|
|
| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 77.00 | ACUITE BB+ | Stable | Downgraded | - |
| Bank Loan Ratings | 28.00 | - | ACUITE A4+ | Downgraded |
| Total Outstanding | 105.00 | - | - |
|
Rating Rationale |
|
ACUITE has downgraded the long-term rating to ‘ACUITE BB+’ (read as ACUITE double B plus) from ‘ACUITE BBB-’ (read as ACUITE triple B minus) and the short-term rating to ‘ACUITE A4+’ (read as ACUITE A four plus) from ‘ACUITE A3’ (read as ACUITE A Three) on the Rs. 105.00 Cr. bank facilities of Asian Tea Company Private Limited (ATCPL). The outlook is ‘Stable’.
Rationale for Rating The rating downgrade reflects the decline in topline of the Company in FY024 at Rs. 247.42 Cr. (Provisional) against Rs. 313.26 Cr. in FY2023. This has been due to lower demand in international market owing to geo-political issues. ATCPL has an healthy unexecuted order book position to the tune of about Rs.115 Cr. as on March 2024 which will be executed in 6-7 months, thus providing revenue visibility over the near term. However, the operating margin of the company improved to 4.73% in FY2023 from 3.53% in FY2022. Furthermore, the liquidity has stretched slightly, as reflected in elongation of working capital cycle of the Company with GCA of 162 days in FY2023 against 125 days in FY2022 mainly due to stretches in receivable cycle wherein payments have stretched from Russia and Kazakstan. The debtor cycle remained at 89 days in March 2023 against 66 days in previous year. Furthermore, the accruals in FY2024 were barely sufficient to meet the repayment of term loans during the year. The Debt Service Coverage Ratio (DSCR) is expected to be weak during FY2024. The rating further factors in the steady business position of the company as reflected from its current order book position buoyed by repeat orders from its global clientele. The ratings also factor in the established track record of the promoters. However, these strengths are partially offset by intensive working capital operations, moderate financial profile and the volatility in tea prices and agro climatic conditions. |
| About the Company |
|
Incorporated in 2011, Asian Tea Company Private Limited (ATCPL), the flagship company of the Asian Tea Group. Currently, ATCPL is headed by Mr Mohit Agarwal & Mr. Sunil Garg. The promoter and directors of the company have vast experience in tea export business and have gained great insight into the nature of tea- its cultivation, manufacture, blending and marketing in the international market. The group has grown from tea plantation to tea exports and have proven track record of tea export business. The company is a Kolkata, based company, engaged in exporting of premium tea. It has group offices in Coimbatore (India), ATCPL exports tea to countries like Kazakhstan, UAE, China, Saudi Arabia , Middle East , Europe and Germany. Tea is sourced from the tea producing areas of Assam and West Bengal directly from the Tea Estates as well as from the tea auction centres of Kolkata, Guwahati and Siliguri and balance requirement is met from domestic market. The facilities in Kolkata have been fitted with state-of-the-art mechanical blending and cleaning units to ensure high hygiene standards and quality and their products have a shelf life of 3 years after packing.
|
| Unsupported Rating |
| Not Applicable |
| Analytical Approach |
|
Acuité has considered the standalone business and financial risk profiles of ATCPL to arrive at the rating.
|
| Key Rating Drivers |
| Strengths |
| Experienced management and established relationship with customers
Established in 2011, the company has been operational for a decade. The key promoters, Sunil Garg & Mr. Mohit Agarwal have more than 2 decades of experience in the business. The long standing experience of the promoters and long track record of operations has helped them to establish comfortable relationships with key suppliers and reputed customers across the continents. Acuité derives comfort from the long experience of the management and believes this will benefit the company going forward, resulting in steady growth in the scale of operations. Repeat orders from overseas client Acuité draws comfort from the company’s diversified geographical presence with exports to countries such as the Kazakhstan, Russia, UAE, China, Iran, Saudi Arabia and Germany and so on. It has a global presence in five to six nations. Having been in business for almost a decade ensures a positive relationship with consumers. Tealand Branch of RG Brand (Kazakistan) and Fuzhou Lianshengfeng International Trade Co. Ltd (China) are two of the company's most important clients accounting for ~64 per cent of its revenues. However, the company enjoys an established relationship with these customers, which have been awarding it with repeat businesses. |
| Weaknesses |
| Decline in scale of operations but improved profitability
The company’s revenues have declined to Rs. 247.42 Cr. in FY2024 (Provisional) as compared to revenues of Rs. 313.26 Cr. in FY2023, a degrowth by 21 per cent and Rs. 300.02 Cr. in FY2022. This has been a result of lower demand in international market owing to geo-political issues. ATCPL has an unexecuted healthy order book position to the tune of about Rs.115 crores as on March 2024 which will be executed in 6-7 months, thus providing revenue visibility over the near term. The operating margin of the company improved to 4.73% in FY2023 from 3.53% in FY2022. But, the margins remain susceptible to volatility in tea prices of the auction centres as well as open market. The PAT margins stood at 1.38 per cent in FY2023 as against 1.26 per cent as on FY2022. The Return on Capital Employed (ROCE) of the company stood comfortable at 11.73 per cent as on FY2023 as compared to 11.05 per cent as on FY2021. Acuite believes that going forward, the profitability margins are expected to improve over the medium term. Moderate financial risk profile The company’s financial risk profile is marked by modest networth, high gearing and average debt protection metrics. The tangible net worth of the company stood at Rs.40.55 Cr. as on 31st March, 2023 as compared to Rs.36.25 Cr. as on 31st March, 2022 due to small accretion to profits. Gearing of the company stood moderate at 2.31 times as on March 31, 2023 as against 1.97 times as on March 31, 2022 mainly due to reliance on short term borrowings. The Total Outside Liability/Tangible Net Worth (TOL/TNW) stood at 2.74 times as on March 31, 2023 as compared to 2.17 times in the previous year. The average debt protection metrics of the company is marked by Interest Coverage Ratio of 1.77 times and Debt Service Coverage Ratio at 1.05 times as on March 31, 2023. Net Cash Accruals/Total Debt (NCA/TD) stood at 0.05 times as on March 31, 2023 as against 0.06 times as on March 31, 2022. Acuité believes that going forward the financial risk profile of the company will remain moderate backed by gradually improving accruals and no major debt funded capex plans. Working capital intensive nature of operations The working capital intensive nature of operations is high marked by GCA days of 162 days as on March 31, 2023 as compared to 125 days as on March 31, 2022. The high GCA days are high primarily on account of a high other current assets consisting of other receivables and recoveries. Also, the debtor period remained high at 89 days as on March 31, 2023 similar as against 66 days in previous year. Further, the inventory holding period stood at 38 days as on March 31, 2023 as compared to 36 days as on March 31, 2022. Acuité believes that the working capital operations of the company will remain almost at the same levels as evident from stretches in collection albeit comfortable inventory levels over the medium term. Volatile tea prices and agro climatic conditions The prices of tea are linked to the auctioned prices and further to prices of tea in the international market. Significant price movements in the international market may affect the company’s profitability margins. Further, tea prices fluctuate widely with demand-supply imbalances in the domestic and international market. Tea is a perishable product and demand for it is relatively perfectly inelastic as it caters to all segments of society. While demand has a strong growth rate, supply can vary depending on climatic conditions in the major tea growing countries. Unlike other commodities, tea price cycles have no linkage with the general economic cycles, but with agro-climatic conditions. |
| ESG Factors Relevant for Rating |
| Not Applicable |
| Rating Sensitivities |
|
| Liquidity Position |
| Stretched |
|
The Company's liquidity position is stretched marked by net cash accruals of approximately Rs.3.06 Cr. in FY2024 as against a long term debt repayment of only Rs.3.58 Cr. over the same period. The Company had infused unsecured loans to met by timely infusion of unsecured loans which stood at Rs.4.92 Cr. over FY2023. The current ratio stood comfortable at 1.44 times as on March 31, 2023 as compared to 1.61 times as on March 31, 2022. The cash and bank balances stood at Rs 0.88 Cr. as on March 31, 2023. Additionally, the fund based limit utilized at only 80.53 per cent for the six-months ended March 2024. However, the working capital intensive nature of operations is marked by high GCA days of 162 days as on March 31, 2023 as compared to 125 days as on March 31, 2022. Acuité believes that going forward the liquidity position of the company will improve due to gradually improving cash accruals.
|
| Outlook: Stable |
|
Acuité believes that the outlook on ATCPL will remain 'Stable' over the medium term on account of the long track record of operations, experienced management and comfortable business risk profile. The outlook may be revised to 'Positive' in case of significant growth in revenue while achieving sustained improvement in operating margins, capital structure and working capital management. Conversely, the outlook may be revised to ‘Negative’ in case of decline in the company’s revenues or profit margins, or in case of deterioration in the company’s financial risk profile and liquidity position or further elongation in its working capital cycle
|
| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 23 (Actual) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 313.26 | 300.02 |
| PAT | Rs. Cr. | 4.31 | 3.77 |
| PAT Margin | (%) | 1.38 | 1.26 |
| Total Debt/Tangible Net Worth | Times | 2.31 | 1.97 |
| PBDIT/Interest | Times | 1.77 | 1.96 |
| Status of non-cooperation with previous CRA (if applicable) |
| Not Applicable |
| Any other information |
| None |
| Applicable Criteria |
|
• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Rating Process and Timeline: https://www.acuite.in/view-rating-criteria-67.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm • Trading Entities: https://www.acuite.in/view-rating-criteria-61.htm |
| Note on complexity levels of the rated instrument |
|
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
|
|
| |
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
Contacts |
|
|
|
About Acuité Ratings & Research |
