Farmgate Agro Milch Pvt Ltd

Brickwork Ratings revises the ratings for the Bank Loan Facilities of Rs. 110.00 Crs. of Farmgate Agro Milch Pvt Ltd ('FAM' or 'The Company')

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (04 Jan 2021)	Present
Fund Based	109.12	106.50	Long Term	BWR BBB- (Stable) (Issuer not Cooperating) Downgrade	BWR BBB /Stable Upgrade
Non Fund Based	4.00	3.50	Short Term	BWR A3 (Issuer not Cooperating) Downgrade	BWR A3 + Upgrade
Grand Total	113.12	110.00	(Rupees One Hundred Ten Crores Only)

#Please refer to BWR website www.brickworkratings.com for definition of the ratings
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure

RATING ACTION / OUTLOOK

Brickwork Ratings (BWR) has upgraded a long-term rating to BWR BBB (Stable) and short-term rating to BWR A3+ to the bank loan facilities of Farmgate Agro Milch Pvt Ltd (FAM or the company).

The rating assigned factors in the company’s experienced promoters, established a long track record of over three decades in dairy business, strong milk procurement systems along with established distribution network and brand visibility in North & South India, efficient working capital management and consistent improvement in revenue and networth . However, these strengths are partially offset by thin profitability margins and inherent risk of the industry along with intense competition.

The outlook is Stable as the company was able to sustain revenues from business operations in FY20 and 9MFY21; and the essential nature of the dairy industry which provides revenue visibility in the medium term.

BWR has principally relied upon the standalone audited financial results of FAM’s upto 31st March 2020, 9MFY21 unaudited financials and projected financials for FY21 and FY22 and publicly available information/ clarifications provided by the company’s management.

KEY RATING DRIVERS

Credit Strengths:

Established track record of operations and experienced management :
The company commenced its operations in 1992 and has a successful track record of around three decades in the existing dairy business line. FAM’s long track record and the extensive experience of promoters have helped establish relations with various stakeholders for its business. The company was established and is managed by the Prabhakar family. Furthermore, the promoters are assisted by a team of experienced professionals in managing the company’s daily business operations.
Consistent improvement in total operating income (TOI) and networth :
TOI (total operating income) has improved by ~25.23% to Rs. 625.39 crs in FY20 from Rs. 499.37 crs due to increase in milk processing in FY20 and commencement of Chittor plant in May 2019. In 9MFY21 the company achieved a TOI of Rs. 464.19 Crs with a PAT of Rs. 3.79 Crs. The networth has improved to Rs. 75.85 crs in FY20 from Rs. 71.07 crs in FY19. After considering interest free unsecured loan from directors/family members the analysed networth has improved to Rs. 78.75 crs in FY20 from Rs. 73.97 crs in Fy19.
Established procurement base supplemented by network of bulk coolers and chilling centres :
The company gets its operational support from its existing fully functional plants which have an established procurement base of 5 lacs liters total milk requirement from its own 6 milk chilling centers (4 in North and 2 in South India) and more than 1000 village level collection (VLC) , ‘A’ & ‘B’ class suppliers. Such an established procurement base ensures regular supply of liquid milk for the company at competitive prices and provides consistency in milk quality.
Moderate gearing and debt protection metrics :
The gearing of the company continues to remain at a moderate level of 1.34x in FY20 (FY19: 1.32x). Leverage (Debt/EBITDA) stood at 4.45x in FY20 (FY19: 6.48x). Debt coverage indicators (interest service coverage ratio and debt service coverage ratio) were adequate in FY20 which stood at 2.24x and 1.09x respectively in FY20.
Efficient working capital management :
The working capital management continues to remain efficient marked by a conversion cycle of 53 days in FY20 (FY19: 59 days) driven by low inventory and debtors days. The average utilization of working capital bank limits of the company stood around 81% during the last 12 months ending 31st Jan 2021.

Credit Risks:

Moderate brand presence :
At retail level, the company has moderate brand presence since the majority of the retail sales come from Delhi,Haryana,Uttar Pradesh, Punjab, Andhra Pradesh and Rajasthan. Though the company’s intention to increase the brand presence by penetrating the regional rural areas may likely drive the revenue growth in the long term, the company’s ability to compete with the local unorganized player remains to be seen.
Ability to sustain profitability remains critical, given the government regulated industry and dynamic raw milk price movements :
The profitability of the company is largely affected by the raw material price fluctuation which in turn affects the sales realisations. Any adverse movement in the price of raw materials could have an adverse impact on its margins, considering the limited ability to pass on the price hike owing to the highly competitive nature of the industry and government regulations. FAM’s operating margins stood at 3.52% in FY20 (FY19: 2.81%), BWR expects the operating margins to remain stable during the period FY21-FY22.

ANALYTICAL APPROACH - Standalone

For arriving at its ratings, BWR has applied its rating methodology as detailed in the Rating Criteria below (hyperlinks provided at the end of this rationale). BWR has considered the standalone approach to arrive at the rating.

RATING SENSITIVITIES

Upward: BWR may revise the ratings upward in the case of a substantial improvement in the scale of operations, alongwith sustenance of gearing below 1.00x, and ISCR above 2.75x .

Downward: BWR may revise the rating downward in the case of a reduction in the EBITDA margins, deterioration in debt protection metrics (ISCR below 2x) and scale of operations.

LIQUIDITY INDICATORS - Adequate

The company has an adequate liquidity position. There are only long term secured borrowings from banks amounting to Rs. 20.65 Crs as on 31st March 2020. Against a CPLTD of Rs 8.14 Crs in FY20, the company had a cash accruals of Rs. 11.02 Crs in FY20. The company projected to generate cash accruals of Rs. 11.76 Crs in FY21 against a CPLTD of Rs 6.63 Crs, thereby indicating an adequate liquidity position.

ABOUT THE ENTITY

Farmgate Agro Milch Pvt. Ltd. (FAM), formerly known as Daily Foods (India), is a three decade old dairy manufacturing company under the leadership of Mr. Rakesh Kumar. The company is engaged in manufacturing of milk powder, standard milk, poly pack milk, dairy whitener, butter, curd, butter milk and ghee. They have two plants which are located in Kundli, Haryana and Chittoor, Andhra Pradesh. Both plants are functioning under the name of FAM. The Kundli plant has a capacity of 1,90,575 metric ton per annum (MTPA) and Chittoor plant has a capacity of 1,81,500 MTPA. The company is promoting its milk products under the brand name of ‘Rajat’ and ‘Dairy Angel’. The combined milk processing capacity at both plants is 10.13 lakhs liters per day (LLPD) and current utilization is ~6 LLPD.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 19-20 (Audited)	FY 18-19 (Audited)
Operating Revenue	Rs.Crs.	625.39	499.37
EBITDA	Rs.Crs.	22.04	14.01
PAT	Rs.Crs.	4.77	4.30
Tangible Net Worth	Rs.Crs.	75.85	71.07
Total Debt/Tangible Net Worth	Times	1.34	1.32
Current Ratio	Times	1.25	1.19

KEY FINANCIAL INDICATORS (C.E)-

Key Parameters	Units
Operating Revenue	Rs.Crs.	Not Available	Not Available
EBITDA	Rs.Crs.	Not Available	Not Available
PAT	Rs.Crs.	Not Available	Not Available
Tangible Net Worth	Rs.Crs.	Not Available	Not Available
Total Debt/Tangible Net Worth	Times	Not Available	Not Available
Current Ratio	Times	Not Available	Not Available

KEY COVENANTS OF THE FACILITY RATED

STATUS OF NON-COOPERATION WITH PREVIOUS CRA

ANY OTHER INFORMATION

RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)

Facilities	Current Rating (2021)			2021 (History)		2020		2019		2018
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating	Date	Rating
Fund Based	LT	106.50	BWR BBB/Stable	04Jan2021	BWR BBB- (Stable) (Issuer not Cooperating)	03Jan2020	BWR BBB/Stable	NA	NA	20Sep2018	BWR BBB -/Stable
Non Fund Based	ST	3.50	BWR A3+	04Jan2021	BWR A3 (Issuer not Cooperating)	03Jan2020	BWR A3 +	NA	NA	NA	NA
Grand Total		110.00	(Rupees One Hundred Ten Crores Only)

COMPLEXITY LEVELS OF THE INSTRUMENTS - Simple

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

Analytical Contacts
Shivam Bhasin Senior Rating Analyst shivam.b@brickworkratings.com	Tanu Sharma Director - Ratings tanusharma@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

Farmgate Agro Milch Pvt Ltd

ANNEXURE-I

Details of Bank Facilities rated by BWR

SL.No.	Type Of Facilities	Long Term(Rs.Crs.)	Short Term(Rs.Crs.)	Total(Rs.Crs.)
1	Cash Credit - Sanctioned	58.00	_	58.00
2	Term Loan - Sanctioned	18.00	_	18.00
3	Bank Guarantee - Proposed	_	3.50	3.50
4	Over Draft - Sanctioned	30.00	_	30.00
5	Covid -19 Emergency Line Credit - Sanctioned	0.50	_	0.50
6	Bank Guarantee - Sanctioned	_	_	0.00
Total		106.50	3.50	110.00
TOTAL (Rupees One Hundred Ten Crores Only)

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