DA Egg Industries

Brickwork Ratings assigns the ratings for the Bank Loan Facilities of Rs.27.36 Crs. of DA Egg Industries

Particulars

Facility**	Amount (Rs.Crs)	Tenure	Rating*
Fund Based
Term Loan - Out-standing Cash Credit - Proposed	20.36 07.00	Long Term	BWR BB - (Stable)
Sub Total	27.36
Grand Total	27.36	(Rupees Twenty Seven Crores and Thirty Six lakhs Only)

*Please refer to BWR website www.brickworkratings.com for definition of the ratings
**Details of Bank facilities are provided in Annexure-I RATING ACTION / OUTLOOK : Stable

BWR has assigned a rating and Stable Outlook to the bank facilities of DA Egg Industries ("DEI" or "The Firm") based on the vast business experience of the partners and the long-standing presence in the industry, establishing a relationship with its customers and suppliers, moderate scale of operations and profit margins and the moderate financial risk profile of the firm. However, the rating is constrained on account of the fluctuating liquidity and weak DSCR. Further, the inherent risk in the poultry industry is a critical risk in the business and due to the partnership constitution, there is a risk of capital withdrawal for any contingency which may affect the capital structure of the firm. Due to the COVID 19 outbreak and its impact on the poultry sector, the business revenue is likely to be impacted during the FY21. BWR has essentially relied upon the audited financial statements of DEI up to FY19, CA certified provisional financials for the 9M FY20 and projected financial statements of FY20 and FY21, publicly available information and information/clarifications provided by the entity’s management.

BWR believes that DA Egg Industries' 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

Credit Strengths:

• Management Experience :

  The partners in the firm possess experience of around four decades in the poultry industry. Both the partners were previously managing their independent proprietorship firms in a similar line of business and the firms were merged in 2011 to form M/s DA Egg Industries. Due to their long-standing presence in the industry, the firm has established relations with its customers and suppliers. The firm owns a total of seven farms in different villages in Raipur, out of which one farm is fully automated with environmental conditioning.

• Moderate Capital Structure :

  The Net Worth of the firm is moderate at Rs 9.96 crs in FY19. The Debt/Equity Ratio stood at 3.75x in FY19. However, as there has been a capital introduction in the firm, during FY 19-20 by a way of transfer of Fixed Assets of approximately Rs 10 crores in the firm which was standing in the name of the partners of the firm. The Net Worth has improved to Rs. 24.76 cr (Rs 19.28cr Analysed) for the period 9M FY20 (Prov) and the Debt/Equity ratio improved to 1.25x. The TOL/TNW stood at 1.48x for the 9M FY20, improving from 4.90x in FY19.

• Moderate Scale of operations and Profitability Margins and ISCR :

  The scale of operations have improved marginally Y-O-Y basis. For FY 19, the revenue stood at Rs. 88.03 crs. For the 9M FY20, the firm has clocked in the revenue of approximately Rs 67.73 crs as against its projected revenue of Rs 90 crs. With the Q4 sales for FY20, the firm expects to achieve a revenue of approximately Rs 86 crores. The profit margins in the firm viz, OPM and NPM stood moderate at 8.37% and 2.17% for FY19. The margins are estimated to be at the same level for FY20, in line with the revenue. The ISCR of the firm, however, stood moderate at 2.56x in FY19 and is projected at ~4.64x for FY 20. However, the revenue and the margins are likely to be impacted in FY21, due to the COVID 19 pandemic and the subsequent nationwide lockdown.

Credit Risks:

• Weak DSCR :

  The DSCR of the firm stood low at 0.73x in FY19. However the same is estimated to improve marginally in FY20 due to marginal improvements in profit. For FY 20, the DSCR is estimated to be ~ 1.08x.

• Inherent Risk in the Poultry Industry and the Impact of COVID 19 :

  Bird flu and other diseases amid their perishable nature are a critical risks in the business which may lead to a decline in demand and prices and affect the production of healthy chicks. However, DEI takes precautions by providing medicines/scheduled vaccines at their farms to mitigate the risk and they also have in-house doctors and testing facilities. The coronavirus (Covid-19) outbreak, is likely to have an impact on the Indian poultry sector. Further, the hotels and hospitality sector, a major consumer of the firm’s end product is also facing headwinds due to this pandemic and lockdown. Due to the lockdown, DEI had to shut down their retail counters. However, the firm has managed to sell their products in local markets.

• Partnership Constitution :

  Withdrawal of the capital from the firm for any contingency may adversely affect the capital structure.

• Liquidity :

  The liquidity is stretched marked by a fluctuating current ratio of 1.30x and 1.00x in FY19 and FY20 (Proj) respectively. The Net Cash Accruals to the Total debt ratio also stood low at 0.25x for 9M FY20 and low cash and cash equivalents of Rs 0.46cr for 9M FY20.

ANALYTICAL APPROACH AND APPLICABLE RATING CRITERIA

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

The ability of the firm to scale up its operations, improve the profitability and the financial risk profile and the capital structure, maintain adequate liquidity and improve its debt-servicing capacity would be the key rating sensitivities.

Positive: The rating may be upgraded in case the revenue, profitability, and capital structure of the firm show significant improvement.

Negative: The rating may be downgraded in case there is a significant withdrawal of the capital, deterioration in the profit margins, and the debt-servicing capacity. 

LIQUIDITY POSITION

Stretched:

The liquidity profile of the firm is stretched marked by a fluctuating current ratio, which stood at 1.30x in FY19 as against 1.27x in FY18. The same is estimated to decline to 1.00x in FY 20 (Proj). The Net Cash Accruals stood at Rs. 8.66 cr against debt obligations of Rs 9.02cr for FY20 (Prov) and are projected at Rs 9.33cr against debt obligations of Rs 7.75cr for FY 21. The firm does not have any working capital limits. The cash and cash equivalents are low at Rs 0.46cr for 9M FY20. The firm has no liquid investments.

PROFILE

M/S DA Egg Industries was established in 2011 as a partnership firm, pursuant to the merger of M/s Egg Industries, headed by Mr. Achin Banerjee and M/S Broiler Industries headed by Mr. Dhanraj Banerjee. Now the firm is managed by both Mr. Achin Banerjee and his son Mr. Dhanraj Banerjee. The firm is engaged in the poultry business in Raipur, and some major products of the company are Eggs, Broiler Birds, Chicks, Growers, and Manure. Mr. Achin Banerjee possesses an experience of 38 years in the industry. The firm has around 700 employees including in-house doctors. The company has a total of 7 farms, of which, one is fully automated with all Environmental Conditioning. The company owns a total of 16 retail counters, of which 9 are in Raipur and are firm owned while the remaining 5 are handled by dealers. The firm is engaged in the commercial egg and broiler production and has an aggregate production capacity of 6.5 Lakhs eggs and 4 lakhs birds per month.

KEY FINANCIAL INDICATORS

Key Parameters	Units	FY 18-19 (Audited)	FY 17-18 (Audited)
Operating Revenue	Rs.Crs.	88.03	82.97
EBITDA	Rs.Crs.	7.37	6.38
PAT	Rs.Crs.	1.91	1.29
Tangible Net Worth	Rs.Crs.	9.96	8.07
Total Debt/Tangible Net Worth	Times	3.75	4.40
Current Ratio	Times	1.30	1.27

RATING HISTORY (INCLUDING WITHDRAWAL AND SUSPENSION)

S.No	Current Rating (2020)				Rating History
	Facilities	Tenure	Amount (Rs.Crs)	Rating	2019	2018	2017
Fund Based
1	Term Loan - Out-standing Cash Credit - Proposed	Long Term	20.36 07.00	BWR BB- (Stable)	NA	NA	NA
Total			27.36	(Rupees Twenty Seven Crores and Thirty Six 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
Srishti Kaushik Lead Analyst srishti.k@brickworkratings.com	Liena Thakur Assistant Vice President - Corporate Communications M : +91 84339 94686 liena.t@brickworkratings.com
Sushil Kumar Chitkara Associate Director - Ratings B : +91 22 2831 1426, +91 22 2831 1439 sushilkumar.c@brickworkratings.com
1-860-425-2742

SL.No.	Type Of Facilities	Long Term(Rs.Crs.)	Short Term(Rs.Crs.)	Total(Rs.Crs.)
1	Term Loan - Out-standing	20.36	_	20.36
2	Cash Credit - Proposed	7.00	_	7.00
Total				27.36
TOTAL (Rupees Twenty Seven Crores and Thirty Six lakhs Only)