Arora Aromatics Pvt. Ltd.

Brickwork Ratings removes from issuer not cooperating classification and reaffirms the ratings, with a stable outlook, for the Bank Loan facilities aggregating Rs. 122 Crs. of Arora Aromatics Pvt. Ltd.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (04 Oct 2021)	Present
Fund Based	142.00	122.00	Long Term	BWR BBB+/Stable Reaffirmation/ISSUER NOT COOPERATING*	BWR BBB + /Stable Reaffirmation
Fund Based	(25.00)	(25.00)	Long Term		BWR BBB + /Stable Reaffirmation
Non Fund Based	(2.50)	(2.50)	Short Term	BWR A2 Reaffirmation/ISSUER NOT COOPERATING*	BWR A2 Reaffirmation
	(0.20)	(0.00)
	(0.50)	(0.00)
	(5.00)	(5.00)
Grand Total	142.00	122.00	(Rupees One Hundred Twenty Two 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

The removal from issuer not cooperating classification for the ratings assigned to Arora Aromatics Pvt Ltd (AAPL, or ‘the company’) factors in its cooperation in submitting relevant financial data and necessary updates.

The ratings continue to derive strength from the experienced promoters with established track record in the menthol industry, strategic plant location and established relationship with its customer base resulting in repeat orders. The ratings also derive comfort from the comfortable capital structure and adequate liquidity profile of the company. These rating strengths, however, are constrained by the moderation in the total operating income in FY21, threat of substitution from synthetic menthol and susceptibility to intense industry competition.

Rating Outlook: Stable

BWR believes that AAPL’s business risk profile will be maintained over the medium term. The 'Stable' outlook indicates a low likelihood of rating change over the medium term. The rating outlook may be revised to 'Positive' in case of substantial improvement in operational and financial parameters. BWR may revise its outlook to 'Negative' in case there is a deterioration in the financial parameters over the medium term.

KEY RATING DRIVERS

Credit Strengths:

Experience of the promoters and a diversified customer base :
AAPL is promoted by Mr.Arvind Kumar Arora, who has been involved in the menthol oil industry for more than three decades. The company has a diversified customer base and is catering to varied industries like food items, bakery, pharmaceuticals, etc. The established relationship with the customers has enabled the company to receive repeat orders with many large national and international players, such as Colgate-Palmolive Company, Hindustan Unilever Ltd, Unilever PLC,amongst others.
Comfortable financial risk profile :
The overall gearing ratio (Total debt/TNW) of the company has continued to remain at comfortable levels for the past three financial years. The same stood at 0.19x in FY21 (PY: 0.18x). ISCR of the company also improved marginally to 13.65x (PY:13.57x). Further, the company has not availed any long term debt and hence does not have any repayment obligations in the near future. The company has, however, invested ~Rs.27 Crs on purchase of a land parcel for which it does not have any concrete plans as on date. Furthermore, the company has also invested Rs.2.40 Cr. in an auto dealership in the NCR (National Capital Region), with a 24% share of equity holding. BWR will continue to monitor the company's investment strategy going forward. Any increased investment by the company in non-core assets will remain a key monitorable going forward.
Improvement in the profitability margins :
The operating income of the company declined by ~36% in FY21, on a year-on-year basis, mainly on account of lower sales realization. However, the OPM & NPM margins improved and stood at 9.47% (P.Y.:7.49%) and 7.50% (P.Y:6.58%), respectively for FY21. The improvement was owing to addition of new products (relatively high margin giving) in the product offerings by the company coupled with the technological advancement of the manufacturing unit which has increased the oil extraction capacity from the mentha leaves. The company derives majority of its operating income (85% in FY21) from exports. The company hedges the raw material price fluctuation risk either by entering into derivative contracts on the commodity exchanges or by purchasing physical inventory upfront, at the time of procurement of order. Furthermore, the company hedges 100% of its forex exposure by entering into forward contracts, thus ensuring stability in margins.

Credit Risks:

Absence of contractual obligations with the Customers :
The company is associated with customers spread across the globe. Further, the company derives 80-85% of its total operating income from exports and is therefore always exposed to the risk of losing business, to the other players in the market, in the absence of any long term contacts with its customers.
Susceptibility to intense competition in the menthol industry :
The Company operates in the menthol industry, which is not capital or technology intensive, resulting in low entry barriers. Consequently, the industry is highly fragmented. This results in intense industry competition. Also, there is limited differentiation in products of different players, because of which buyers have a high bargaining power. The company also faces competition with synthetic menthol manufacturers, although the uses for natural and synthetic menthol are largely different.

ANALYTICAL APPROACH - Standalone

BWR has applied its rating methodology on a standalone basis, as detailed in the Rating Criteria (hyperlinks provided at the end of this rationale).

RATING SENSITIVITIES

Positives: The rating is sensitive to the achievement of substantial and sustainable growth in revenue and profitability margins, with stable solvency position and adequate liquidity parameters.

Negatives: An adverse rating action may be taken in the next review if the company’s margins deteriorates from the current levels or there is a significant decline in the operating income. Further, the ratings would remain sensitive to substantial increase in investments done in the non-core business activities.

LIQUIDITY INDICATORS - Adequate

Despite decline in operating income in FY21, healthy cash accruals were generated by the company (Rs.26.10 Crs.) during the year. Similar trend is expected in the short to medium term, with the company not having any long-term repayment obligation in FY22. The company does not have any major debt funded capex in the near future. Also, all the regular capex needs are expected to be met from the internal accruals. Further, the utilization levels for the fund-based working capital facilities have remained less than 20%, from October-2020 till November-2021 period. Also, with no repayment obligation, the company has sufficient headroom to utilize the accruals and un-utilized working capital limits for its operational requirements, reflecting an adequate liquidity profile.

ABOUT THE ENTITY

Arora Aromatics started its operation in the year 1976 and in 2014 merged with Arora Aromatics Pvt. Ltd (AAPL) having its registered office in Moradabad, UP. AAPL is an ISO certified manufacturer & exporter of natural mint ingredients & aromatic chemicals. AAPL is a GOI approved star export house, HACCAP & GMP certified in food & pharma , Kosher certified and REACH ready company.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	326.40	510.86
EBITDA	Rs.Crs.	30.92	38.26
PAT	Rs.Crs.	24.47	33.61
Tangible Net Worth	Rs.Crs.	119.23	94.67
Total Debt/Tangible Net Worth	Times	0.19	0.18
Current Ratio	Times	2.21	1.82

STATUS OF NON-COOPERATION WITH PREVIOUS CRA

Not Applicable

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	122.00	BWR BBB+/Stable (Reaffirmation)	04Oct2021	BWR BBB+Stable (Reaffirmation/ISSUER NOT COOPERATING*)	07Jul2020	BWR BBB+ Stable (Reaffirmation)	05Feb2019	BWR BBBStable (Assignment)	NA	NA
		NA	NA	NA	NA	09Jun2020	BWR BBB+ Stable (Upgrade)	NA	NA	NA	NA
FB SubLimit	LT	(25.00)	BWR BBB+/Stable (Reaffirmation)	NA	NA	NA	NA	NA	NA	NA	NA
Fund Based	ST	NA	NA	NA	NA	07Jul2020	BWR ()	NA	NA	02Aug2018	BWR A3+ (Upgrade)
		NA	NA	NA	NA	09Jun2020	BWR ()	NA	NA	NA	NA
Non Fund Based	ST	NA	NA	NA	NA	NA	NA	05Feb2019	BWR A3+ (Reaffirmation)	02Aug2018	BWR A3+ (Upgrade)
NFB SubLimit	ST	(2.50)	BWR A2 (Reaffirmation)	04Oct2021	BWR A2 (Reaffirmation/ISSUER NOT COOPERATING*)	07Jul2020	BWR A2 (Reaffirmation)	NA	NA	NA	NA
		(5.00)	BWR A2 (Reaffirmation)	NA	NA	09Jun2020	BWR A2 (Upgrade)	NA	NA	NA	NA
Grand Total		122.00	(Rupees One Hundred Twenty Two Crores Only)

Rating Advisory, as on 09Jul2021
As more than 12 months have lapsed since the last rating, BWR hereby informs that it has not been possible to review the rating within the stipulated time, mainly due to non-receipt of essential information required for review, as the company has requested for some more time to share the required information.

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

Analytical Contacts
Neha Jain Senior Rating Analyst Board : +91 11 2341 2232 neha.j@brickworkratings.com	Sudeep Sanwal Associate Director - Ratings sudeep.s@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

Arora Aromatics Pvt. Ltd.

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	Indian Bank	Packing Credit (PC) - Sanctioned	30.00	_	30.00
	Sub-Limit (Bank Guarantee) - Sanctioned		(5.00)
	Sub-Limit (Foreign letter of Credit) - Sanctioned		(2.50)
	Sub-Limit (PCFC) - Sanctioned	(25.00)
2	Indian Bank	Gold Card - Sanctioned	12.00	_	12.00
3	Indian Bank	Post Shipment - Sanctioned	50.00	_	50.00
4	CitiBank	Packing Credit (PC) - Sanctioned	_	_	0.00
	Sub-Limit (BG) - Sanctioned		(0.00)
	Sub-Limit (ILC/FLC) - Sanctioned		(0.00)
5	State Bank Of India (SBI)	Packing Credit (PC) - Sanctioned	15.00	_	15.00
6	State Bank Of India (SBI)	Foreign Bill Purchase - Sanctioned	15.00	_	15.00
Total			122.00	0.00	122.00
TOTAL (Rupees One Hundred Twenty Two Crores Only)

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