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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 3.66 | ACUITE B+ | Stable | Assigned | - |
| Bank Loan Ratings | 9.67 | ACUITE B+ | Stable | Reaffirmed | - |
| Total Outstanding | 13.33 | - | - |
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Rating Rationale |
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Acuité has reaffirmed and assigned the long-term rating of ‘ACUITE B+’ (read as ACUITE B plus) on the Rs.13.33 Crore bank facilities of Al-safa Industries Private Limited (AIPL). The outlook is ‘Stable’.
Rationale for reaffirmation The rating has been reaffirmed on account of narrow margins, below average financial risk profile and high customer concentration risk. Despite improvement in operating income over the years the company’s low margins have restricted cash accruals which is affecting liquidity and financial risk profile of the company. Low net cash accruals along with high limit utilization has led to stretched liquidity. Financial risk profile is below average with low net worth and debt protection metrics. Going forward the improvement in Operating income, profitability margins and liquidity position will remain key rating sensitivity factors |
| About the Company |
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AIPL is an Uttar Pradesh-based company incorporated in 2013 by Directors, Mr. Sharafat Ali and Mr. Mohammad Azeem. The promoters have taken over their three sister concerns, namely, M/s Al Safa Exports (Partnership Firm) established in 2005, M/s Al Marwah Foods (Proprietorship Firm) established in 2000 and M/s Star Mineral Chemicals & Foods (Partnership Firm) established in 1999, and formed Al-Safa Industries Private Limited. The company is engaged in the trading of raw hides, poultry feeds supplements, live animals, mutton tallow, animal fat and livestock.
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| Unsupported Rating |
| Not Applicable |
| Analytical Approach |
| Acuité has considered the standalone business and financial risk profile of AIPL to arrive at the rating. |
| Key Rating Drivers |
| Strengths |
| Experienced management
AIPL was incorporated in 2013 by Mr. Sharafat Ali, Mr. Mohammad Azeem and Mr. Dilshad Ahmed. The Directors have more than a decade of experience in the said line of business. Business Risk Profile AIPL reported operating income of Rs. 146.27 Cr in FY2023 as against Rs. 98.17Cr in FY2022. EBITDA margin stood at 1.10 % in FY23 in comparison to 1.25% in FY22. Further, Net Profit margin stood at 0.31% in FY2023 as against 0.40% in FY 2022. Company reported EBITDA of Rs 1.61 crore in FY 23 as against Rs 1.22 crore for FY 22 likewise net profit of the company increased to Rs 0.45 crore in FY23 as against Rs 0.39 crore in FY 22. Company has achieved the operating income of Rs ~100 crore in First half of FY 24 and expected operating income for FY 24 is Rs ~200 crore. |
| Weaknesses |
| Financial Risk Profile
AIPL has below average financial risk profile marked by low net worth and low debt protection metrics. AIPL’s net worth stood at Rs. 3.80 Cr as on 31st March 2023 as against Rs. 3.45 Cr as on 31st March 2022. Gearing levels (debt-to-equity) stood at 3.68 times as on March 31, 2023 as against 3.05 in FY 2022 and Total outside liabilities to total net worth (TOL/TNW) stood at 3.72 times as on FY2023 vis-à-vis 3.12 times as on FY2022. Further, Debt-EBITA stood at 8.68 times as on 31st March 2023 as against 8.60 times as on 31st March 2022. The coverage indicators of the company stood low as interest coverage ratio stood at 1.63 times for FY2023 as against 1.53 times in FY2022 and Debt service coverage ratio stood at 0.90 times in FY2023 as compared to 3.12 times in FY2022. Working capital operations AIPL has moderate working capital requirements as evident from gross current assets (GCA) of 45 days in FY2023 as compared to 53 days in FY2022. Debtor days stood at 26 days in FY2023 as against 18 days in FY2022. Inventory days have decreased to 15 days in FY2023 as against 23 days in FY2022. Working capital limits were utilization stood at ~98 per cent during the last twelve months ended August 2023. Further, the current ratio of AIPL stood at 1.49 times as on March 31, 2023. Highly regulated and fragmented industry The company operates in livestock and trading industry, which is highly regulated, fragmented and presence of large unorganized players making the industry competitive, which is reflected in the thin profitability margin of the company. Customer concentration Risk company has customer concentraytion risk as approx. one third of total operating income is from one customer although the long relationship with customer(more than eight years) reduces the risk to the some extent. |
| Rating Sensitivities |
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Company's ability to improve the Operating income and margin Company's ability to improve the liquidity |
| All Covenants |
| Not applicable |
| Liquidity Position |
| Stretched |
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AIPL has stretched liquidity marked by low net cash accruals to its maturing debt obligations, high utilization of Working capital limits and low cash and Bank Balances. Company generated cash accruals of Rs. 0.47 crore for FY2023 as against Rs. ~0.62 crore of repayment obligations for the same period. Company took additional USL of Rs 0.21 crore in FY 23 coupled to this loans and advances given by company reduced to Rs 0.06 crore in FY 23 as against Rs 0.56 crore in FY 23. Current Ratio stood at 1.49 times as on 31 March 2023 as against 1.75 times in the previous year. The working capital limits are utilized at ~98 per cent during the last twelve months ended August 23. Therefore, firm has stretched liquidity to meets its requirements.
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| Outlook:Stable |
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Acuite believes that AIPL will maintain 'Stable' outlook over the medium term from its promoter's experience in the industry. The outlook may be revised to 'Positive' in case the company is able to register healthy revenues and improved profitability. Conversely, the outlook will be revised to 'Negative' in case of decline in the company's revenue and profit margins and working capital cycle.
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| Other Factors affecting Rating |
| Not Applicable |
| Particulars | Unit | FY 23 (Actual) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 146.27 | 98.17 |
| PAT | Rs. Cr. | 0.45 | 0.39 |
| PAT Margin | (%) | 0.31 | 0.40 |
| Total Debt/Tangible Net Worth | Times | 3.68 | 3.05 |
| PBDIT/Interest | Times | 1.63 | 1.53 |
| Status of non-cooperation with previous CRA (if applicable) |
| Not applicable |
| Any other information |
| None |
| Applicable Criteria |
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• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Trading Entitie: https://www.acuite.in/view-rating-criteria-61.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm |
| Note on complexity levels of the rated instrument |
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In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuite’ s categorisation of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow patterns, number of counterparties and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Rating Criteria “Complexity Level Of Financial Instruments” on www.acuite.in
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