Rating Rationale

BWR assigns the ratings of "BWR BBB/Stable/A3+" to the bank loan facilities of Rs 200.33 Crs of Carnival Industries Pvt. Ltd.

The ratings are positively influenced by the extensive industry experience of the promoters and their strong operational oversight. Furthermore, the strategic location of the integrated manufacturing facility within a dense rice milling cluster ensures a continuous, cost effective supply of essential feedstock. The company also benefits significantly from firm supply contracts with state backed oil marketing companies, favorable national fuel blending policies, and highly reliable alternative revenue streams derived from byproduct sales, collectively securing a highly resilient and scalable operational business framework.

Conversely, the assigned ratings are constrained by the inherent vulnerability of the business model to agro climatic risks, as feedstock availability depends heavily on seasonal monsoon performance. The company faces ongoing exposure to regulatory uncertainties, particularly regarding potential shifts in government mandated procurement pricing or sudden restrictions on grain usage. Additionally, profitability margins remain highly susceptible to the volatility of open market raw material costs against relatively fixed realization prices, while the overall financial profile transitions gradually toward completely independent operational stability.

The ‘Stable’ outlook indicates a low likelihood of rating change over the medium term. BWR believes Carnival Industries Pvt. Ltd.'s business risk profile will be maintained over the medium term. The outlook may be revised to Positive if a sustained increase in the scale of operations and higher than envisaged profitability result in an improved financial risk profile and better gearing and debt protection metrics. The outlook may be revised to Negative if lower-than-expected revenue or profitability, a stretch in the working capital cycle, unanticipated capex or weakening gearing impact the financial risk profile.

Note: PAT & Net Margin: The reported net loss of Rs. 2.71 Crs and the corresponding net margin of -1.07% are strictly driven by a non-cash deferred tax provision. The core operations demonstrated profitability, as evidenced by a positive Profit Before Tax (PBT) of Rs. 3.21 Crs.

The key covenants are the standard terms as stipulated in the sanction letters of the rated facilities.

• Assured Revenue Visibility via Binding Off-Take Contracts with OMCs :

  Carnival Industries Private Limited benefits from strong revenue visibility and minimal off-take risk due to formal annual supply agreements with state-owned Oil Marketing Companies (OMCs) like BPCL, HPCL, and IOCL. Under the national ethanol blending program, these binding contracts secure guaranteed demand for the company’s 230 KLPD capacity, effectively shielding operations from open-market demand fluctuations. Commercial terms are further fortified by a short, disciplined credit cycle where public sector OMCs operate on a strict 21-day payment timeline from the date of site unloading. Furthermore, sales to non-contracted private clients are managed under an advance payment framework, eliminating credit losses and bad debt risks. With the top ten customers projected to account for approximately 87% of total revenue in FY 27, these long-term contractual arrangements provide remarkable cash flow predictability, ensuring stable operational income during the initial commercial scaling phase.

• Operational Self-Sufficiency and Strong Government Policy Support :

  The company derives a significant competitive advantage from its integrated manufacturing infrastructure, notably a 5 MW captive power plant that fulfills the unit’s entire operational energy requirement. This captive setup protects the Chandrapur plant from grid power disruptions and volatile commercial electricity tariffs, driving structural cost savings and enhancing overall operating margins. Additionally, the company’s business model is heavily supported by favorable government policy directives designed to promote biofuel production. Carnival Industries is eligible for Priority Sector Lending benefits and capital subsidies in the form of State GST refunds, alongside an interest subvention scheme reimbursing up to 6% of applicable interest costs on term debt. These government incentives generate substantial additional cash flow, providing strong liquidity buffers that directly assist the company in meeting its term loan repayment obligations while maintaining cost competitiveness against non-integrated industry peers.

• Feedstock Price Volatility and High Supplier Concentration :

  Carnival Industries faces material input risk arising from its vulnerability to raw material availability and pricing volatility. The production of grain-based ethanol relies heavily on key feedstocks such as broken rice and maize, whose yields and market prices remain inherently susceptible to monsoonal variations, agricultural output cycles, and shifting central allocation policies. This risk is compounded by high supplier concentration, with the top six suppliers contributing approximately 77% of total procurement in FY 27, led principally by the Food Corporation of India (FCI). While institutional sourcing through central agencies offers a structured supply line, any prospective changes in government grain allocation quotas or upward revisions in surplus grain pricing could compress operating margins. Although the company maintains an order-backed inventory management policy to avoid holding losses, unhedged fluctuations in open-market grain prices pose an ongoing challenge to profit margin stability.

• Single-Site Operational Concentration :

  The credit profile is constrained by geographical single-location concentration risk and an initial high debt burden following project commissioning. Operating exclusively out of a single manufacturing complex in Chandrapur, Maharashtra, leaves the company vulnerable to localized operational disruptions, supply chain bottlenecks, or regional environmental factors that could temporarily halt production.

Moving ahead, the company's ability to expand its operational scale, boost profitability, and enhance liquidity and credit standing, along with the recent government policies affecting the sector, will be critical factors influencing its rating.

Positive Factors:-

• Growth in total revenue past Rs 470.00 Crores leading to an improvement in the profitability margins.

• Improvement in the gearing ratio to 3.50x or below.

Negative factors:-

• Any decline in the company's TOI falling below Rs 300.00 Crs.

• Further deterioration of the gearing ratio to 6.00x or more.

Adequate liquidity characterized by sufficient cushion in accruals of Rs 11.90 vis-a-vis repayment obligations of Rs 8.75 Crs in FY 26 and a moderate cash balance of Rs. 0.08 Crore. No new capex is envisaged for the medium term. Its bank limits are utilized to the extent of  86%  and is supported by the above unity current ratio of 1.02x. Furthermore, unutilized bank limits and the management's ability to infuse funds provide robust support against any unforeseen financial distress.

The company demonstrates an evolving ESG profile based on its environmental, social, and governance practices.

Environmental: The company has integrated sustainable infrastructure into its core manufacturing operations. It maintains dedicated water recycling reservoirs and a comprehensive Effluent Treatment Plant to ensure full compliance with Zero Liquid Discharge norms. The facility actively maintains all required environmental safety clearances. Furthermore, energy requirements are managed through a captive power plant that exceeds internal consumption needs, positioning the company to supply surplus electricity back to the state grid.

Social: The company meets standard expectations for worker health and safety by implementing strict safety protocols and providing comprehensive insurance coverage for its workforce. The manufacturing plant operates on a continuous 24-hour shift schedule, managed by experienced technical leadership working alongside contract labor for loading and unloading operations.

Governance: Corporate governance practices are currently in a developing stage. The board is entirely family-run and lacks independent director representation for external oversight. However, the company maintains a transparent legal record with no pending litigation, no reported fraud, and an unmodified audit opinion, reflecting a steady commitment to foundational corporate integrity and regulatory compliance.

Carnival Industries Private Limited (CIPL) is an unlisted private non-government company incorporated on January 21, 2021. The official DCCO was on 28.03.2025. Its registered office is located at Ramdaspeth, Nagpur, Maharashtra, with its primary manufacturing facility established at Chandrapur, Maharashtra. The company is promoted and led by a core board of directors consisting of Mr. Umesh Gangaram Chandgude, Ms. Shivani Wadettiwar, Mr. Omkar Mahesh Chandgude, and Mrs. Devyani Vijay Wadettiwar. CIPL is engaged in bio-fuel processing and operates a grain-based distillery plant with a production capacity of 230 KLPD of Ethanol (Absolute Alcohol) for petroleum blending, along with a 5 MW captive power plant for self-sufficient power generation and the production of secondary by-products like Distillers Dried Grains with Solubles (DDGS).

The Complexity Indicator refers to the ease with which the returns associated with the rated instrument could be estimated. It does not indicate the risk related to the timely payments on the instrument, which is rather indicated by the instrument's credit rating. It also does not indicate the complexity associated with analysing an entity's financial, business, industry risks or complexity related to the structural,transactional or legal aspects. Details on the complexity levels of the instruments are available on BWR's website Complexity Levels.

Not Applicable

NA

BWR Board of Directors have no influence over rating decisions, nor do they sit on the rating committee or review, discuss or evaluate any credit rating during the Board meetings.

Brickwork Ratings (BWR), a Securities and Exchange Board of India [SEBI] registered Credit Rating Agency and accredited by Reserve Bank of India [RBI]. BWR is the 5th agency to get a credit rating registration in India in 2009 and its corporate office in Bengaluru. It has a country-wide presence with representatives in 150+ locations. Canara bank is an institutional investor in Brickwork.

Brickwork offers credit ratings of Bank Loan, Non- convertible / convertible / partially convertible debentures and other capital market instruments and bonds, Commercial Paper, perpetual bonds, asset-backed and mortgage-backed securities, partial guarantees and other structured / credit enhanced debt instruments, Security Receipts, Securitisation Products, Municipal Bonds, etc. BWR has also rated NGOs, Educational Institutions, Hospitals, Urban Local Bodies and Municipal Corporations.

Nature of Ratings & Information: BWR ratings are opinions on the relative ability of an entity/instrument to meet its financial obligations and are based on information obtained from issuers and other sources believed to be reliable. BWR does not conduct audits, due diligence, or independent verification of such information and does not guarantee its accuracy, adequacy, or completeness.Ratings are current only as of the date of publication and may be revised based on new or unavailable information.

No Advice or Recommendation: Ratings, reports, and related communications are not investment advice and do not constitute recommendations to buy, sell, or hold securities, or to sanction, renew, or disburse credit facilities. They do not represent offers or solicitations for any transaction. Users must rely on their own independent judgment and professional advice. Access to or use of these materials does not create any client relationship with BWR.

Liability, Usage & Regulatory Framework: This content is published for the purpose of dissemination of information as required under applicable laws and regulations. BWR holds exclusive copyright over the content. It may be used with appropriate credit to BWR, provided that the content is not altered or modified in any way that could change its meaning or intent. BWR retains the exclusive right to distribute or share its rating rationales, directly or indirectly, through any print, digital, or electronic media. All reports are provided on an "as is" basis without warranties of any kind, express or implied, including but not limited to merchantability, fitness for a particular purpose, or non-infringement. BWR and its affiliates shall not be liable for any direct, indirect, incidental, or consequential losses or damages arising from the use of these reports. Ratings are subject to continuous surveillance and may be revised, suspended, or withdrawn at any time without notice. These reports are intended for use within India only. BWR operates under SEBI Regulations and Code of Conduct.

For more information on policies and ratings, please visit our www.brickworkratings.com