LT Foods Ltd.

Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 880.00 Crs. of LT Foods Ltd.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
	Previous	Present		Previous (11 Nov 2020)	Present
Fund Based	783.00	789.00	Long Term	BWR A+/Stable Reaffirmation	BWR A + /Stable Reaffirmation
Non Fund Based	97.00	91.00	Short Term	BWR A1+ Reaffirmation	BWR A1 + Reaffirmation
Grand Total	880.00	880.00	(Rupees Eight Hundred Eighty Crores 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

Brickwork Ratings (BWR) has reaffirmed the long- and short-term rating of LT Foods Limited (LTF) to BWR A+(Stable)/BWR A1+ for the above bank loan facilities. The rating reaffirmation  is underpinned by the company’s strong business profile and consistent  improvement in the credit profile and financial performance in FY21 and H1FY22, in turn driven by a growing EBITDA and PAT in its resilient rice processing business, along with comfortable credit ratios. The ratings continue to factor in the company’s long track record and experienced management, strong distribution network, diversified product portfolio and strong brand recall, geographical diversification and large scale of operations, coupled with a sound financial risk profile. The rating is, however, constrained by the inherent business risks of the susceptibility of the profitability margins to an adverse movement in raw material prices, competitive nature of the industry, working capital intensity and exposure to commodity, currency and agro climatic risks, which could result in pressure on the margins.

 The rating outlook is Stable on account of a sound demand outlook for the rice industry for both the short and medium term due to its essential nature and is hence, not impacted much by the Covid-19 pandemic.

KEY RATING DRIVERS

Credit Strengths:

• Established operational track record and several-decades-long experience of promoters in Basmati rice industry :

  LTF and the group constitute a fully integrated rice company with an operational track record of more than five decades. Moreover, the company’s management has a several-decades-long experience in the Basmati rice industry. The group has an established market position as one among the top two players in the domestic Basmati rice industry. It has a geographically diversified revenue profile with a strong brand portfolio and is a globally reputed player in the rice industry, with an established market presence across more than 50 countries. It has a strong brand portfolio, with 'Daawat' being one of the most prominent brands in the domestic market.

• Strong distribution network :

  The company’s strong distribution network led to its sustained financial performance year after year. LTF currently serves customers across ~1,37,000+ retail outlets, ~7,200 modern trade channels (including hypermarkets, supermarkets and cash-and-carry) and all leading e-commerce platforms. The company also aggressively scaled-up its presence in the food service and Horeca segment, with more than 2000 new accounts comprising restaurants, biryani chains, star hotels and caterers, along with 234+ procurement mandis and 100+ distributors to cater to the global market. In the domestic market, the company has more than 1200+ direct distributors, who are present in almost every state.

• Diversified product portfolio and strong brand :

  The company has a diversified product portfolio in Basmati and other speciality rice, organic food and ingredients, and health and convenience foods. Although the major revenue (83%) is derived from Basmati and other speciality rice, the company's share of value-added products (organic food and ingredients, health and convenience foods divisions) stood at 13.5% in FY21 and is expected to increase further in the medium term. In all, the company has 19 brands registered in its name. The company has registered brands in 40 countries and has also received the Community Trade Mark (CTM) registration, which is valid in 25 countries. The branded business constitutes almost two-thirds of the total revenue. The proportion of value added products comprising of (organic food and ingredients, health and convenience foods divisions)  is expected to increase to ~ 25 % in next three fiscal years which is expected to increase profitability in future.

• Large scale of operations and improved profitability :

  Although LTF’s standalone operating income  declined  by 2% y-o-y in FY21 to Rs 2304.15 Crs due to 9.08% y-o-y decline in prices, it was offset by a 7.83% y-o-y increase in prices. The group’s  consolidated operating income grew by 12.31% y-o-y to  Rs 4644.35 Crs in FY21 and  by ~4.70% y-o-y to Rs 2553.53 Crs for H1FY22. The business and operational risk profile is supported by a strong distribution and procurement network, branded business and long-standing relations with key suppliers and customers. LTF’s PAT improved from Rs 199.3 Crs in FY20 to Rs 289.08 Crs in FY21. The PAT stood at Rs 157 Crs in H1FY22.

• Sound financial risk/credit profile: :

  Funds raised through the qualified institutional placement (QIP) during FY18 helped cover the working capital requirements and thus, reduced dependence on external debt over the years. As a result, the group's total outside liabilities to adjusted net worth (TOL/ANW) ratio improved to 1.23x as on 31 March 2021 (from around 1.59x as on 31 March 2019) and may improve further due to the reduction in debt levels with no major capex plans over the medium term. The overall debt protection metrics (consolidated) improved in FY21 as compared to FY20, as indicated by the interest service coverage ratio (ISCR) and debt service coverage ratio (DSCR) of 6.42x and 4.2x in FY21 against 3.56x and 2.78x in FY20, respectively; the ISCR stood at ~9.27x in H1FY22,and debt protection metrics overall is  expected to improve further in the next two fiscal years with no major debt-funded capital expenditure over the medium term.

Credit Risks:

• High working capital intensity :

  The company’s working capital intensity remains high, primarily due to high inventory levels, given the seasonality in the availability of Basmati paddy and the need to store rice for ageing. This improves the quality of rice and attracts premium pricing; however, the working capital utilization at a standalone level has been around ~26% for the six months ending October 2021. Additionally, this risk is mitigated as the cash conversion cycle improved to 206 days in FY21 as compared to 219 days in FY20.

• Volatility in raw material prices :

  The company is exposed to risks related to any steep decline in paddy prices, which can result in the risk of inventory losses; however, the risk is partly mitigated by past paddy prices being stable and the expectation of prices to likely be stable vis-à-vis the levels prevailing at the end of the preceding year. With selling prices also running stable, FY22 margins are likely to be protected. The risk is also mitigated by the fact that Basmati rice is consumed by customers from a relatively higher income group. Thus, any increase in the price is relatively easier to absorb in the branded segment. Additionally, this risk is mitigated by the fact that the company's operating profit margin at a consolidated level improved to 12.1% in FY21 as compared to 11.4% in FY20 and has been following an increasing trend over the years in spite of the volatility in paddy prices.

• Exposure to foreign exchange risk :

  As exports constitute a significant percentage of the turnover, the company remains exposed to currency fluctuations to the extent of unhedged exposure. However, it has a well-defined treasury risk management policy in place to reduce any impact of fluctuations in foreign exchange rates through EPC limits and a forward cover. This risk is mitigated as a well-defined Treasury Risk Management Policy exists in writing for the company and group. Almost 70% of the currency exposure is hedged for the company at any time.

• Intense competition :

  The Basmati rice industry is highly fragmented and is marked by the presence of numerous players. This intensifies competition and limits the pricing flexibility of industry participants. However, this risk is partly mitigated by a good brand recall and long-term customer relations.

ANALYTICAL APPROACH - Consolidated

BWR has assessed the company’s financials and projections on a consolidated basis. For arriving at its ratings, BWR has combined the business and financial risk profiles of LTF and its majority-owned subsidiaries Daawat Foods Ltd (DFL), Nature Bio Foods Ltd (NBFL) and Raghunath Agro Industries Pvt Ltd (RAIPL), and other step-down subsidiaries. This is because all these companies, collectively referred to as the LT group, operate in the same line of business and have significant operational and financial linkages and are majorly owned by parent LTF.

RATING SENSITIVITIES

Positive: BWR may revise the ratings upwards if there is a sustained improvement in LTF’s credit profile, with the ability to achieve optimal capacity utilizations and margins over the medium term.

Negative: BWR may revise the ratings downwards if there is a sustained deterioration in the company’s EBITDA and debt protection metrics and/or a stretch in its working capital/liquidity.

LIQUIDITY INDICATORS - Strong

The current ratio improved from 1.48x in FY20 to 1.99x in FY21, showcasing an improvement in the liquidity position. The working capital utilization at a standalone level for the past one year ending October 2021 was 26%; thus, sufficient headroom is available for working capital needs. The company generated cash accruals of Rs 132.34 Crs in FY21, against a repayment obligation of Rs 0.22 Crs in FY21. At the consolidated level, the company reported cash accruals of  Rs 397.55 Crs against a repayment of Rs 28.19 Crs in FY21. The company reported cash and cash equivalents of Rs 29.97 Crs as on 31 March 2021. This stood at Rs 22.88 Crs as on 30 September 2021 at the consolidated level. The liquidity is expected to be in the superior range in the medium term.
 

ABOUT THE ENTITY

LTF was incorporated as a private limited company in 1990, although it has a track record of operations since 1950, and it mills, processes and markets rice (largely Basmati). The company has established brands such as Daawat, Royal, Devaaya, Rozana, Heritage and Chef's Secretz, varying from basic to premium quality, both in the domestic and overseas markets. It has facilities in Haryana, Punjab, with a combined milling capacity of 104 tonnes per hour (tph) and individual capacity of 57 tph. The capacity utilisation was 66% in FY21 at a standalone level.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	2304.15	2350.07
EBITDA	Rs.Crs.	183.05	171.83
PAT	Rs.Crs.	106.48	85.16
Tangible Net Worth	Rs.Crs.	964.23	870.47
Total Debt/Tangible Net Worth	Times	0.39	0.65
Current Ratio	Times	1.99	1.68

KEY COVENANTS OF THE FACILITY RATED

 

ANY OTHER INFORMATION

There is interchangeability in the working capital limits among CC/WCDL and pre-shipment and post-shipment limits. (For SBI, there is interchangeability from EPC/PCFC to CC/WCDL, for PNB from CC/WCDL to EPC/PCFC/ post-shipment Limits, for CTC bank from WCDL to CC/EPC/PCFC, for Doha bank from WCDL to  EPC/PCFC Limits, for IndusInd Bank rom EPC/PCFC  to CC/WCDL, for Qatar National Bank from EPC/PCFC to CC/WCDL, for ICICI Bank from EPC/PCFC to CC/WCDL, for Kotak Mahindra Bank from CC/WCDL to EPC/PCFC)

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	789.00	BWR A+/Stable (Reaffirmation)	04Nov2020	BWR A+ Stable (Assignment)	NA	NA	NA	NA
		NA	NA	11Nov2020	BWR A+Stable (Reaffirmation)	NA	NA	NA	NA
Non Fund Based	ST	91.00	BWR A1+ (Reaffirmation)	04Nov2020	BWR A1+ (Assignment)	NA	NA	NA	NA
		NA	NA	11Nov2020	BWR A1+ (Reaffirmation)	NA	NA	NA	NA
Grand Total		880.00	(Rupees Eight Hundred Eighty Crores 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

• General Criteria
• Approach to Financial Ratios
• Manufacturing Companies
• Short Term Debt
• Consolidation of Companies

Analytical 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	Bank of Baroda	Working Capital Demand Loan - Sanctioned	_	_	0.00
2	Bank of Baroda	Gold Card - Sanctioned	_	_	0.00
3	Bank of Baroda	PC/PCFC - Sanctioned	_	_	0.00
4	Bank of Baroda	CC (H)/WCDL - Sanctioned	_	_	0.00
5	CTBC Bank Company Limited	Forward Contract - Sanctioned	_	5.00	5.00
6	CTBC Bank Company Limited	Working Capital Demand Loan - Sanctioned	50.00	_	50.00
7	Doha Bank	Working Capital Demand Loan - Sanctioned	60.00	_	60.00
8	HDFC Bank	Forward Contract - Sanctioned	_	10.00	10.00
9	HDFC Bank	EPC/ PCFC/ FBP/ PSFC - Sanctioned	40.00	_	40.00
10	ICICI Bank	EPC/ PCFC/ FBP/ PSFC - Sanctioned	25.00	_	25.00
11	ICICI Bank	Forward Contract - Sanctioned	_	10.00	10.00
12	IDFC First Bank Limited	Working Capital Demand Loan - Sanctioned	30.00	_	30.00
13	Indian Bank	Forward Contract - Sanctioned	_	_	0.00
14	Indian Bank	Gold Card - Sanctioned	7.36	_	7.36
15	Indian Bank	Post Shipment - Sanctioned	10.30	_	10.30
16	Indian Bank	ILC/FLC - Sanctioned	_	3.00	3.00
17	Indian Bank	CC (H)/WCDL - Sanctioned	5.20	_	5.20
18	Indian Bank	EPC/ PCFC/ FBP/ PSFC - Sanctioned	26.50	_	26.50
19	Indian Overseas Bank	ILC/FLC - Sanctioned	_	_	0.00
20	Indian Overseas Bank	PC/PCFC - Sanctioned	_	_	0.00
21	Indian Overseas Bank	Cash Credit - Sanctioned	_	_	0.00
22	IndusInd Bank	ILC/FLC - Sanctioned	_	15.00	15.00
23	IndusInd Bank	Cash Credit (WHR) - Sanctioned	_	_	0.00
24	IndusInd Bank	EPC/ PCFC/ FBP/ PSFC - Sanctioned	77.00	_	77.00
25	KB Kookmin Bank	Working Capital Demand Loan - Sanctioned	45.00	_	45.00
26	Kotak Mahindra Bank	Forward Contract - Sanctioned	_	1.00	1.00
27	Kotak Mahindra Bank	EPC/ PCFC/ FBP/ PSFC - Sanctioned	10.00	_	10.00
28	Kotak Mahindra Bank	CC (H)/WCDL - Sanctioned	30.00	_	30.00
29	Punjab National Bank	CC (H)/WCDL - Sanctioned	191.00	_	191.00
30	Punjab National Bank	ILC/FLC - Sanctioned	_	38.00	38.00
31	Punjab National Bank	Gold Card - Sanctioned	24.00	_	24.00
32	Punjab National Bank	Forward Contract - Sanctioned	_	3.00	3.00
33	Qatar National Bank	EPC/ PCFC/ FBP/ PSFC - Sanctioned	40.00	_	40.00
34	South Indian Bank	CC (H)/WCDL - Sanctioned	_	_	0.00
35	South Indian Bank	Working Capital Demand Loan - Sanctioned	_	_	0.00
36	State Bank Of India (SBI)	Bank Guarantee - Sanctioned	_	6.00	6.00
37	State Bank Of India (SBI)	EPC/ PCFC/ FBP/ PSFC - Sanctioned	84.00	_	84.00
38	Un tied portion	CC (H)/WCDL - Sanctioned	33.64	_	33.64
39	Union Bank of India	CC (H)/WCDL - Sanctioned	_	_	0.00
40	Union Bank of India	ILC/FLC - Sanctioned	_	_	0.00
41	Union Bank of India	PC/PCFC - Sanctioned	_	_	0.00
42	Union Bank of India	PC/FDBP/FUDBP - Sanctioned	_	_	0.00
43	Yes Bank	ILC/FLC - Sanctioned	_	_	0.00
Total			789.00	91.00	880.00
TOTAL (Rupees Eight Hundred Eighty Crores Only)