A.V. Overseas

Brickwork Ratings assigns the ratings for the Bank Loan Facilities of Rs.10.25 Crs. of A.V. Overseas

Particulars

Facilities**	Amount(Rs.Crs)	Tenure	Rating*
Fund Based	7.25	Long Term	BWR BB- (Pronounced as BWR Double B minus)
Fund Based	3.00	Short Term	BWR A4 (Pronounced as BWR Single A Four)
Total	10.25	(Rupees Ten Crores and Twenty Five lakhs Only)

*Please refer to BWR website www.brickworkratings.com for definition of the ratings
**Details of Bank facilities are provided in Annexure-I
Note: Note 1- Long Term Fund Based Facilities include Cash Credit of 3.00 cr; TL O/s Bal. as on 30.06.2019 - 4.25 cr. Short Term Fund Based Facilities include Packing Credit of 3.00 cr. Note 2- BWR A4 is mapped to long term rating of BWR BB- RATING ACTION / OUTLOOK : Stable

BWR believes the A.V. Overseas 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 revisd to 'Negative' if the revenues go down and profit margins show lower than expected figures

KEY RATING DRIVERS

BWR has essentially relied upon the unaudited financials of FY 18, provisional financial statements of FY 19 and projected financial statements up to FY 20, FY 21, publicly available information and information / clarifications provided by the entity’s management. The rating draws strength from the vast business experience of the partners, above average financial risk profile, the proximity of the mill to a major rice-growing area which results in easy availability of paddy and also the stable demand outlook for rice, given that India is a major consumer and exporter of rice. However, the rating is constrained on account of the scale of operations, intense competition, less value additive nature of the product ,constitution of the firm and agro-climatic risks. Further, the firm is still at nascent stage of operations .

Going forward, the ability of the entity to increase its scale of operations, improve its gearing ration, its ISCR , DSCR and achieve projected revenue & profitability margins and manage liquidity would be the key rating sensitivities.

Credit Strengths

• Experienced Partners

  The firm was promoted by Ashwani Kumar Gupta and Vikas Gupta in Dec 2017. Although the firm was incorporated in 2017 but management has wide experience in the rice industry which will be helpful for the company in handling operations in the near future and also establishing healthy relations with their customers and suppliers. Mr Avinash Kumar Gupta has an industry experience of around two decades by virtue of his being partner in M/s Shiv Shakti Rice Industries (established in 2001) while Mr Vikas Gupta has a decade long experience through his previous association as partner with M/s Triveni Agrotech(established in 2011). Currently, both the partners are also partners in M/s AV Exports (established in 2016 and engaged in trading and export of rice).

• Location advantages

  AVO is engaged in the processing of paddy and milling of rice. Paddy is procured from local commission agents and wholesalers. The firm’s processing facility is situated at Moga, Punjab which is one of the largest producers of paddy in India. Hence, the firm benefits in terms of easy access to quality raw material because of its proximity to raw material suppliers and is also in a position to cut on the freight component.

• Moderate Financial Risk Profile

  The firm has no operations in FY 18 and has commenced operations from Nov 2018. In FY 19, operating income reflected at INR 21.01 cr is five months revenue which is projected to increase to INR 46.95 cr. Further, as per data submitted by management, the firm has already achieved INR 10.00 cr sales upto May’19. The financial risk profile is moderate reflected by moderate gearing ratio, moderate debt service indicators with ISCR and DSCR of 3.49x and 2.52x respectively in FY 19. Moderate Debt Equity Ratio reflected at 2.29x in FY 2019 on account of comfortable net worth . The same is projected to improve to 2.27x in FY 20. Tangible net worth includes partner’s capital, profits of the current year and quasi equity. Quasi Equity constituting unsecured loans from family and friends account for around 75% of net worth as on 31.03.2019. Also, the firm has a net profit margin of 0.71% and comfortable operating profit margin of 8.30% in FY 19.

Credit Weakness

• Nascent stage of operations

  The firm commenced its operations from Nov 2018. Due to the firm being at nascent stage of operations, the firm has small scale of operations and very short track record of operations .

• Exposure to agro-climatic risks and inventory price risks

  Given its operations in an agro-based industry, the firm is exposed to agro-climatic risks such as abnormal weather conditions impacting produce and unpredictable demand supply conditions and raw material price fluctuations. Agro based industry is characterized by its seasonality, due to its dependence on raw materials whose availability is affected directly by the unpredictable changes in weather. Adverse climatic conditions can affect their availability and leads to volatility in raw material prices. The monsoon has a bearing on crop availability which determines the prevailing rice prices. Further, any sudden spurt in the raw material prices may not be passed on to customers completely owing to the firm’s presence in highly competitive industry.

• Intense competition

  The rice industry is highly fragmented and is marked by the presence of numerous large players and small players. Given the low capex and technical complexity of work, the entry barriers have remained low, resulting in a large number of small-to-medium scale enterprises. This intensifies competition and limits the pricing flexibility of the industry participants. As AVO has just started operating in 2018, it faces stiff competition in the domestic and export market. Further, paddy prices are regulated by government to safeguard the interest of farmers which in turn limits the bargaining power of the rice millers.

• Risks associated with partnership concern

  Given the partnership nature of the AVO’s constitution, there is an inherent risk of possibility of withdrawal of partner’s capital for any personal contingency that could adversely impact the capital structure of the firm.

ANALYTICAL APPROACH AND APPLICABLE RATING CRITERIA

For ariving 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).

LIQUIDITY POSITION

The firm has liquid investments including Cash & Cash Equivalents of INR 0.03 cr as on March 31 2019. Current ratio stood at 1.29x in FY 19 and conversion cycle is at 99 days in FY19. Further, current maturities of long term borrowings is at 0.71 cr as on 31.03.2019. The firm had not commenced operations in FY 18, therefore ISCR and DSCR could not be calculated in FY18. The firm has Interest service coverage ratio (ISCR) of 3.49x and Debt Service Coverage Ratio (DSCR) of 2.52x in FY19. Overall liquidity of the company remain adequate with average cash credit limit utilization of around 83% from Nov’18 to May’19 availed from Punjab & Sind Bank . Also, partners of A V Overseas are also partners of A.V. Exports. But there are no operational linkages between them.

PROFILE

A V Overseas (AVO) is a partnership firm established in December 2017 by Mr. Avinash Kumar Gupta and Mr. Vikas Gupta. The firm is engaged in the rice milling business. The commercial operations of the firm commenced in Nov 2018. Its milling unit has been set up in Moga , Punjab for processing of paddy and have installed milling capacity of 15 tonnes paddy per hour. The firm procures paddy from local commission agents and wholesalers. Approximately, 7% of rice has been exported in FY 19. AVO plans to sell rice majorly to various wholesalers domestically and export around 20% of the rice next year. The partners of the firm are also partners in M/s AV Exports engaged in the same line of business.

KEY FINANCIAL INDICATORS

Key Parameters	Units	FY 18-19	FY 17-18
Operating Revenue	Rs.Crs	21.01	0.00
EBITDA	Rs.Crs	1.74	0.00
PAT	Rs.Crs	0.15	0.00
Tangible Net Worth	Rs.Crs	5.30	0.34
Total Debt/Tangible Net Worth	Times	2.29	3.51
Current Ratio	Times	1.29	25.02

RATING HISTORY (INCLUDING WITHDRAWAL AND SUSPENSION)

S.No	Current Rating (2019)				Rating History
	Facilities	Amount(Rs.Crs)	Tenure	Rating	2018	2017	2016
1	Fund Based	7.25	Long Term	BWR BB- (Pronounced as BWR Double B minus)	NA	NA	NA
2	Fund Based	3.00	Short Term	BWR A4 (Pronounced as BWR Single A Four)	NA	NA	NA
Total			10.25	(Rupees Ten Crores and Twenty Five lakhs Only)

COMPLEXITY LEVELS OF THE INSTRUMENTS

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 :

• General Criteria
• Approach to Financial Ratios
• Manufacturing Companies

For More Information Contact:

Analytical Contacts	Investor Contacts
Rashi Arora Ratings Analyst B : +91 172 5032 295 / 6 Ext : 104 rashi.a@brickworkratings.com	Liena Thakur Assistant Vice President - Corporate Communications M : +91 84339 94686 liena.t@brickworkratings.com
V.K.Kukreja Associate Director - Ratings B : +91 11 2341 2232 kukreja.vk@brickworkratings.com
1-860-425-2742

SL.No.	Name of the Bank	Long Term(Rs.Crs)		Short Term(Rs.Crs)	Total(Rs.Crs)
		CC	TL
1	Punjab & Sind Bank	3	4.25	3	10.25
	TOTAL (Rupees Ten Crores and Twenty Five lakhs Only)	3	4.25	3	10.25

Note: Note 1- Long Term Fund Based Facilities include Cash Credit of 3.00 cr; TL O/s Bal. as on 30.06.2019 - 4.25 cr. Short Term Fund Based Facilities include Packing Credit of 3.00 cr. Note 2- BWR A4 is mapped to long term rating of BWR BB-