RATING RATIONALE
26 Nov 2020
Lakshmi Ganapathi Rice Mill
Brickwork Ratings assigns the ratings for the Bank Loan Facilities of Rs.30.00 Crs. of Lakshmi Ganapathi Rice Mill
Particulars| Facilities** | Amount(Rs.Crs) | Tenure | Rating* |
|---|---|---|---|
| Fund Based Open Cash Credit / Cash Credit (Hypothecation/Pledge) -Sanctioned | 30.00 | Long Term |
BWR BB + (Stable) |
| Non Fund BasedSub-Limit (Bank Guarantee) -SanctionedSub-Limit (Bank Guarantee) -Proposed | (02.00)(03.00) | Short Term |
BWR A4 + |
| Total | 30.00 | (Rupees Thirty Crores Only) | |
**Details of Bank facilities are provided in Annexure-I
Note: BG (Non Fund Based) is the sublimit under OCC RATING ACTION / OUTLOOK : Stable
BWR believes that Lakshmi Ganapathi Rice Mill 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 financials upto FY20 and provisional financials of FY20, projected financials upto FY23, publicly available information and information/clarifications provided by the firm's management.
The ratings draw strength from the experience of partners in the execution of processing paddy, moderate scale of operations, financial risk profile and adequate liquidity position However, the ratings are constrained by the constitution of the entity, exposure to intense competition and working capital intensive nature of operations.
Going forward, the ability of the firm to increase its scale of operations, improve its profitability, strengthen its overall credit profile and manage its working capital efficiently would be the key rating sensitivities.
Credit Strengths:
- Experienced partners :
The partners have experience in paddy processing and trading, which has helped the firm to understand local market dynamics and establish relationships with customers and suppliers.
- Moderate scale of operations :
Revenue improved and remains moderate at Rs 156.85 Crs for FY20 as against Rs.139.93 Crs in FY19. The firm has reported the revenue of around Rs.95 Crs for 7MFY21.
Credit Risks:
- Agro-based commodities :
Since paddy and its by product of rice bran is an agricultural commodity, its yield depends on the vagaries of the monsoon. It is exposed to inherent price fluctuation risk associated with agro-based commodities. The Covid 19 outbreak may also constrain the regular business.
- Intense competition :
Entry barriers in the rice milling industry are low on account of limited capital & technology requirements and low differentiation in the end product. This leads to intense competition and limits players’ pricing power, resulting in lower profitability.
- Constitution of the entity :
Constitution as a partnership firm has the inherent risk of a possible withdrawal of the capital by partners which can adversely affect its capital structure.
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 increase revenues, improve its profitability margins, strengthen its credit risk profile and manage its working capital efficiently would remain the key rating sensitivities.
Positive:
-
Sustained improvement in scale of operations with improved profitability margins and capital structure.
-
Specific credit metrics that could lead to an upgrade of the firm's rating include (1) Total Debt/Partners capital below 1.00 time on a continuous basis, (2) DSCR and ISCR greater than 3.0 times on a continuous basis.
Negative:
-
Specific credit metrics that could lead to a downgrade if there is a decline in profitability margins,Total Debt/Partners capital exceeding 3.0 times and weakening in debt protection metrics with DSCR and ISCR declining below 1.00 times.
-
The Covid 19 outbreak may also constrain the regular business.
-
The current ratio was adequate at 2.60 times as on 31 Mar 2020.The firm's cash accruals are expected around Rs.3.14 crore, as on 31 March ended 2020, which gives a moderate cushion on its liquidity.
Lakshmi Ganapathi Rice Mill was established as a partnership firm in 1981, at Rayavaram, Mandapeta, East Godavari, Andhra Pradesh.The firm procures paddy from the commission agents and rice millers and engages in the rice grading process. The unit is spread across around 5 acres in its own land. The rice sold under the unregistered brand name of 7 Star and LG Jaya. The firm undertakes job work for FCI under the Customs Milled Rice (CMR) scheme.
Mr. M Haranadha Reddy and Mr. T Harinarayana Reddy are the managing partners.
KEY FINANCIAL INDICATORS| Key Parameters | Units |
FY 19-20 (Audited) |
FY 18-19 (Audited) |
|---|---|---|---|
| Operating Revenue | Rs.Crs. | 157.16 | 140.10 |
| EBITDA | Rs.Crs. | 7.38 | 5.06 |
| PAT | Rs.Crs. | 1.62 | 1.37 |
| Tangible Net Worth | Rs.Crs. | 15.05 | 12.42 |
| Total Debt/Tangible Net Worth | Times | 0.89 | 0.80 |
| Current Ratio | Times | 2.60 | 1.85 |
RATING HISTORY (INCLUDING WITHDRAWAL AND SUSPENSION)
| S.No | Current Rating (2020) | Rating History | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Facilities | Amount(Rs.Crs) | Tenure | Rating | 2019 | 2018 | 2017 | ||||
| 1 | Fund Based Open Cash Credit / Cash Credit (Hypothecation/Pledge) -Sanctioned | 30.00 | Long Term |
BWR BB + (Stable) | NA | NA | NA | |||
| 2 | Non Fund BasedSub-Limit (Bank Guarantee) -SanctionedSub-Limit (Bank Guarantee) -Proposed | (02.00)(03.00) | Short Term |
BWR A4 + | NA | NA | NA | |||
| Total | 30.00 | (Rupees Thirty 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 : For More Information Contact:| Analytical Contacts | |
|---|---|
|
Prashanth Boorala Ratings Analyst B : +91 40 2331 0161 / 2331 0071 prashanth.b@brickworkratings.com |
Nagaraj K Associate Director - Ratings B : +91 80 4040 9940 nagaraj.ks@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 | Open Cash Credit / Cash Credit (Hypothecation/Pledge)Sanctioned | 30.00 | _ | 30.00 |
| Total | 30.00 | |||
| TOTAL (Rupees Thirty Crores Only) | ||||
Note: BG (Non Fund Based) is the sublimit under OCC
| 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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