NG Feeds Private Limited

Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 86.19 Crs. of NG Feeds Private Limited ('the Company' or 'NFPL')

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
	Previous	Present		Previous (03 Apr 2020)	Present
Fund Based	90.48	85.65	Long Term	BWR BB /Stable	BWR BB /Negative Reaffirmation
	(5.00)	(5.00)
Non Fund Based	0.54	0.54	Short Term	BWR A4	BWR A4 Reaffirmation
Grand Total	91.02	86.19	(Rupees Eighty Six Crores and Nineteen lakhs 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

The rating reaffirmation for the loan facilities of the Company factors in the growth in the total operating income in FY20 and favourable demand prospect of the aquafeed products. The rating also factors in the promoter's business experience in the industry and competitive manufacturing facility and its location. The ratings, however, is constrained by the stretched receivable levels of the Company and its average financial risk profile considering the leveraged capital structure, moderate debt coverage indicators, declined profit margins and low net cash accruals to the total debt. Stretched receivable levels have resulted in elongated cash conversion cycle, leading to high utilization of working capital limits and thus impacting the liquidity adversely. The ratings are also constrained by the limited track record of the Company, concentration risk associated with its business operations, fluctuation in raw material prices and intense competition in the industry. 

The revision in outlook from Stable to Negative reflects the expected pressure on the Company's stretched liquidity position, given the increased receivables outstanding in FY21. The receivables position, which stood increased from Rs. 85.24 Cr as of 31Mar2020 to Rs. 140 Cr as of 31Mar2021 (Provisional figure) due to adverse impact of Covid 19, is expected to remain stretched in near future under the ongoing Covid 19 situation. The ability of the Company to improve its receivables position and manage its working capital cycle without any strain in working capital borrowings shall be critical to improve its overall financial health. BWR may revise the outlook to stable if the company demonstrates a substantial recovery of its receivables outstanding and maintains an efficient receivable position without any decline in revenue and profitability.

The ongoing Covid 19 pandemic, which persisted throughout 2020, has impacted the Company's operations during 1st quarter of FY21. Containment measures like restrictions on movement of people, imposition of lockdown resulting in shutdown of operations, combined with changing consumer demands and logistical constraints, has impacted the seafood value chain and thus the demand of aquafeed products. However, the severity of impact has varied significantly according to species due to differences in growth rates, production cycle lengths and market requirements. Fish farmers have adopted a cautious approach to stocking up the harvest and feeding them for further growth, to reduce their exposures to Covid 19 risks like unavailability of manpower and closure of domestic markets. This kept demand for fish feed steady during FY21. Beside, the demand has remained largely stable as the supply of feed was classified as essential products. Thus, the Company focused on fish feed production and managed to have stable business operations in FY21 on account of steady demand for fish feed. It has achieved a revenue of Rs. 238 Cr in FY21 (Provisional). 

KEY RATING DRIVERS

Credit Strengths:

• Experienced management and operational synergies with group companies: :

  The promoters of NFPL have around a decade of experience in the organic fertilizers and feeds business, through their group entities, NG Fertilizers and Chemicals Private Limited, and N G Phosphates Private Limited [engaged in organic fertilizers and feeds manufacturing businesses]. BWR believes that the company benefits from the promoters' understanding of the dynamics of the business and established relationships with customers and suppliers. NG Feeds Private Limited benefits from the established brand and distribution network of the Group concerns.

• Advantage of the location :

  The manufacturing plant of the Company is located in Krishna district which is a major aqua-culture belt of Andhra Pradesh and enables regular and easy access to the raw materials at lower transportation costs. Also, as Andhra Pradesh is one of the prominent states in fish and shrimp farming leading to healthy consumption levels of fish and shrimp, the location benefits the Company in selling its products to the various fish and shrimp farms located in the state. The Company sells its fish feeds under registered brand ‘Natpro’ and Shrimp Feeds under registered brand ‘Crevette’ and 'L3'.

• Competitive manufacturing facility :

  The manufacturing facility of the Company, under the technical collaboration with Andritz AZ (Austria) which is one of the global players in aqua feed industry, is accredited with ISO 9001:20015 certification. It is in the process of upgrading the accreditation to ISO 22000 Food Safety Standards along with accreditation from BAP (Best AquaCulture Practices) and HACCP (Hazard Analysis Critical Control Point). The unit has an installed capacity of producing 1,44,000 MTPA (Metric Ton Per Annum) of fish feed and 24,000 MTPA of shrimp feed. The Company has an established in-house R&D innovation centre to periodically evaluate the performance of Fish and Shrimp feed and has 6,300 square feet of space for conducting nutritional feeding trails along with 140 hectares of trial pond.

• Revenue growth :

  The total operating income of the Company has shown a growth of `~75% from Rs. 139.03 Cr in FY19 to Rs. 243.56 Cr in FY20. Post establishing the market during its first year of business operations in FY19, the demand from key customers continued and benefited the Company in higher sales realization for fish and shrimp feed. The average sales realization improved from Rs. 18899/MT in FY19 to Rs. 34064/MT in FY20 for fish feed and from Rs. 66297/MT in FY19 to Rs. 234521/MT in FY20 for shrimp feed. The turnover of the Company was also supported by the direct sale of raw materials, required for manufacturing of fish and shrimp feed, on specific demand from customers. The operating profit has also improved from Rs. 15.44 Cr in FY19 to Rs. 17.28 Cr in FY20 and resulted in improved net profit of Rs. 6.03 Cr in FY20 against the net profit of Rs. 4.26 Cr in FY19. Profit margins, however, have declined on account of increased operational expenses (increase in operational expenses is primarily on account of bad debts written off of few clients and higher discount on sales). Reduced profit margin has resulted in marginal growth in net cash accruals from Rs. 10.25 Cr in FY19 to Rs. 11.54 Cr in FY20, considering the revenue growth.

• Favourable demand prospects :

  Demand for aquafeed is directly proportional to demand for inland aquaculture products such as shrimp and fish. Thus, demand prospects for the industry as a whole are good, and the company could be at a healthy revenue level based on the healthy demand from its key customers, quality-assured manufacturing and familiar brand presence. The impact of Covid-19 is expected to be temporary in the long term demand prospects for the sector. Also, various central and state government initiatives have provided the required support to the sector. Pradhan Mantri Matsya Sampada Yojana has been launched by the Government of India to establish a comprehensive framework and reduce infrastructural gaps in the fisheries sector. State Fisheries department of Andhra Pradesh government has approached all the aquafeed mills including GFPL for supply of fish feed through Raithu Barosa Kendras.

Credit Risks:

• Average financial risk profile :

  The financial risk profile stood average in FY20 with leveraged capital structure, moderate debt coverage indicators, declined profit margins and low net cash accruals to total debt. Total debt of the Company has increased from Rs. 46.77 Cr in FY19 to Rs. 89.48 Cr in FY20 due to an additional term loan availed during FY20 under its planned capital expenditure and higher utilization outstanding of the working capital facility as on 31Mar2021. With a net worth of Rs. 30.94 Cr, the Capital structure of the Company stood leveraged as indicated by its debt equity of 2.89 times in FY20. Profit margins have reduced with operating profit margin from 11.09% in FY19 to 7.09% in FY20 and net profit margin from 3.07% in FY19 to 2.48% in FY20 resulting in lower than expected net cash accruals. Further, on account of increased debt level, the net cash accruals to total debt stood declined and low from 0.22 times in FY19 to 0.13 times in FY20. The debt coverage indicators stood declined and moderate with DSCR from 2.99 times in FY19 to 2.51 times in FY20 and ISCR from 3.34 times in FY19 to 2.76 times in FY20. As per provisional 9MFY21, the operating profit margin has improved to 8.74%. However, the net profit margin declined to 1.50% due to increased interest and finance charges resulting from higher utilization of its working capital loans on account of high receivables position. The receivables stood at Rs. 127.76 Cr on an operating income of Rs.168.24 Cr. Net cash accruals to total debt stood low at 0.12 times. DSCR and ISCR stood at 1.98 times and 2.50 times, respectively.

• Stretched receivables position :

  Working capital cycle of the Company stood stretched at more than three months in FY19 and FY20. This is primarily due to elongated receivables cycle of around three months in FY19 and around four months in FY20. Trade receivables, which stood at Rs. 67.76 Cr in FY19, has increased to Rs. 85.24 Cr with increase in business. This has negatively impacted the net profit margin and net cash accruals of the Company on account of increased interest cost resulting from high utilization of working capital loan. Further, as per provisional figure of FY21, the receivables outstanding has further increased to Rs. 140 Cr as of 31Mar2021, which stands at ~60% of the total operating income of the Company and remains a concern in terms of collection risk associated with ongoing Covid 19 pandemic. Any delay in recovery of receivables may further strain the working capital cycle and liquidity of the Company.

• Concentration risk :

  Business operations of the Company are primarily concentrated in Andhra Pradesh. All the top five domestic customers for fish feed and shrimp feed in FY20 were from Andhra Pradesh. Also, the top five customers accounted for ~57% of fish feed and shrimp feed sales in FY20. Thus, the Company has considerable geographical and customer concentration risk. The Company has informed of geographically diversifying its business operations to Odisha and West Bengal during FY21.

• Fluctuations in raw material prices :

  The major raw materials required for manufacturing of aqua feed are meat meal, soya cake, wheat and De Oiled Rice Bran (DORB). As they are agro-based products, their price varies due to factors such as rainfall, the government’s minimum support price, logistics and transportation. With raw material costs accounting for around 74% of total production cost in FY20, any adverse variation in raw material prices could affect the profitability margins. The company has no long-term contracts with either buyers or sellers. Thus, it may have to procure the raw material from dealers at prevailing market prices only.

• Intense competition in industry and limited track record of operations :

  The Indian aquafeed industry is fragmented, marked by the presence of a large number of unorganised players and a few big players with partially or fully integrated operations. The entry barriers are low, and the threat of substitutes is high. Margin-based competition by small players places pressure on the overall margins of the industry. Further, with limited track record of operations of 2 years in the industry, the Company may face pricing pressure from strong and established brands in the market.

ANALYTICAL APPROACH - Standalone

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

RATING SENSITIVITIES

Positive: BWR may revise the outlook to stable if the company demonstrates a substantial recovery of its receivables outstanding and maintains an efficient receivable position. The rating may be improved if there is further growth in revenue and profitability along with a prudent working capital management on a sustained basis, thus improving the overall financial risk profile of the Company.

Negative: The rating may be revised downward if there is further stretch in receivable position impacting the already stretched liquidity, leading to increase in working capital requirement and weakening of overall financial risk profile. Any decline in revenue and profit margins due to industry or company specific factors may also impact the raitng negatively. 

LIQUIDITY INDICATORS - Stretched

Liquidity is stretched as reflected by ~95% utilisation of working capital facilities in the past six months. With improved revenue scale, the receivable of the Company has also increased and stood stretched from 89 days in FY19 to 115 days in FY20, thereby the overall cash conversion cycle stood elongated at 108 days in FY20. Further, the trade receivable position of Rs. 140 Cr as of 31Mar2020 has stressed the working capital requirement of the Company, though it indicates a stable business operations during Covid 19 pandemic. Current ratio stood average at 1.24 times as on 31Mar2019 and 1.27 times as on 31Dec2020. Cash and cash equivalents have declined from Rs. 3.06 Cr in FY20 to Rs. 0.18 Cr as on 31Dec2020. Net cash accruals were modest at Rs. 11.54 Crs in FY20 and Rs. 7.80 Cr as on 31Dec2020, and stood adequate for the installment obligations towards the bank of Rs. 1.08 Cr during FY21 and Rs. 1.38 Cr for FY22. Though the operating profit and net cash accruals stands adequate with respect to the debt payment obligations, the stretched receivables position resulting in elongated cash conversion cycle has adversely affected the working capital requirement of the Company and hence, the liquidity is stretched.

ABOUT THE ENTITY

NG Feeds Private Limited [‘NFPL’ or ‘the company’], was incorporated in November 2016, at Vijayawada, Krishna district, Andhra Pradesh by Shri. N Hari Kiran and Smt. N Prashanthi. The company is part of Andhra Pradesh based NG Group and is engaged in manufacturing of Fish & Shrimp feeds. Its manufacturing facility is located in Krishna District, Andhra Pradesh with an installed fish feed capacity of 1,44,000 MTPA and shrimp feed capacity of 24000 MTPA. NFPL sells its fish feeds under registered brand ‘Natpro’ and Shrimp Feeds under registered brand ‘Crevette’ and 'L3' which are available in 35 Kg packages.

Mr. N. Hari Kiran is the Managing Director of the Company. Mrs. N. Prasanthi, Mr. P Tirumala Babu and Mr. K. Rajesh are the other directors.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 19-20 (Audited)	FY 18-19 (Audited)
Operating Revenue	Rs.Crs.	243.56	139.03
EBITDA	Rs.Crs.	17.28	15.44
PAT	Rs.Crs.	6.03	4.26
Tangible Net Worth	Rs.Crs.	30.94	23.76
Total Debt/Tangible Net Worth	Times	2.89	1.97
Current Ratio	Times	1.24	2.31

STATUS OF NON-COOPERATION WITH PREVIOUS CRA

None

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	85.65	BWR BB/Negative (Reaffirmation)	03Apr2020	BWR BB/Stable ()	21Oct2019	BWR BB/Stable ()	NA	NA
		NA	NA	NA	NA	23May2019	BWR BB/Stable ()	NA	NA
FB SubLimit	LT	(5.00)	BWR BB/Negative (Reaffirmation)	NA	NA	NA	NA	NA	NA
Non Fund Based	ST	0.54	BWR A4 (Reaffirmation)	03Apr2020	BWR A4 ()	NA	NA	NA	NA
Grand Total		86.19	(Rupees Eighty Six Crores and Nineteen lakhs Only)

Rating Advisory, as on 06Apr2021
Press Release, as on 06Apr2021
The rating was due 05Apr2021 and as the required information was not available to conduct the rating review, an advisory was issued for the delay in completion of the rating process.

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

• General Criteria
• Approach to Financial Ratios
• Manufacturing Companies
• Short Term Debt

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.	Type Of Facilities	Long Term(Rs.Crs.)	Short Term(Rs.Crs.)	Total(Rs.Crs.)
1	Term Loan - Sanctioned	13.46	_	13.46
2	Cash Credit - Sanctioned	47.00	_	47.00
Sub-Limit (Import LC) - Sanctioned	(5.00)
3	Bank Guarantee - Sanctioned	_	0.54	0.54
4	Term Loan - Sanctioned	25.19	_	25.19
Total		85.65	0.54	86.19
TOTAL (Rupees Eighty Six Crores and Nineteen lakhs Only)