle fodder thereby constraining milk supply. Such adverse weather and seasonal conditions may lead to a spike in raw milk prices.
-
Highly competitive & unorganized sector :
The Indian dairy industry is characterized by predominance of unorganized players which handle >50% of the marketable surplus milk. In the organized sector, the company faces tough competition from various well-established brands like Amul, Mother Dairy, Parag etc.
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
Going forward, the ability of the company to improve its capital structure & profitability and manage liquidity would be key rating sensitivities.
Upward: The outlook may be revised upward if the company is able to surpass the projected revenues and profits, improve tangible networth, gearing, profit margins and debt protection metrics.
Downward: The outlook may be revised downwards if the company fails to achieve projected revenues & profits and there are delays in servicing the debt obligations.
LIQUIDITY INDICATORS - Stretched
Liquidity of ARPL is stretched marked by low cash accruals of Rs. 1.34 Cr. during FY 2020, which has declined from Rs. 1.46 Cr. in FY19. The cash accruals of the company are expected to decline further in FY 2021 to Rs. 1.25 Cr. The same has been projected to improve further to Rs. 1.36 Cr. in FY22. The company is generating an average EBITDA of Rs. 3.87 Crs. for FY20 and FY21 as against an average interest cost of Rs. 2.61 Crs. in both the financial years. In FY22(Proj.) interest cost are Rs. 2.86 Cr. against an EBITDA of Rs. 4.41 Cr. The company’s Cash Conversion Cycle is increasing to 62 days in FY22(Proj.) from 43 days in FY21(Prov.). Cash & cash equivalents balance was Rs.1.11 Cr. as on 31 Mar 2020, which is falling further to 0.64 Cr. in FY21(Prov.). The average cash credit utilization in the last six months is 95%. Payable days have gone up to 142 days in FY21(Prov.) as compared to 69 days in FY20, which depicts that the company is facing liquidity crunch to pay off its suppliers in a timely manner. ARPL’s current ratio is 1.13 times as on 31 March 2020 against 1.20 times in FY19. BWR believes that the company’s liquidity will remain stretched over near to medium term on account of decline in cash accruals, high payable days, thin profitability margins, high gearing and high utilization of working capital limits.
ABOUT THE ENTITYAjanta Raaj Proteins Limited (ARPL) was started as a firm in the year 1964 and was reconstituted as a company in the year 1996. The company is based out of Agra (Uttar Pradesh) and is into the business of processing of milk and production of Dairy Milk Powder, Desi Ghee, Dried Skimmed Milk powder and Butter etc. The company has its processing plant in Agra and its installed capacity is 60 bags / hour of skimmed milk powder or 3,50,000 litres of milk per day. The company sells its products under brand name of Ajanta Premium, Ajanta Supreme and Mohak to wholesalers and retailers in the domestic markets. The company’s major raw material is milk which it procures mainly from farmers. The company has a workforce of 50 employees out of which 20 are skilled and 30 are unskilled.
KEY FINANCIAL INDICATORS (Standalone)| Key Parameters | Units |
FY 19-20 (Audited) |
FY 18-19 (Audited) |
|---|---|---|---|
| Operating Revenue | Rs.Crs. | 186.11 | 154.49 |
| EBITDA | Rs.Crs. | 4.10 | 4.15 |
| PAT | Rs.Crs. | 0.86 | 0.98 |
| Tangible Net Worth | Rs.Crs. | 13.46 | 12.60 |
| Total Debt/Tangible Net Worth | Times | 2.16 | 2.16 |
| Current Ratio | Times | 1.13 | 1.20 |
Nil
STATUS OF NON-COOPERATION WITH PREVIOUS CRA
Care BB/Stable: Issuer Non Cooperation as on 19th Aug'21.
RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)| 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 | 30.98 |
BWR BB/Stable
(Reaffirmation) |
23Jun2021 |
BWR BBStable
(Downgrade/ISSUER NOT COOPERATING*) |
09Mar2020 |
BWR BB+Stable
(Reaffirmation) |
30Mar2019 |
BWR BB+Stable
(Assignment) |
NA |
NA
|
| Grand Total | 30.98 | (Rupees Thirty Crores and Ninety Eight 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 Criteria| Analytical Contacts | |
|---|---|
|
Arjun Gupta Ratings Analyst arjun.g@brickworkratings.com |
Hari Kishan Yadav Associate Director - Ratings hari.ky@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 | State Bank Of India (SBI) | Cash Credit | 25.00 | _ | 25.00 | |
| 2 | State Bank Of India (SBI) | Working Capital Demand Loan | 1.46 | _ | 1.46 | |
| 3 | State Bank Of India (SBI) | GECL | 4.52 | _ | 4.52 | |
| Total | 30.98 | 0.00 | 30.98 | |||
| TOTAL (Rupees Thirty Crores and Ninety Eight lakhs Only) | ||||||
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