RATING RATIONALE
17 May 2021
MNG Overseas Pvt. Ltd.
Brickwork Ratings assigns the ratings for the Bank Loan Facilities of Rs.18.25 Crs. of MNG Overseas Pvt. Ltd.
Particulars| Facility** | Amount (Rs.Crs) | Tenure | Rating* |
|---|---|---|---|
| Fund Based | |||
|
Cash Credit
Sanctioned
Warehouse Receipts (WHR) Sanctioned Warehouse Receipts (WHR) Sanctioned Covid -19 Emergency Line Credit Sanctioned Sub-Limit (EPC/PCFC) Sanctioned Sub-Limit (FBP/FBD/PSFC) Sanctioned |
07.50
05.00 05.00 00.75 (03.00) (03.00) |
Long Term | BWR BB - (Stable) |
| Sub-Limit (ILC/FLC) Sanctioned | (01.50) | Short Term | BWR A4 |
| Sub Total | 18.25 | ||
| Grand Total | 18.25 | (Rupees Eighteen Crores and Twenty Five lakhs Only) | |
**Details of Bank facilities are provided in Annexure-I RATING ACTION / OUTLOOK : Stable
BWR believes that MNG Overseas Pvt. Ltd. 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 the revenues and profit show sustained improvement. The rating outlook may be revised to 'Negative' if the revenues go down and profit margins show lower than expected figures.
KEY RATING DRIVERS
BWR has essentially relied upon the audited financial statements of MNG Overseas Pvt. Ltd. of FY18, FY19, FY20 and projected financial statements of FY21, FY22, publicly available information and information/clarifications provided by the company's management. The rating draws strength from the vast business experience of the director/s, established track of operations, and average financial risk profile. However, the rating is constrained by the scale of operations, thin profitability margins, inventory levels, and high competition from other established players in the market.
Going forward, the ability of the entity to achieve projected revenue & profitability margins and efficiently manage the working capital cycle would be key rating sensitivities
Credit Strengths:
- Experienced Promoters and Location Advantage :
The directors of the company have more than two decades of experience in the same line of business. Their knowledge and experience have helped them in maintaining a long-term relationship with their clients in domestic and international markets. The manufacturing facility of the company is located in Bijnor, Uttar Pradesh which has an advantage in terms of skilled labourers, logistics, raw material availability and vendor management making the company more efficient and cost-effective.
- Increasing scale of operations :
The total operating income of the company increased by 5.10% in FY 20 i.e. from Rs. 25.29 Crs in FY19 to Rs. 26.58 Crs in FY 20. Revenue achieved for FY 2021 is Rs. 35.41 Crs as per the monthly sales provided by the company. The projected revenue for FY 21 is approximately Rs. 36 Crs as per the management of the company. The revenue of the company is in the increasing trend.
- Improved net-worth and profitability :
The net worth of the company increased from Rs. 4.12 Crs in FY 19 to Rs. 4.51 Crs in FY 20 due to retention of profits. The analyzed net worth of the company is Rs. 8.16 Crs in FY 20 due to unsecured loans from directors and related parties. In FY 21, additional 6800 shares are issued at a premium, aggregating to Rs. 90,84,400 by the directors of the company. The net profit margin of the company is marginally increasing from 1.31% in FY 19 to 1.46% in FY 20.
- Average debt protection metrics :
The debt protection metrics of the company are satisfactory as ISCR & DSCR stands at 1.30x & 1.43x in FY 20 against 1.21x and 1.32x in FY 19 which shows the adequacy of the company to meet its interest and debt obligations in time.
Credit Risks:
- Stretched gearing :
The gearing of the company is stretched as Total Debt/TNW and TOL/TNW stands at 3.08x & 2.84x in FY 20 due to increased debt and net-worth maintained at the same level in FY 20. However, the analyzed total debt/ TNW stands at 1.25x in FY 20 due to unsecured borrowings from directors and related parties.
- Elongated conversion cycle :
The conversion Cycle of the company is high at 256 days in FY 20. The average collection period is 8 days, inventory days of finished goods is 269 days, and days payable are 22 days in FY 20. It is into the processing of rice which has a longer processing time period as after reaching the plant it includes cleaning, dehusking, paddy separating, milling, grading, etc. and it is also a seasonal crop, so, its stock has to be maintained for the whole year due to which the inventory days of finished goods is high at 269 days in FY 20.
- Seasonal availability and price fluctuations :
The availability of rice, wheat and pulses is seasonal and depends on the monsoons and irrigation facilities. Shortage of raw materials may lead to fluctuations in the prices of paddy and rice. This is compounded by the limited scope for passage of hike in raw material costs to customers. Profitability is determined by the minimum support price and prevailing market rice prices.
- Intense Competition :
The entry barriers are low on account of limited capital, technology requirements, and low differentiation in the end product leading to intense competition from both organized and unorganized players in the rice milling business and limiting the pricing power which ultimately results in low profitability.
For arriving at its ratings, BWR has applied its rating methodology as detailed in the Rating Criteria detailed below (hyperlinks provided at the end of this rationale).
RATING SENSITIVITIES
Going forward, the ability of the company to further increase its scale of operations by improving its revenue, profitability margins, improvement in the financial profile, as usual maintaining its debt obligations and efficiently managing its working capital will be the key rating sensitivities.
Positive: The ratings may be upgraded if revenue, profitability, liquidity, gearing and overall credit profile show substantial improvement.
Negative: The rating may be downgraded in case there is a significant deterioration in the business and financial risk profile of the company from its current level.
LIQUIDITY POSITION
The Company has a Cash & Bank balance of Rs. 0.11 Cr in FY20. The current ratio of the company is 1.50x in FY20 which is above the industry average. The average % utilization of the CC limits is approximately 96.59% in the last six months. The firm generated net cash accruals of Rs. 0.63 Crs in FY 20 against CPLTD of Rs. 0.04 Cr in FY 19 and the net cash accruals is projected to be Rs. 1.64 Crs in FY 21 against the CPLTD of Rs. 0.05 Crs in FY 20 indicating the availability of funds to meet its debt obligations. Moreover, the GECL facility availed by the company has a moratorium of 12 months indicating low debt repayments for FY 22. Hence, the overall liquidity of the company is adequate.
PROFILEMNG Overseas Pvt. Ltd. was incorporated in 2006 in New Delhi. It is engaged in the manufacturing and trading of rice, wheat and pulses. It is an exporter of rice to the Middle East and the USA from its office based in Delhi. The manufacturing plant is located at Nautaur, Bijnor District of Uttar Pradesh. Mr. Mithilesh Gupta is the Managing Director of the company with more than 25 years of experience in the same industry.
KEY FINANCIAL INDICATORS| Key Parameters | Units |
FY 19-20 (Audited) |
FY 18-19 (Audited) |
|---|---|---|---|
| Operating Revenue | Rs.Crs. | 26.58 | 25.29 |
| EBITDA | Rs.Crs. | 1.64 | 1.67 |
| PAT | Rs.Crs. | 0.39 | 0.33 |
| Tangible Net Worth | Rs.Crs. | 4.51 | 4.12 |
| Total Debt/Tangible Net Worth | Times | 3.08 | 3.76 |
| Current Ratio | Times | 1.50 | 1.27 |
NA
NON-COOPERATION WITH PREVIOUS RATING AGENCY ,IF ANY
| CRA Name | Date | Amount | Rating |
|---|---|---|---|
| CRISIL | 17 Mar 2021 | 14.50 | CRISIL B+/Stable (Rating Reaffirmed and Withdrawan) |
| S.No | Current Rating (2021) | Rating History | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Facilities | Tenure | Amount (Rs.Crs) | Rating | |||||||
| Total | 18.25 | (Rupees Eighteen Crores and Twenty Five lakhs 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 : For More Information Contact:| Analytical Contacts | |
|---|---|
|
Muskan Agrawal Rating Analyst muskan.a@brickworkratings.com |
Hari Kishan Yadav Associate Director - Ratings hari.ky@brickworkratings.com |
| 1-860-425-2742 | media@brickworkratings.com | |
| SL.No. | Type Of Facilities | Long Term(Rs.Crs.) | Short Term(Rs.Crs.) | Total(Rs.Crs.) |
|---|---|---|---|---|
| 1 | Cash CreditSanctioned | 7.50 | _ | 7.50 |
| Sub-Limit (EPC/PCFC) Sanctioned | (3.00) | |||
| Sub-Limit (FBP/FBD/PSFC) Sanctioned | (3.00) | |||
| Sub-Limit (ILC/FLC) Sanctioned | (1.50) | |||
| 2 | Covid -19 Emergency Line CreditSanctioned | 0.75 | _ | 0.75 |
| 3 | Warehouse Receipts (WHR)Sanctioned | 5.00 | _ | 5.00 |
| 4 | Warehouse Receipts (WHR)Sanctioned | 5.00 | _ | 5.00 |
| Total | 18.25 | 0.00 | 18.25 | |
| TOTAL (Rupees Eighteen Crores and Twenty Five lakhs Only) | ||||
| Instrument | Issue Date | Amount (Rs.Crs) | Coupon Rate | Maturity Date | ISIN Particulars |
|---|---|---|---|---|---|
| NA | NA | NA | NA | NA | NA |
| Name of Entity | % Ownership | Extent of consolidation | Rationale for consolidation |
|---|---|---|---|
| NA | NA | NA | NA |
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