RATING RATIONALE
27Oct2022
ALM Food Products Ltd.
Brickwork Ratings removes the ratings from the Issuer Not Cooperating category and upgrades the long term ratings for the Bank Loan Facilities of Rs.141.00Crs. of ALM Food Products Ltd.
Particulars| Facilities** | Amount (Rs.Crs.) | Tenure | Rating#@ | ||
|---|---|---|---|---|---|
| Previous | Present | Previous (05 Aug 2022) |
Present | ||
| Fund Based | 141.27 | 141.00 | Long Term |
BWR BB /Stable
Downgrade/ISSUER NOT COOPERATING* |
BWR BBB -
/Stable removal from ISSUER NOT COOPERATING* category/Upgraded |
| Grand Total | 141.27 | 141.00 | (Rupees One Hundred Forty One Crores Only) | ||
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure
*** TL and Covid loans have been repaid in full as on 31 May, 2022. The proposed loan facility is expected enhancement in working capital facilities only.
Note: *Issuer did not cooperate; based on best available information.
@This rating pertains to an existing assignment received prior to 6 October 2022
RATING ACTION / OUTLOOK
The ratings of ALM Food Products Ltd (the company) were downgraded and migrated to the Issuer Not Cooperating (INC) category in August 2022 owing to the non-receipt of complete information to enable Brickwork Ratings (BWR) to carry out a surveillance review. The ratings have now been removed from the INC category and upgraded based on the review carried out by BWR.
The upgrade in the ratings also factors in the stable overall financial risk profile of the company, healthy capital structure, decent revenue performance during 6MFY23 and good revenue visibility. The ratings are, however, constrained due to intense competition in the industry, regulatory risks, thin profitability and a higher working capital intensity.
BWR believes that ALM Food Products Ltd’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.
KEY RATING DRIVERS
Credit Strengths:
-
Experience of promoters and locational advantage :
Mr. Fazlur Rehman and Mr. Jamshed Ali are the chief promoters of the company, with over four decades of experience in the processed meat industry and have helped the company scale up its operations and build strong relationships with customers and suppliers in domestic, as well as overseas markets. The company’s plant is located at Dera Bassi in Punjab, facilitating the easy availability of raw material and other related inputs/services.
-
Moderate financial risk profile :
The company’s overall financial risk profile is moderate, as indicated by the tangible net worth, capital structure and debt coverage ratios. The company’s tangible net worth was Rs. 97.84 Crs as on 31 March 2022 with an overall gearing of 1.32x in FY22 (P.Y 1.41x). The interest coverage ratio (ISCR) remained moderate at 1.45x during the year. Although the company’s revenues declined from Rs.624.40 Crs in FY21 to Rs.339.93Crs during FY22 primarily due to business disruptions on account of plant shutdown for maintenance, revenues are expected to improve during FY23 to the previous years’ levels. The company has already booked sales of Rs.316 Crs during 6MFY23 (i.e upto September 2022) and had an order book of Rs.261Crs outstanding as on 31 August 2022, to be completed by March 2023, providing good revenue visibility. During FY22, the company had undertaken the debottlenecking of plant operations, and the improved capacity is expected to help the company’s management in onboarding new overseas clients and also to augment additional supplies to the domestic buyers, leading to a sustained and significant improvement in the overall revenues and profitability of the company.
-
Susceptibility to changes in government regulations :
Changes in government policies could directly affect sales and raw material supply as currently, the government of Uttar Pradesh is not issuing new licenses for the opening up of new slaughter houses or the capacity expansion of existing slaughter houses. However, policies that have affected illegal abattoirs have been positive for licensed abattoirs. But, an adverse change in policy could impact business. Additionally, products have to meet international quality standards as per the policy and regulations of importing nations.
-
Moderate operating profitability :
Intense competition in the domestic and international markets has kept operating margin low, as seen in preceding years. However, the company was able to report growth in its operating margins to 4.05% in FY22 as against 2.85% in FY21 largely due to better realisations from the international market and cash discounts availed from creditors in FY22.
For arriving at rating, BWR has considered the standalone approach and has essentially relied on the audited financials up to FY22, projected financials up to FY24, publicly available information, as well as information/clarifications provided by the company's management and bankers. Additionally, BWR has applied its rating methodology as detailed in the Rating Criteria detailed below (hyperlinks provided at the end of this rationale).
RATING SENSITIVITIES
UPWARD: Sustained growth in revenues and improvement in overall financial risk profile as indicated by profit margins, debt coverage indicators, working capital cycle, capital structure and liquidity would support upward rating action.
DOWNWARD: Deterioration in revenues, profit margins, debt coverage ratios and any business risk arising out of adverse government regulations would be key factors for downward rating action.
LIQUIDITY INDICATORS - Adequate
The liquidity in the company is adequate, as indicated by cash accruals of Rs.9.09Crs in FY22 against the term debt obligation of Rs.2.94Crs.The company is expected to achieve cash accruals of more than Rs.8.50Crs in FY23 and FY24 each against nil debt obligations in FY23 as the company has repaid all its outstanding Covid/TL loans as of May-2022.Interest Service coverage Ratio (ISCR) and Debt Service Coverage Ratio (DSCR) are 1.45x and 1.26x, respectively, in FY22.The current ratio of the company was 1.25x as on March 31, 2022.The company had cash and bank balance of Rs.3.06Crs as on March 31,2022.
ABOUT THE ENTITYALM Foods Pvt Ltd was incorporated on 30 July 1996 with its registered office at Saharanpur (U.P.), which was later on shifted to New Delhi. The company commenced Merchant Export Business in Rice, Meat and allied Commodities. Later in 2015-16, the company set-up a state-of-the-art Frozen Boneless Buffalo Meat processing unit with a fully automatic imported Slaughter House and waste recovery plant located at Village Behra, Gulabgarh Road, Derabassi, Punjab. The unit commenced production in January 2017. The company has set-up a modern slaughtering unit and a waste recovery management unit with a capacity of 33750 metric tonnes per annum (MTPA). The company’s plant is approved by the Agriculture and Processed Food Products Export Development Authority (APEDA). The company has been established by the promoters of ALM Industries Limited, which has been present in the same sector from 2002. ALM Industries Limited holds more than 55% shares in the company, with the rest being held by the promoters.
KEY FINANCIAL INDICATORS (Standalone)| Key Parameters | Units |
FY 21-22 (Audited) |
FY 20-21 (Audited) |
|---|---|---|---|
| Operating Revenue | Rs.Crs. | 339.93 | 624.40 |
| EBITDA | Rs.Crs. | 13.75 | 17.82 |
| PAT | Rs.Crs. | 0.37 | 5.27 |
| Tangible Net Worth | Rs.Crs. | 97.84 | 97.48 |
| Total Debt/TNW | Times | 1.32 | 1.41 |
| Current Ratio | Times | 1.25 | 1.36 |
STATUS OF NON-COOPERATION WITH PREVIOUS CRA
ICRA vide its press release dated 27 April, 2022 has continued the rating under Issuer Non cooperation and downgrade the rating to ICRA B+/Stable and ICRA A4 for rated debt of Rs.138.36crs
RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)| Facilities | Current Rating (2022) | 2022 (History) | 2021 | 2020 | 2019 | ||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Type | Tenure | Amount (Rs.Crs.) |
Rating | Date | Rating | Date | Rating | Date | Rating | Date | Rating |
| Fund Based | LT | 141.00 |
BWR BBB-/Stable
(removal from ISSUER NOT COOPERATING* category/Upgraded) |
05Aug2022 |
BWR BB Stable
(Downgrade/ISSUER NOT COOPERATING*) |
06May2021 |
BWR BBB-Stable
(Assignment) |
NA |
NA
|
NA |
NA
|
| Grand Total | 141.00 | (Rupees One Hundred Forty One 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 | |
|---|---|
|
Akanksha Senior Ratings Analyst akanksha@brickworkratings.com |
Saurabh Agarwal Manager - Ratings saurabh.a@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 | Term LoanSanctioned | _ | _ | 0.00 | |
| 2 | Central Bank of India | Bill Discounted (BD)Sanctioned | 80.00 | _ | 80.00 | |
| 3 | Central Bank of India | Covid -19 Emergency Line CreditOut-standing | _ | _ | 0.00 | |
| 4 | Central Bank of India | Covid -19 Emergency Line CreditOut-standing | _ | _ | 0.00 | |
| 5 | Central Bank of India | PC/PCFC/FDB/BRD/FBESanctioned | 47.00 | _ | 47.00 | |
| 6 | Un tied portion | Proposed loanProposed | 14.00 | _ | 14.00 | |
| Total | 141.00 | 0.00 | 141.00 | |||
| TOTAL (Rupees One Hundred Forty One Crores Only) | ||||||
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