AB Udyog Pvt. Ltd.

Brickwork Ratings assigns the ratings for the Bank Loan Facilities of Rs.23.74 Crs. of AB Udyog Pvt. Ltd.

Particulars

Facility**	Amount (Rs.Crs)	Tenure	Rating*
Fund Based
Cash Credit - Sanctioned GECL - Out-standing	19.00 03.74	Long Term	BWR BBB - (Stable)
Sub Total	22.74
Non-Fund Based
Bank Guarantee - Sanctioned	01.00	Short Term	BWR A3
Sub Total	01.00
Grand Total	23.74	(Rupees Twenty Three Crores and Seventy Four 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 essentially relied upon the audited financial statements of AB Udyog Pvt Ltd for FY19, FY20, FY21 and provisional financials of FY22 as well as projected financial statements for FY23, FY24, publicly available information and information/clarifications provided by the entity’s management and its bankers.

BWR has assigned a rating of BWR BBB- (stable) to the long term bank loan facilities of the company for Rs. 22.74 Crs and a rating of BWR A3 to their short term bank loan facilities for Rs. 1 Cr (aggregate rated amount for Rs. 23.74 Crs). The rating draws strength from the improved financial performance in FY22 (Provisional), locational advantage, reputed client base, comfortable debt coverage metrics and liquidity and favourable demand prospects for edible oil industry. However, the rating is constrained by short track record of operations, exposure to agro-climatic risks and volatility in raw material prices, intensely competitive and fragmented nature of industry, Low profit margins inherent to the industry and customer concentration risk. 

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 shows increase in revenue to the projected level and Substantial improvement in operating and net profit margins. The rating outlook may be revised to 'Negative' if there is decline in revenue and in the profitability levels and ineffective working capital management leading to liquidity shortfall. 

KEY RATING DRIVERS

Credit Strengths:

• Improvement in financial performance in FY22 (Provisional) :

  In FY22 sales (as per provisional Balance Sheet) of the company increased by 17.80% to Rs. 372.57 Crores from 316.30 Crores in FY21. Net Profit Margin has increased to 1.57 times in FY22 as compared to 1.02 times in FY21. Gearing has improved to 2.04x in FY22 (Prov.) from 3.12x in FY21, total debt when adjusted for unsecured loans by directors and related parties is at an acceptable level of 1.17x in FY22 (prov).

• Locational Advantage :

  West Bengal is the largest rice producing state in India with a yield of 2600 kilograms per hectare. Suitable climatic conditions and large scale alluvial deposits have helped in the cultivation of rice on such a scale. The major rice producing districts in the state are Bardhaman, Medinipur, 24 parganas, Bankura and west dinajpur districts. ABUPL enjoys proximity to major rice growing area, thereby ensuring timely and adequate supply of rice bran.

• Reputed Client base :

  The customer profile of the company includes large FMCG companies like Adani Wilmar Ltd, Marico Limited, and animal feed manufacturers like India Dairy Feeds Private Ltd, West Bengal Livestock Development Corporation Ltd. etc. The company has established healthy relations with Adani Wilmar Ltd and continues to receive repeat orders from them.

• Comfortable debt coverage metrics and healthy liquidity :

  The debt protection metrics (ISCR & DSCR) have improved and remained comfortable at 1.50 and 2.83 in FY21 respectively. Further, the repayment obligations of the entity will be fully serviced due to comfortable debt protection metrics. The current ratio of the entity at 1.48 times in FY21 is at comfortable level. The average fund-based utilisation of the company remained comfortable at 78.27% during the last 12 months ended March’22. Going forward the cash accruals are expected to be sufficient to meet the repayment obligations.

• Favourable demand prospects for edible oil industry :

  The Indian edible oil market is expected to grow significantly during the forecast period, 2020-2027. It is due to the rising preferences for unprocessed, refined, and healthy oil. Consumers are more concerned about their health and wellness as they are increasingly choosing high-quality edible oils. Further, the World Health Organization (WHO) and the American Heart Association have approved the use of rice bran oil, stating that its composition of monounsaturated, polyunsaturated, and saturated fats is much safer as compared to the composition of most other vegetable oils.

Credit Risks:

• Short track record of operation :

  Limited track record of the company as it is in existence for only three years. It was incorporated in March 2017 and commercial operation started from February 2019. In FY21 company has reported Operating Income of Rs.316.30 Crores (30% increase from FY20). The company has achieved Rs.373 Crores revenue in FY22 (prov.). Although the track record of company in rice bran oil is short, promoters have been in rice bran trading business for over decades through other group entities.

• Exposure to agro-climatic risks and volatility in raw material prices :

  The company’s revenues are vulnerable to agro-climatic conditions, which can affect the raw material availability in adverse weather conditions and its margins are exposed to fluctuations in raw material prices.

• Intensely competitive and fragmented nature of industry :

  The domestic edible oil industry is highly fragmented and competitive, characterised by the presence of a large number of players and faces threat from cheaper substitutes, such as palm oil.

• Low profit margins inherent to the industry :

  The company's profitability, though improved to some extent in FY21, remains thin with an operating margin of 2.83% compared to 2.45% in FY2020. Net Profit Margin is low at 1.02% in FY21 compared to the Industry average. In FY22 the company has shown slight improvement in the profitability with OPM % of and NPM % of 1.12%. The revenue of the company is likely to increase significantly, its profitability could witness a correction on account of higher raw material prices.

• Customer Concentration :

  There is customer concentration risk as top 2 customers account for 55% of sales and top 5 customers account for 62% of sales. However this risk is mitigated by the stature of the customers concerned.

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).Standalone financials have been considered for arriving at the ratings. 

RATING SENSITIVITIES

Going forward, the ability of the company to improve the scale of operations and profitability, effectively managing its working capital will be the key rating sensitivities. 

Upward:

• Increase in scale of operation to the projected level.
• Total Gearing of below 2.0x on a sustained basis.
• Substantial improvement in operating and net profit margins.
• Ability to adopt new technologies with changing scenarios in the Industry for improving the cost effectiveness.

Downward:

• Any decline in scale of operations due to low execution of orders.
• Total Gearing of above 3.0x on a sustained basis 
• Decline in the profitability levels and ineffective working capital management leading to liquidity shortfall. 
• Delay in debt servicing

LIQUIDITY POSITION

ADEQUATE

The liquidity of the company stands adequate as reflected by the comfortable cash credit utilization ~at 78.27% for the last one year ended March 2022 which provides cushion for liquidity requirements. Net Cash Accruals to Long Term Debt has improved to 0.24 times in FY21 over 0.18 times in FY20. The company has Rs. 5.17 Crs net cash accruals against Rs. 3.14 Crores of total yearly debt repayment in FY21. The provisional net cash accrual in FY22 is Rs. 7.68 Crores against the repayment obligation of Rs. 6.84 Crores in FY22. The projected Net Cash accruals in FY23 is Rs.6.83 Crores against repayment obligation of Rs. 3.60 Crores in FY23. The current ratio of the entity at 1.48 times in FY21 and 1.54 times in FY22 (Prov) is at comfortable level. Overall, the current ratio of the entity for the last two years has remained stable and is adequate enough to cover the current liabilities of the company. Current Assets of the company increased from Rs. 28.16 Crs. in FY20 to Rs. 37.10 Crs. in FY21 and further increase to Rs.42.20 Crs. in FY22 (Prov).

PROFILE

AB Udyog Pvt Ltd was incorporated in March, 2017 and commenced its operations from February, 2019. The company is involved in the extraction and refining of Rice Bran Oil. Its solvent Extraction plant is located at Burdwan, West Bengal with installed capacity of 300 Metric Tons Per Day [MTPD]. It has a refinery plant with a capacity of 100 MPTD. The company is now selling its product through retail stores also under Brand name Jeevan Rekha. The directors of the company are Sri Shekhar Agrawal, Sri Subhash Chand Bansal who look after the day to day business of the company.

KEY FINANCIAL INDICATORS

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	316.30	243.75
EBITDA	Rs.Crs.	8.96	5.98
PAT	Rs.Crs.	3.22	0.89
Tangible Net Worth	Rs.Crs.	12.55	9.32
Total Debt/Tangible Net Worth	Times	3.12	3.16
Current Ratio	Times	1.48	1.17

RATING HISTORY (INCLUDING WITHDRAWAL AND SUSPENSION)

S.No	Current Rating (2022)				Rating History
	Facilities	Tenure	Amount (Rs.Crs)	Rating	2021	2020	2019
Fund Based
1	Cash Credit - Sanctioned GECL - Out-standing	Long Term	19.00 03.74	BWR BBB- (Stable)	NA	NA	NA
Non-Fund Based
2	Bank Guarantee - Sanctioned	Short Term	01.00	BWR A3	NA	NA	NA
Total			23.74	(Rupees Twenty Three Crores and Seventy Four 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
• Short Term Debt

For More Information Contact:

Analytical Contacts
Shagun Sanganeria Lead Analyst shagun.s@brickworkratings.com	Dipak Kumar Das dipakkumar.d@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	Cash Credit - Sanctioned	19.00	_	19.00
2	Punjab National Bank	Bank Guarantee - Sanctioned	_	1.00	1.00
3	Punjab National Bank	GECL - Out-standing	3.74	_	3.74
Total			22.74	1.00	23.74
TOTAL (Rupees Twenty Three Crores and Seventy Four lakhs Only)