RATING RATIONALE
03Sep2021
N K Agro Exports (India) Private Limited
Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 115.08 Crs. of N K Agro Exports (India) Private Limited
Particulars| Facilities** | Amount (Rs.Crs.) | Tenure | Rating# | ||
|---|---|---|---|---|---|
| Previous | Present | Previous (04 Aug 2020) |
Present | ||
| Fund Based | 0.10 | 0.10 | Long Term |
BWR BB-/Stable
Upgrade |
BWR BB -
/Stable Reaffirmation |
| 110.00 | 110.00 | Short Term |
BWR A4
Reaffirmation |
BWR A4
Reaffirmation |
|
| (35.00) | (35.00) | ||||
| (25.00) | (25.00) | ||||
| Non Fund Based | 4.98 | 4.98 | Short Term |
BWR A4
Assignment |
BWR A4
Reaffirmation |
| Grand Total | 115.08 | 115.08 | (Rupees One Hundred Fifteen Crores and Eight lakhs Only) | ||
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure
Note: A rating advisory for delay in rating review was published on 13 August 2021.Information has been received since then and accordingly, the rating is reviewed.
RATING ACTION / OUTLOOK
The rating reaffirmation factors in the experience of the promoters in agro products export business, longstanding relationships with customers and suppliers, and increased revenue scale as per provisional FY21 financials. The ratings are, however, constrained by the average financial risk profile of the Company marked by high gearing, thin profitability margins and average debt coverage indicators. The rating also remains constrained by the susceptibility to volatility in raw material prices and its impact on the profits of the Company.
The Outlook of the Company continues to remain stable as BWR believes that the N K Agro Exports (India) Private Limited’s (‘NKAEIPL’ or ‘the company’) business risk profile will be maintained over the medium term. The Outlook may be revised to 'Positive' if profit margins improve significantly leading to better cash accruals, strengthening of its capital structure by way of fund infusion and better working capital management. The Outlook may be revised to 'Negative' if there is decline in sales impacting the cash accruals adversely and there by the overall financial risk profile.
BWR has principally relied upon the standalone financials of NKAEIPL up to FY20, provisional financials of FY21, projected financials for FY22 and FY23, and publicly available information and information/clarification as provided by the Company's management.
KEY RATING DRIVERSCredit Strengths:
-
Experienced Promoters :
The Company has been promoted by Mr. Nandyala Satyanarayana, who was a merchant exporter with over three decades of experience in exporting spices and related products. The other two directors of the Company are his family members (Sons of Mr. Nandyala Satyanarayana) with around five years of experience in the industry.
-
Established relationships with customers & suppliers :
The Company exports to China, Vietnam, Bangladesh, Sri Lanka, Thailand, Indonesia, Philippines etc. It has established relationships with customers, namely, Qingdao Giant Fai Supply Chain Management Co. Ltd, Qingdao Faith Peace Trading Limited Company, Qingdao Kaijinfeng International Trade Co. Ltd, 9 Heng Intertrade Co. Ltd. etc. The company procures requisite raw materials from the wholesalers locally as well as directly from farmers.
-
Increased revenue scale :
The company’s promoters have partly shifted the business of the sister concern M/s Nandyala Satyanarayana which is also in the same line of business, to the company. This has supported the growth in revenue in FY20. The shift in business was continued in FY21 and along with increase in export orders and demand of spices, has further increased the revenue of the Company. The total operating income of the Company has increased from Rs. 251.50 Cr in FY19 to Rs. 394.90 Cr in FY20. The Company has reported of achieving a total operating income of Rs. 884.20 Cr as per provisional FY21.
-
Average financial risk profile :
Financial risk profile of the Company remained average with low net worth, high gearing, weak debt coverage indicators, thin profit margins and negative net cash accruals. The net worth of the Company stood at Rs. 4.06 Cr as on 31 March 2020. Due to accretion of profits, the net worth has improved to Rs. 8.87 Cr as of 31 March 2021(P). The gearing stood high at 9.32 times in FY20 and increased to 13.18 times in FY21(P). Debt coverage indicators are average with ISCR of 1.71 times and DSCR of 1.28 times in FY20. It has decreased further in FY21(P) with ISCR to 1.41 times and DSCR to 1.57 times in FY21(P) due to increase in interest and finance cost. Net cash accruals to total debt is negative in FY20 due to negative cash accruals for FY20. It remained nil for FY21(P).
-
Increased debt level :
Total debt of the Company has increased substantially from Rs. 37.85 Cr in FY20 to Rs. 116.86 in FY21(P). The substantial increase in the debt level is to due to proportionate shift of the sanctioned bank limits from its sister concern M/s Nandyala Satyanarayana. The bank borrowings primarily comprises of working capital facilities and has increased from Rs. 40.10 Cr to Rs. 115.08 Cr.
-
Working capital intensive nature of operations :
The operations of the company are working capital intensive. The average credit period offered by the Company to its top customers was ~55 days in FY21(P) while the credit period offered to the Company by its top suppliers was ~30-45 days. Days payable stood at 19 days against the days receivable of 43 days in FY21(P). The company’s external working capital utilization in the past 6 months was ~95%.
-
Susceptibility of profitability to volatility in raw material prices :
The agricultural products export industry's profitability margins are highly correlated with fluctuations in raw material prices and exposed to agro climatic risks. The company does not have any long-term contracts with either suppliers or customers for either price or volume. Volumes are exposed to uncertain agro-climatic conditions, global demand-supply situation and price competitiveness of Indian spices and other agricultural products. As a result, the profitability margins of the company are susceptible to the volatility in raw material prices.
BWR has applied its rating methodology as detailed in the Rating Criteria below (hyperlinks provided at the end of this rationale). The company has no subsidiary as of 31Mar2020. Hence, BWR has adopted a standalone approach for arriving at its ratings.
RATING SENSITIVITIES
Positive:
1. Increase in profit margins and net cash accruals on a sustained basis to improve financial risk profile
2. Increase in net worth by way of fund infusion to improve on its capital structure
3. Specific credit metrics which may result in a rating upgrade include operating margin above 8%, Total Debt/ TNW remaining below 2.00 times and ISCR >2.00 times on a sustained basis
Negative:
1. A decline in the revenue and profitability leading to further deterioration in the overall financial risk profile
2. Specific credit metrics which may result in a rating downgrade include further deterioration in operating margin and Total Debt/TNW, and DSCR and ISCR declining to below unity on a sustained basis.
LIQUIDITY INDICATORS - Stretched
The Company's liquidity remains stretched due to its nature of operations being working capital intensive and low profit margins. The average utilization of bank facilities stood at ~95% in the past six months. Cash and cash equivalents were low at Rs. 0.22 Cr as on 31 March 2021(P). Net cash accruals to total debt is nil in FY21(P). Debt profile of the Company primarily consists of working capital facilities. Operating profit of Rs. 12.53 Cr stood adequate to cover the interest and finance cost of Rs. 8.88 Cr in FY21(P). Cash conversion cycle stood at 30 days as on 31 March 2021(P). Current Ratio stood weak at 1.01 times as on 31Mar2021 (P).
ABOUT THE ENTITYNK Agro Exports (India) Pvt Ltd [‘ NKAEIPL’ or ‘the company’] was incorporated on 22Sep2010 by Mr. Nandyala Satyanarayana, with registered office at Tadepalligudem, West Godavari district, Andhra Pradesh. The company started its commercial operations in September 2017.
The Company is engaged in export of various agricultural products viz., spices, oilseeds, pulses, vegetables and marine products. Some of the major products being exported by the company are dry chillies, onion, ginger, garlic, groundnut kernels, rice, cotton, chilly seeds, sesame seeds, sugar, turmeric, coriander, cumin seeds, fennel seeds, cuttlefish, jellyfish, etc. NKAEIPL’s export market comprise of Bangladesh, Malaysia, Singapore, Sri Lanka, Thailand, Indonesia, Vietnam, Philippines, China, etc. NKAEIPL procures requisite raw materials wholesalers locally as well as directly from farmers. Mr. Nandyala Siva Krishna and Mr. Nandyala Gopal Krishna are the directors of the Company. The other main operating entities owned by the promoters of the Company are N K Marine Exports LLP [rated BWR BB-/Stable/A4; engaged in shrimp processing] and Nandyala Satyanarayana [rated BWR BB-/Stable/A4; engaged in agro exports]. KEY FINANCIAL INDICATORS (Standalone)| Key Parameters | Units |
FY 19-20 (Audited) |
FY 18-19 (Audited) |
|---|---|---|---|
| Operating Revenue | Rs.Crs. | 403.46 | 251.98 |
| EBITDA | Rs.Crs. | 5.94 | 3.53 |
| PAT | Rs.Crs. | 1.87 | 1.16 |
| Tangible Net Worth | Rs.Crs. | 4.06 | 2.19 |
| Total Debt/Tangible Net Worth | Times | 9.32 | 20.62 |
| Current Ratio | Times | 1.01 | 1.10 |
RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)
| Facilities | Current Rating (2021) | 2020 | 2019 | 2018 | |||||
|---|---|---|---|---|---|---|---|---|---|
| Type | Tenure | Amount (Rs.Crs.) |
Rating | Date | Rating | Date | Rating | Date | Rating |
| Fund Based | LT | 0.10 |
BWR BB-/Stable
(Reaffirmation) |
04Aug2020 |
BWR BB-Stable
(Upgrade) |
03Apr2019 |
BWR BStable
(Assignment) |
NA |
NA
|
| Fund Based | ST | 110.00 |
BWR A4
(Reaffirmation) |
04Aug2020 |
BWR A4
(Reaffirmation) |
03Apr2019 |
BWR A4
(Assignment) |
NA |
NA
|
| FB SubLimit | ST | (35.00) |
BWR A4
(Reaffirmation) |
NA |
NA
|
NA |
NA
|
NA |
NA
|
| (25.00) |
BWR A4
(Reaffirmation) |
NA |
NA
|
NA |
NA
|
NA |
NA
|
||
| Non Fund Based | ST | 4.98 |
BWR A4
(Reaffirmation) |
04Aug2020 |
BWR A4
(Assignment) |
NA |
NA
|
NA |
NA
|
| Grand Total | 115.08 | (Rupees One Hundred Fifteen Crores and Eight lakhs 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| Analytical Contacts | |
|---|---|
|
Rajaram Gouda Senior Rating Analyst Board : +91 80 4040 9940 rajaram.g@brickworkratings.com |
Hemant Sagare Senior Manager - Ratings Board : +91 80 4040 9940 hemant.s@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 | Karur Vysya Bank | Open Cash Credit / Cash Credit (Hypothecation/Pledge)Sanctioned | 0.10 | _ | 0.10 | |
| 2 | Karur Vysya Bank | Packing Credit (PC)Sanctioned | _ | 65.00 | 65.00 | |
| Sub-Limit (Packing Credit in Foreign Currency (PCFC)) Sanctioned | (35.00) | |||||
| 3 | Karur Vysya Bank | Foreign Bill Negotiation under Letter of Credit (FBD/FUDBP/FBP/FBDN)Sanctioned | _ | 45.00 | 45.00 | |
| Sub-Limit (Export Bill Discount/Negotiation (EBD/N)) Sanctioned | (25.00) | |||||
| 4 | Karur Vysya Bank | Bank GuaranteeSanctioned | _ | 0.10 | 0.10 | |
| 5 | Karur Vysya Bank | Credit Exposure Limit (CEL)Sanctioned | _ | 4.88 | 4.88 | |
| Total | 0.10 | 114.98 | 115.08 | |||
| TOTAL (Rupees One Hundred Fifteen Crores and Eight lakhs Only) | ||||||
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