Product Quantum (Rs. Cr) Long Term Rating Short Term Rating
Bank Loan Ratings 0.40 - ACUITE A4 | Reaffirmed
Bank Loan Ratings 7.60 ACUITE B+ | Stable | Upgraded -
Total Outstanding Quantum (Rs. Cr) 8.00 - -
Total Withdrawn Quantum (Rs. Cr) 0.00 - -
 
Rating Rationale
­Acuité has upgraded long-term rating to ‘ACUITE B+’ (read as ACUITE B plus) from ‘ACUITE B’ (read as ACUITE B) and reaffirmed short term rating of 'ACUITE A4' (read as ACUITE A four) to the Rs. 8.00 crore bank facilities of Aradhya Chemicals and Fertilizers (ACF). The outlook is 'Stable'.

Rationale for Upgrade
Rating has been upgraded on account of improvement in scale of operations and increase in net worth leading to improved financial risk profile. Firm’s operating income has been improving since experiencing a dip in FY 2020 and has surpassed pre covid levels. In the last 3 years’ firm has registered improvement in operating income. Firm’s revenue has improved from Rs. 13.13 Cr in FY 2020 (Audited) to Rs. 17.58 Cr in FY 2021 (Audited) and stood at Rs. 19.31 Cr in FY 2022 (Provisional). Firm’s financial risk profile is average with low net worth and average debt protection metrics. However since the firm has refrained from withdrawing in partner’s capital account this has led to increase in the reserve and has resulted in improvement in gearing in the past 3 years.
 

About the Company
­Established in 2010, Aradhya Chemicals and Fertilizers (ACF) is engaged in manufacturing of NKP fertilizers. The product line includes NPK fertilizers 17:17:17, 20:20:0, 14:06:21 and CMS fertilizers 10:05:05. The day to day operations are managed by its Partners, Mr. I S Prasanna, Mr. I P Prasheel Aradhya, Mr. I P Prajwal Aradhya and Mr. Mallappa S Angadi. The manufacturing unit is located at Mallashettihalli in Davangere (Karnataka) with installed capacity of 10 tonnes per hour.
 
Analytical Approach
­Acuité has considered standalone business and financial risk profile of ACF to arrive at the rating.
 

Key Rating Drivers

Strengths
­Experienced management
The firm is promoted by its Managing Partner, Mr. I S Prasanna along with other partners, I P Prasheel Aradhya, I P Prajwal Aradhya and Mallappa S Angadi who collectively possess experience of more than three decades in agriculture industry. The extensive experience has enabled the firm forge healthy relationships with customers and suppliers. Acuité believes that ACF will continue to benefit from its experienced management and established relationships with customers.
Weaknesses
­Average financial risk profile
Firm’s financial risk profile is average marked by low net worth and average gearing and debt protection metrics. Net worth of the firm stood low at Rs. 5.56 Cr as on 31st March 2022. Total debt of Rs. 11.89 Cr in FY 2022 consists of Rs. 3.14 Cr of long term debt, Rs. 1.46 Cr of Unsecured loans and Rs. 7.28 Cr of working capital borrowings. Consequently, gearing for FY 2022 stood at 2.14 times. Gearing has improved from the previous fiscals with increase in net worth over the time since the partner’s capital account has not been withdrawn in the previous fiscals. NCA/TD improved to 0.12 times while TOL/TNW stood moderate at 2.75 times and Debt-Ebitda stood high at 6.08 times in FY 2022. Going forward the financial risk profile is expected to remain average in the absence of any debt funded capex plan.

Intensive working capital operations
Firm’s operations are working capital intensive marked by GCA days of 326 in FY 2022. High GCA day is a result of high inventory holding and debtor realization period. Inventory holding period stood at 95 days while debtor period stood at 233 days in FY 2022. Creditor period stood at 87 days in FY 2022. Hence, as a result bank limit utilization remained high at 95.86% in the 16 months’ period between April 2021 and July 2022.

Highly fragmented industry and agro-climatic risk
Indian fertilizers industry is highly fragmented sector having large number of players from unorganised sector. In this industry, the barriers to entry are very low on account of low capital investment requirement. Further, the operations of the firm are exposed to agro climatic risk as it is highly dependent upon the rainfall. Any adverse climatic changes may severely impact the business of the firm.
Rating Sensitivities
  • ­Scale of operations and profitability.
  • Working Capital Management.
 
Material covenants
­None.
 
Liquidity Position
Stretched
­Firm’s liquidity position is stretched marked by low net cash accruals. Going forward firm is expected to generate NCA of Rs. 1.53 Cr and Rs. 1.73 Cr against CPLTD of Rs. 0.92 Cr each year in FY 2023 and 2024 respectively. Firm has investment of Rs. 0.31 Cr in FY 2022 which are in the form of deposits to various suppliers hence lien marked. Cash and bank balance in FY 2022 stood at Rs. 0.21 Cr and limit utilization remains high at 95.86%.
 
Outlook: Stable
­Acuité believes that ACF will maintain ‘Stable’ outlook over the medium term from the industry experience of its promoters. The outlook may be revised to 'Positive' if there is substantial and sustained improvement in ACF's operating income or profitability, while maintaining its working capital cycle. Conversely, the outlook may be revised to 'Negative' in case of weakening of its capital structure and debt protection metrics.
 

Particulars Unit FY 22 (Provisional) FY 21 (Actual)
Operating Income Rs. Cr. 19.31 17.58
PAT Rs. Cr. 1.03 0.41
PAT Margin (%) 5.35 2.33
Total Debt/Tangible Net Worth Times 2.14 2.93
PBDIT/Interest Times 6.76 3.33
Status of non-cooperation with previous CRA (if applicable)
­None
 
Any other information
­None.
 
Applicable Criteria
• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm
• Entities In Manufacturing Sector:- https://www.acuite.in/view-rating-criteria-59.htm
• Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm
Note on complexity levels of the rated instrument
https://www.acuite.in/view-rating-criteria-55.htm

Date Name of Instruments/Facilities Term Amount (Rs. Cr) Rating/Outlook
22 Sep 2022 Cash Credit Long Term 3.50 ACUITE B ( Issuer not co-operating*)
Proposed Bank Facility Long Term 3.93 ACUITE B ( Issuer not co-operating*)
Term Loan Long Term 0.17 ACUITE B ( Issuer not co-operating*)
Bank Guarantee Short Term 0.40 ACUITE A4 ( Issuer not co-operating*)
24 Jun 2021 Proposed Bank Facility Long Term 3.93 ACUITE B ( Issuer not co-operating*)
Term Loan Long Term 0.17 ACUITE B ( Issuer not co-operating*)
Bank Guarantee Short Term 0.40 ACUITE A4 ( Issuer not co-operating*)
Cash Credit Long Term 3.50 ACUITE B ( Issuer not co-operating*)
08 Mar 2019 Proposed Bank Facility Long Term 3.93 ACUITE B | Stable (Assigned)
Bank Guarantee Short Term 0.40 ACUITE A4 (Assigned)
Term Loan Long Term 0.17 ACUITE B | Stable (Assigned)
Cash Credit Long Term 3.50 ACUITE B | Stable (Assigned)
­

Lender’s Name ISIN Facilities Date Of Issuance Coupon Rate Maturity Date Quantum (Rs. Cr.) Rating
Canara Bank Not Applicable Bank Guarantee (BLR) Not Applicable Not Applicable Not Applicable 0.40 ACUITE A4 | Reaffirmed
Canara Bank Not Applicable Cash Credit Not Applicable Not Applicable Not Applicable 3.50 ACUITE B+ | Stable | Upgraded
Not Applicable Not Applicable Proposed Long Term Bank Facility Not Applicable Not Applicable Not Applicable 2.34 ACUITE B+ | Stable | Upgraded
Canara Bank Not Applicable Term Loan Not available Not available Not available 0.17 ACUITE B+ | Stable | Upgraded
Canara Bank Not Applicable Working Capital Term Loan Not available Not available Not available 1.04 ACUITE B+ | Stable | Upgraded
Canara Bank Not Applicable Working Capital Term Loan Not available Not available Not available 0.55 ACUITE B+ | Stable | Upgraded

Contacts
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