SN Milk Products Pvt Ltd.

Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 91.00 Crs. of SN Milk Products Pvt Ltd.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
	Previous	Present		Previous (21 Jun 2021)	Present
Fund Based	54.71	69.00	Long Term	BWR BBB/Stable Reaffirmation	BWR BBB /Stable Reaffirmation
Non Fund Based	31.70	22.00	Short Term	BWR A3+ Reaffirmation	BWR A3 + Reaffirmation
Grand Total	86.41	91.00	(Rupees Ninety One 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 reaffirmation in the ratings of SN Milk Products Pvt Ltd. (SNMPPL or the company) factors in its healthy business profile and stable debt protection metrics, coupled with a strong B2B customer base in the dairy value-added product industry. The ratings also draw comfort from the extensive experience of promoters in the dairy industry and established milk procurement base of the company. The ratings are, however, constrained on account of its high dependence on the Hotel, Restaurant Catering (HoReCa) sector for product offtake, susceptibility to volatility in raw milk procurement prices, limited brand presence on the retail side, and intense competition from players in the organised and unorganised sectors in the industry.

Rating Outlook: Stable

Brickwork Ratings (BWR) believes that SNMPPL’s business risk profile is likely to 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 the company’s revenues and profit show sustained improvement. The rating outlook may be revised to Negative if revenues go down and the profit margins show lower than expected figures.

KEY RATING DRIVERS

Credit Strengths:

• Extensive experience of promoter :

  Benefits from the promoter’s experience of over a decade and strong relationships with vendors and customers are expected to continue to support the business. The same has resulted in steady volume growth over the last few fiscals. Although the scale declined in FY21 due to Covid-19, the promoter’s experience, the company’s strong relationship with its customer base and healthy relationship with its suppliers are all expected to support the business over the medium term.

• Moderate financial risk profile :

  The networth was estimated to be healthy at Rs 43.87 Crs as on 31 March 2022, while the total debt to networth ratio had improved to around 1.60 times as on 31 March 2022 from around 1.88 times as on 31 March 2021. The networth is expected to increase further with a steady accretion to reserves. The debt protection metrics are expected to remain moderate, with the ISCR improving to 2.43x in FY22 against 2.21x in FY21 and the DSCR improving to 1.85x in FY22 from 1.74x in FY21. In the absence of any significant debt-funded capital expenditure, the financial risk profile should remain steady over the medium term.

• Established procurement base supplemented by a network of VLCCs and chilling centres :

  Milk is the primary raw material for the company. The company benefits from being located in the milk producing belt in Uttar Pradesh (UP), with UP being one of the highest milk producing states in India. SNMPPL procures raw milk from more than 50,000 dairy farmers across UP through the local collection centres. The company sources milk from around 700+ villages across 6 districts of Central and Eastern Uttar Pradesh and has tie-ups with 300 Village-Level Collection Centres (VLCC) for continuous milk supply. To streamline the collection process, these villages are grouped into units, with each unit collecting milk from approximately 150 villages. The company has 2 chilling centres spread across these units for the collection and storage of milk, with a combined storage capacity of 2.50 LLPD. The milk sourced from the villages reaches the chilling centres in the morning, where it is stored at a temperature of -2 degree Celsius to ensure it is kept fresh and is then disbursed to the processing unit in Sasni-UP. SNMPPL also has its own lab and technicians for checking the quality of the raw milk procured. SNMPPL sells its products under the Madhav brand name. The company does retail sales only in Uttar Pradesh, while bulk/ institutional sales are done pan-India in states. SNMPPL has been successful in increasing its product penetration through a strong distribution network.

Credit Risks:

• Limited brand presence :

  At the retail level, the company has a limited brand presence as it concentrates primarily on the B2B segment. Although the company’s efforts to increase brand presence by penetrating the rural areas may drive revenue growth in the long term, the company’s ability to compete with the local players in the unorganised sector remains to be seen and will be a key monitorable metric.

• Seasonal nature of milk processing industry :

  The dairy industry is seasonal in nature, characterised by the short supply of milk during peak summers. Therefore, to ensure the continuous sale of milk products around the year, the company procures milk during the winter season when milk is available in abundance and at a lower price, leading to a build-up of inventory/finished goods, which includes mostly ghee and skimmed milk powder (sine these two products have a shelf life of over 6 months). Correspondingly, there is a high requirement of funds during the winter months (November-April), for which the company keeps the option of availing a short-term loan pledge for milk powder and ghee against a 25% margin.

• Competition from the organized and unorganized sector :

  SNMPPL faces competition in the dairy segment from other established brands in the organised market, as also from the local players in the unorganised sector. The risk is mitigated to some extent as the company has a strong B2B client base.

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 upgrade in the company’s ratings is sensitive to the substantial improvement in revenues and net profit margins, improvement in the tangible net worth and a reduction in the overall gearing (TOL/TNW ratio) with Stable debt protection metrics and adequate liquidity parameters favouring an upgrade.

Negatives: An adverse rating action may be taken in the next review if there is decline in operating revenues and profitability margins, and any other profitability or liquidity parameters from the current levels.

LIQUIDITY INDICATORS - Adequate

Adequate liquidity is characterised by surplus internal cash accruals against the debt repayments in FY22 (prov.) of Rs.6.38 Crs against a repayment obligation of Rs.1.47 Crs in FY22 (Prov). Furthermore, BWR expects the company to generate cash accrual of ~Rs 6.17 Crs in FY23 against the maturing debt of Rs 0.96 Crs for FY23. The working capital limit utilisation stood at an average of ~86% for the past 6 months while the company has maintained the current ratio in the range of 1.30x -1.74x for the last three years ending FY22. The company has also availed a self-liquidating loan from UPFC (Uttar Pradesh Financial Corporation) of Rs.18.57 Crs, which is fully secured by bank FDR, against which a BG has been issued to UPFC, which reduces the burden of repayments year-on-year. The company generated an average EBITDA of Rs.11.55 Crs for the last 3 fiscal years to bear the average interest obligation of Rs.4.93 Crs. Furthermore, the company’s cash conversion cycle is comfortable at 94 days, albeit with high inventory levels, which is the nature of this business. The company’s ISCR and DSCR ratios, which have historically stood above 1.50x, are expected to stay comfortable in FY23 despite a small debt-funded capex of Rs.9.33 Crs, which will be funded by availing Rs.7 Crs of debt, with the remaining to be funded by the company’s internal accruals.

ABOUT THE ENTITY

SNMPPL is involved in the processing of milk and manufacturing of value-added milk products. The company is FSSC 22000 (Food Safety) Certified and is also approved for the export of white butter, desi ghee and SMP by the Export Inspection Council of India. The company has milk processing plants situated at Sasni Distt- Hathras, UP, with an installed capacity of 6.50 lakh litres of milk per day for processing milk. The directors of the company are Mr Vinod Aggarwal, Mr Sushil Aggarwal and Mr Ravi Kant Aggarwal.

 

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 21-22 (Provisional)	FY 20-21 (Audited)
Operating Revenue	Rs.Crs.	309.47	309.09
EBITDA	Rs.Crs.	10.50	10.65
PAT	Rs.Crs.	3.30	2.48
Tangible Net Worth	Rs.Crs.	43.87	40.57
Total Debt/TNW	Times	1.60	1.88
Current Ratio	Times	1.74	1.90

KEY COVENANTS OF THE FACILITY RATED

The terms of sanction include standard covenants normally stipulated for such facilities.

NON-COOPERATION WITH PREVIOUS CREDIT RATING AGENCY

NA

ANY OTHER INFORMATION

Nil

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	69.00	BWR BBB/Stable (Reaffirmation)	21Jun2021	BWR BBBStable (Reaffirmation)	24Jun2020	BWR BBBStable (Upgrade)	20Aug2019	BWR BBB - Stable (Reaffirmation)
Non Fund Based	ST	22.00	BWR A3+ (Reaffirmation)	21Jun2021	BWR A3+ (Reaffirmation)	24Jun2020	BWR A3+ (Upgrade)	20Aug2019	BWR A3 (Reaffirmation)
Grand Total		91.00	(Rupees Ninety One 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

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

Analytical Contacts
Neha Jain Senior Rating Analyst Board : +91 11 2341 2232 neha.j@brickworkratings.com	Kewal Krishan Singla Director - Ratings kewalsingla@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	Punjab National Bank	Term Loan - Out-standing	_	_	0.00
2	Punjab National Bank	Term Loan - Proposed	7.00	_	7.00
3	Punjab National Bank	Cash Credit - Sanctioned	40.00	_	40.00
4	Punjab National Bank	Warehouse Receipts (WHR) - Proposed	15.00	_	15.00
5	Punjab National Bank	CECL - Out-standing	_	_	0.00
6	Punjab National Bank	GECL - Out-standing	7.00	_	7.00
7	Punjab National Bank	ILC/FLC/BG - Sanctioned	_	22.00	22.00
Total			69.00	22.00	91.00
TOTAL (Rupees Ninety One Crores Only)