RATING RATIONALE
30Mar2022
Mahavir Rice Mills
Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 125.00 Crs. of Mahavir Rice Mills
Particulars| Facilities** | Amount (Rs.Crs.) | Tenure | Rating# | ||
|---|---|---|---|---|---|
| Previous | Present | Previous (22 Apr 2021) |
Present | ||
| Fund Based | 110.00 | 125.00 | Long Term |
BWR BBB-/Stable
Upgrade |
BWR BBB -
/Stable Reaffirmation |
| Grand Total | 110.00 | 125.00 | (Rupees One Hundred Twenty Five Crores Only) | ||
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure
RATING ACTION / OUTLOOK
BWR has reaffirmed the rating for bank loan facilities of Mahavir Rice Mills (MRM or the “Firm) due to consistent scale of operations over the years and resilient business profile.
The rating continues to factor in the long track record of the company and experienced management, strong distribution network, diversified product portfolio, brand recall in the export market, geographical diversification, growing scale of operations, profitability over the years and comfortable liquidity position. The rating is, however, constrained by the inherent business risks of the susceptibility of profitability margins to an adverse movement in raw material prices, competitive nature of the industry, high working capital intensity and exposure to commodity, currency and agro climatic risks, which could result in pressure on the margins coupled with moderate financial risk profile.
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 by the Covid-19 pandemic.
KEY RATING DRIVERSCredit Strengths:
-
Extensive experience and long track record of the firm :
The partners have established operational track record and have more than three decades of long experience in the basmati rice industry. The partners have been operating in the rice industry since 1985. This has resulted in a strong relationship with customers and suppliers, which will continue to benefit the firm in the past and over the medium term.
-
Geographically diversified customer base :
A presence in both domestic and global markets provides protection against any sharp decline in demand in a single region and provides diversification in overall revenue profile. Exports contributed 80 % of sales in fiscal 2021 and bulk of sales is in the Middle East.
-
Good growth in operating Income and profitability over years :
Total operating income increased at growth of 13.49 % in FY 21 to Rs 429 crores compared to Rs 378 crores in FY 20 due to volume growth of 6.55 % and improvement in prices by 6.45 % . The Firm has achieved Rs 404 crores till Feb 2022 thus they are likely to achieve the projected topline of ~ Rs 440 Crs in FY 22 . Firms’s PAT improved to Rs 5.78 Crs in FY 21 compared to Rs 5.14 Crs in FY 20 and as compared to Rs 2.45 Crs in FY 19.
-
Comfortable liquidity position :
Firm's Liquidity position is comfortable as firm registered cash accruals of Rs 6.41 Crs in FY 21 against repayment of Rs 2.05 Crs of Covid loan . Working capital utilization of Cash credit limits for the last five months ending Feb 2022 stood at 65 % for cash credit Limits.
-
Diversified product portfolio and brands :
The Firm's product portfolio is diversified with a mix of basmati and non basmati sales with basmati contributing almost 95 % of sales and non basmati contributing almost 5 % for the last two fiscal years. The company has altogether 19 brands in the export market and three brands in the domestic market.
-
High working capital intensity :
The firm’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 the rice for aging). This improves the quality of rice and attracts premium pricing. The cash conversion cycle is stretched at 102 days in FY 21 due to receivable days of 74 and inventory days of 63 in FY 21 , however there is improvement as compared to FY 20 level .
-
Intense competition :
The rice industry is highly fragmented and is marked by the presence of numerous players. This intensifies competition and limits the pricing flexibility of the industry participants.
-
Exposure to foreign exchange risk, exposure to agro-climatic risks and changes in trade policies and raw material price volatility risk:
:
As exports constitute a significant percentage of the turnover, the firm remains exposed to currency fluctuations to the extent of unhedged exposure. However, it has a hedging mechanism in place to reduce any impact of fluctuation in foreign exchange rates as almost 100 % of exposure is hedged through forward cover . Also there is natural hedge as exports and export packing credit limits are in foreign currency (USD). Given its operations in an agro-based industry, the firm is exposed to agro-climatic risks such as raw material availability, its quality and pricing. Moreover, the firm is exposed to changes in trade policies of key importing countries, which can impact export revenues . Also the firm is exposed to volatility in raw material prices which exposes the firm to volatility in profit margin.
-
Moderate financial risk Profile :
The firm has high gearing of 4.66 x as on 31.03.2021 . The firm's ISCR is also moderate at 1.58 x in FY 21 . The Firm’s operating and net profit margin are thin at 4.05 % and 1.35% in FY 21.
-
Inherent risk of partnership concern :
There is inherent risk of partnership concern as risk of withdrawal of capital/ Net worth is high in partnership concern . Level of drawings in FY 19 is around Rs 0.91 Crs and Rs 1.91 Crs in FY 20 , 7.24 Crs in FY 21.
BWR has applied standalone approach to arrive at ratings .
RATING SENSITIVITIES
Positive: BWR may revise the ratings upward if there is a sustained improvement in MRM’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 firm’s EBITDA and debt protection metrics and/or a stretch in its working capital/liquidity.
LIQUIDITY INDICATORS - Adequate
Current ratio stood at 1.16 in FY 21 . Working capital utilization of cash credit limits stood at almost 65 % during the last 6 months ended March 2021 . Firm registered cash accruals of Rs 6.41 Crs in FY 21 against repayment of Rs 2.25 Crs in FY 21 . Firm is expected to register cash accruals of Rs 7.03 Crs in FY 22 as against repayment of Rs 5.4 Crs in FY 22. Cash balances stood at Rs 0.19 Crs in FY 21.
ABOUT THE ENTITYM/s. MAHAVIR RICE Mills was Established in 1985 in Assandh, Distt. Karnal, Haryana (India). They are specialized rice manufacturing and exporting rice firm to over dozens of countries with a large customer base. They have an experience of over 30 years in this industry. They are recognized as “Three Star Export House of India” by the Indian Government under ISO 22000:2005, ISO 9001:2008, GMP & HACCP certified Firm . The Firm is exporting to countries in the Middle East such as Iraq, Iran , UAE, Yemen, Kuwait , Saudi Arabia , Mercin , UK , USA. They have presence in the domestic market through their PARAMHANS and INDIAN PRIDE Brand Rice. Installed capacity 8 Ton Per Hour and capacity utilization is 6 Ton Per Hour in FY20.
KEY FINANCIAL INDICATORS (Standalone)| Key Parameters | Units |
FY 20-21 (Audited) |
FY 19-20 (Audited) |
|---|---|---|---|
| Operating Revenue | Rs.Crs. | 429.41 | 377.76 |
| EBITDA | Rs.Crs. | 17.40 | 17.31 |
| PAT | Rs.Crs. | 5.78 | 5.14 |
| Tangible Net Worth | Rs.Crs. | 24.11 | 23.05 |
| Total Debt/Tangible Net Worth | Times | 4.66 | 4.74 |
| Current Ratio | Times | 1.16 | 1.21 |
STATUS OF NON-COOPERATION WITH PREVIOUS CRA
Not Applicable
RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)| Facilities | Current Rating (2022) | 2021 | 2020 | 2019 | |||||
|---|---|---|---|---|---|---|---|---|---|
| Type | Tenure | Amount (Rs.Crs.) |
Rating | Date | Rating | Date | Rating | Date | Rating |
| Fund Based | LT | 125.00 |
BWR BBB-/Stable
(Reaffirmation) |
22Apr2021 |
BWR BBB-Stable
(Upgrade) |
02Apr2020 |
BWR BB+Stable
(Upgrade) |
NA |
NA
|
| Grand Total | 125.00 | (Rupees One Hundred Twenty Five Crores 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 | |
|---|---|
|
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 | Central Bank of India | Cash CreditSanctioned | 35.00 | _ | 35.00 | |
| 2 | Central Bank of India | Export Packing Credit (EPC)Sanctioned | 75.00 | _ | 75.00 | |
| 3 | Central Bank of India | Gold CardSanctioned | 15.00 | _ | 15.00 | |
| 4 | HDFC Bank | Warehouse Receipts (WHR)Sanctioned | _ | _ | 0.00 | |
| Total | 125.00 | 0.00 | 125.00 | |||
| TOTAL (Rupees One Hundred Twenty Five Crores Only) | ||||||
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