Sri Vijayalakshmi Raw & Boiled Rice Mill

Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 90.22 Crs. of Sri Vijayalakshmi Raw & Boiled Rice Mill

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
	Previous	Present		Previous (20 Aug 2021)	Present
Fund Based	89.22	86.22	Long Term	BWR BB/Stable Downgrade/ISSUER NOT COOPERATING*	BWR BB /Stable
Non Fund Based	4.00	4.00	Short Term	BWR A4 Downgrade/ISSUER NOT COOPERATING*	BWR A4
Grand Total	93.22	90.22	(Rupees Ninety Crores and Twenty Two 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
Note: The ratings has been reaffirmed and removed from 'ISSUER NOT COOPERATING' category.

RATING ACTION / OUTLOOK

The rating reaffirmation factors in the experience of the partners in the rice milling industry of around four decades and established operational track record of the firm of more than two decades in the business, The firm enjoys location - specific advantage due to its presence in one of largest paddy growing areas in the country. which results in easy availability of paddy. The rating also considers favourable demand prospects of rice as India is the second largest producer and consumer of rice. The ratings, however, are constrained by the subdued financial risk profile of the firm with low profit margins, high gearing and moderate debt coverage indicators. Intense competition in the rice industry amid several small - scale players limits the pricing flexibility of industry players. The firm exposed to high geographical concentration with majority of sales taking place in Andhra Pradesh and Kerala. Further, its operations are susceptible to volatility in paddy prices, the quality and pricing of which depend on climatic conditions and Governments' regulation. The rating also considers risks inherent to the partnership nature of the firm.

The outlook of the firm continues to remain stable as BWR believes that the Sri Vijayalakshmi Raw & Boiled Rice Mill’s (‘SVRBRM’ or ‘the firm’) business risk profile will be maintained over the medium term. The outlook may be revised to Positive if the firm reports better-than-expected growth in its operations and profitability while improving on its credit risk profile. 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, or if any larger-than-anticipated debt-funded capex leads to deterioration in the financial risk profile of the firm. 

KEY RATING DRIVERS

Credit Strengths:

• Experienced partners and established relationship with customer and suppliers :

  The partners have extensive experience of around four decades in the rice milling Industry and have established relationships with customers and suppliers. The firm benefits from the partner’s extensive experience in the industry and understanding of the industry dynamics, leading to repeat business.

• Locational Advantage :

  The firm’s milling unit is located in East Godavari district, which is one of the largest paddy growing areas in the country, and hence the firm benefits from lower logistics costs in the transportation of raw materials. The firm also procures paddy through commission agents from other states, namely, Odisha, West Bengal and Bihar depending on the market dynamics

• Established operational track record :

  The firm has an operational track record of around 22 years. The firm is primarily engaged in milling of paddy, generates about 80% of its revenues under the brands ‘Horse’, ‘GHNR’ and ‘Hamsa’, through wholesalers in Andhra Pradesh, Kerala, Tamil Nadu, Odisha and West Bengal.

Credit Risks:

• Subdued financial risk profile :

  Though the revenue scale of the firm improved in FY20 to Rs.322.17 Cr, it has declined to Rs. 308.63 Cr per FY21 (provisional). Profitability margins of the firm remained thin over the last three years. As per provisional FY21 the net profit margin and operating profit margin stood at 0.93% and 4.05% respectively. Capital structure continues to be stretched as reflected by Total Debt/Partners’ capital of 2.54 times and TOL/Partners’ capital of 2.42 times as on 31st March 2021. Net cash accruals to total debt was low at around 0.05 times as on 31st March 2021. Debt protection metrics were moderate reflected by ISCR and DSCR of 1.35 times and 1.27 times respectively for FY21(P).

• Susceptibility to fluctuation in raw material prices and agro climatic risk :

  Operating margins remain susceptible to fluctuations in the prices of raw materials. Profitability is also constrained by the limited ability to pass on any increase in input prices to customers because of high competition. Additionally paddy being an agricultural commodity is susceptible to pest attacks, diseases and climatic changes thereby further influencing the price.

• Intense competition and low profitability margin :

  Paddy processing usually involves very low value addition, and the output, viz. rice is a commodity. So, lack of product differentiation gives very little pricing power to the millers and relatively low entry barriers resulting in margin-based competition. This places downward pressure on their topline and bottomline resulting in muted profitability.

• High geographical concentration risk :

  The firm generates majority of its revenues from Andhra Pradesh and Kerala. This geographical concentration exposes SVRBM to revenue risks in the event of order slowdown from the customers, loss of clients to competition or decline in average realizations from these customers.

ANALYTICAL APPROACH - Standalone

BWR has adopted a standalone approach for arriving at its ratings and has applied its rating methodology as detailed in the Rating Criteria detailed below (hyperlinks provided at the end of this rationale).

RATING SENSITIVITIES

The firm’s ability to achieve its projected performance, improve profitability, effectively manage volatility in raw material prices, strengthen its credit profile, diversify the customer base and efficiently manage its working capital will be the key rating sensitivities.

Positive:

• Sustained improvement in scale of operations and profitability and strengthening of the financial risk profile.
• Efficient working capital management and strengthening of liquidity position

Positive:

• Decline in profitability due to lower price realizations or increase in input costs .
• Weakening in debt protection metrics and further weakening of the gearing.

LIQUIDITY INDICATORS - Stretched

Average utilization of working capital is high ~99% over the last 12 months. Current ratio was 1.56 times and Net cash accruals to total debt was 0.05 times as on 31 Mar 2021(P). Conversion Cycle is at 143 days in FY2 (P), due to high inventory holding period. The firm has availed CELC under Covid 19 regulator package, which has supported the liquidity to an extent.

ABOUT THE ENTITY

Sri Vijayalakshmi Raw & Boiled Rice Mill, is a family owned business and was established in 1996 at Nadakuduru, Kakinada, Andhra Pradesh. SVRBRM is engaged in the milling of paddy to process raw rice and boiled rice with by-products like husk rice bran, broken rice and others. The firm has 4 rice milling plants. The firm sells its products in the markets of Andhra Pradesh, Kerala, Tamil Nadu, Karnataka and Odisha.

Shri. G Harinadha Reddy is the Managing Partner and Shri. G Veeraraghava Reddy is the other Partner of the firm.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Provisional)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	308.63	322.17
EBITDA	Rs.Crs.	12.51	12.27
PAT	Rs.Crs.	2.86	2.98
Tangible Net Worth	Rs.Crs.	40.61	37.75
Total Debt/Tangible Net Worth	Times	2.54	2.51
Current Ratio	Times	1.56	1.44

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

Facilities	Current Rating (2022)			2021		2020		2019
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating
Fund Based	LT	86.22	BWR BB/Stable ()	20Aug2021	BWR BBStable (Downgrade/ISSUER NOT COOPERATING*)	24Jun2020	BWR BB+Stable (Reaffirmation)	27Mar2019	BWR BB+Stable (Assignment)
Non Fund Based	ST	4.00	BWR A4 ()	20Aug2021	BWR A4 (Downgrade/ISSUER NOT COOPERATING*)	24Jun2020	BWR A4+ (Reaffirmation)	27Mar2019	BWR A4+ (Assignment)
Grand Total		90.22	(Rupees Ninety Crores and Twenty Two lakhs 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

• 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	Sankaranarayanan sankaranarayanan@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	Union Bank of India	Term Loan - Out-standing	5.22	_	5.22
2	Union Bank of India	Cash Credit - Sanctioned	81.00	_	81.00
3	Union Bank of India	Bank Guarantee - Sanctioned	_	4.00	4.00
Total			86.22	4.00	90.22
TOTAL (Rupees Ninety Crores and Twenty Two lakhs Only)