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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 20.22 | ACUITE BB | Stable | Reaffirmed | - |
| Total Outstanding Quantum (Rs. Cr) | 20.22 | - | - |
| Rating Rationale |
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Acuité has reaffirmed its long-term rating of ‘ACUITE BB’ (read as ACUITE double B) on the Rs.20.22 crore bank facilities of Cow Brand Agro Foods (CBAF). The outlook is ‘Stable’.
Rationale for rating reaffirmation The rating is reaffirmed basis the stable operating and financial performance of CBAF, marked by stable operating income, range-bound operating margins and above-average financial risk profile. The operating income of the group improved to Rs.158.05 Cr in FY2022 as against Rs.157.83 Cr in FY2021. It generated a revenue of Rs.90.73 Cr in 9MFY2023. Going forward, the group’s ability to improve its scale of operations while maintaining its profitability margins and capital structure will remain a key rating monitorable. |
| About the Firm |
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Cow Brand Agro Foods (CBAF) was established in the year 2016. The firm is engaged in milling of paddy and processing of paddy into rice. The paddy processing facilities are located in Tindivanam, Tamil Nadu with an installed capacity of 8 tons per hour (tph). The promoters of the group are Mr. P. Stalin, Ms. S. Jayanthi, Mr. S. Nirmal, Ms. N. Karthika and Ms.N. Megha
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| About the Group |
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Erstwhile known as 'Shyam & Co.', was established in the year 1978 by Mr. P. Stalin; is engaged in trading of paddy. Later, it was renamed as Shyam Modern Rice Mill (SMRM) and is currently managed by Mr. Nirmal Stalin. Currently, the firm is engaged in milling of paddy and processing of paddy into rice. In the year 1995, the brand name 'Cow Brand' was introduced under Shyam Modern Rice Mill. SMRM’s processing facility is located in Tindivanam, Tamil Nadu with an installed capacity of 6 tons per hour (tph).
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Analytical Approach
| Extent of Consolidation |
| •Full Consolidation |
| Rationale for Consolidation or Parent / Group / Govt. Support |
| Acuité has consolidated the business and financial risk profiles of Cow Brand Agro Foods and Shyam Modern Rice Mill to arrive at the rating on the basis of common management and similar line of business. The two entities together are referred to as 'Cow Brand Group'.
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Key Rating Drivers
| Strengths |
| Long track record of operations and experienced management
The group was established in 1978 by Mr. P. Stalin, who has an extensive experience of over four decades in rice milling industry. The promoters extensive experience and long track record have helped the group in building established relationships with its suppliers and customers over the years. Over the years, the group has been able to develop a strong brand presence (Cow Brand), primarily in Tamil Nadu and other South states, which enabled it to achieve a steady increase in its scale of operations to Rs.160 Cr over the years. The group has generated consolidated revenue of Rs.90.73 Cr for 9M of FY2023. The demand prospects for rice, a staple food grain, remain favourable with India being the world’s second largest producer and consumer of rice. Acuité believes that the group will continue to benefit from its experienced management, long track of business operations and well established relationships with clients and suppliers over the medium term. Above-average financial risk profile The group's financial risk profile is above-average marked by moderate capital structure and debt protection metrics. The networth of the group stood at Rs.20.48 Cr as on March 31, 2022 as against Rs.20.32 Cr as on March 31, 2021. The debt-equity ratio stood at 1.36 times as on March 31, 2022 as against 1.43 times as on March 31, 2021. TOL/TNW stood improved from 1.42 times as on March 31, 2022 to 1.49 times as on March 31, 2021. Debt protection metrics - Interest Coverage Ratio (ICR) and Net Cash Accruals by Total Debt (NCA/TD) stood at 1.89 times and 0.07 times for FY2022 as against 1.72 times and 0.06 times respectively for FY2021. Acuité believes that the financial profile of the group is expected to be at similar levels over the medium term. Efficient Working capital management The group's operations are efficient as evident from its Gross Current Assets (GCA) of about 94 days as on March 31, 2022 against 93 days as on March 31, 2021 due to efficient collection of trade receivables and inventory days. GCA days majorly comprises of moderate inventory holding due to seasonality. The group procures the paddy in the peak season and keeps it for ageing for value realisation. The receivable days stood efficient at 13 days for as on March 31, 2022 as against 13 days as on March 31, 2021. The inventory days stood at 82 days as on March 31, 2022 as against 81 days as on March 31, 2021. The group purchases paddy mainly against spot payment; creditor days stood at 2 days and 3 days as on March 31, 2022 and 2021, respectively. The group's bank lines are moderately utilized at around 74.21 per cent in the past 12 months through December 2022. Acuité believes that group's working capital cycle will remain efficient over the medium term. |
| Weaknesses |
| Stagnant revenues and volatile profitability over the past three years
The company's total operating income has remained stagnant in the range of Rs.150-160 Cr over the past three years and the profit margins EBITDA and PAT are also muted at 2.75 to 3.50 percent and 0.34-0.36 percent respectively over the past three years ended with FY2022. Acuité believes that improvement of revenues and profitability are the key rating sensitivity factors in improving its business and financial risk profile over the medium term. Highly competitive and fragmented industry affected by agro climatic risks The agro commodity (rice) industry is highly competitive with multiple players coupled with low entry barriers resulting in intense competition from both the organized as well as unorganized players. Paddy, which is the main raw material required for rice, is a seasonal crop with adequate and timely availability is highly dependent upon monsoon. Thus, inadequate or erratic rainfall may have a bearing on availability as well as pricing of paddy and have a bearing on the pricing of rice as well as the profitability. Moreover, changes in the Government regulations pertaining to the rice industry can impact the industry dynamics. |
| Rating Sensitivities |
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| Material Covenants |
| None |
| Liquidity Position: Stretched |
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Cow Brand Group’s liquidity is stretched with tightly matching net cash accruals s to its repayment obligations. The group has generated cash accruals of Rs.1.80 to 2.00 Cr during the last three years through 2020-22, while its maturing debt obligations were in the range of Rs.1.76 Cr-1.85 Cr during the same period. The group is expected to generate cash accruals of Rs.1.76 to 2.27 Cr through 2023-25, while its maturing debt obligations are expected to be in the range of Rs.1.11-0.65 Cr during the same period. The average fund-based working capital utilization stood at 74.21 percent for the past 12 months ended December 2022. The group has maintained unencumbered cash and bank balances Rs.0.22 Cr and the current ratio stood at 1.64 times as on March 31, 2022. Acuite believes that the liquidity of the group is likely to remain stretched over the medium term on account of modest cash accrual as against its repayments.
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| Outlook: Stable |
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Acuité believes that the group will maintain a 'Stable' outlook on account of the management's extensive experience in the rice milling business and its established relationships with customers. The outlook may be revised to 'Positive' in case of significant growth in its revenues while improving its profitability and maintaining the capital structure. Conversely, the outlook may be revised to 'Negative' in case of any stretch in its working capital management or significant withdrawal of capital, leading to the deterioration of its financial risk profile and liquidity.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 22 (Actual) | FY 21 (Actual) |
| Operating Income | Rs. Cr. | 158.05 | 157.83 |
| PAT | Rs. Cr. | 0.56 | 0.54 |
| PAT Margin | (%) | 0.35 | 0.34 |
| Total Debt/Tangible Net Worth | Times | 1.36 | 1.43 |
| PBDIT/Interest | Times | 1.89 | 1.72 |
| Status of non-cooperation with previous CRA (if applicable) |
| None |
| Any Other Information |
| None |
| Applicable Criteria |
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• Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm • Consolidation Of Companies: https://www.acuite.in/view-rating-criteria-60.htm • Default Recognition: https://www.acuite.in/view-rating-criteria-52.htm • Manufacturing Entities: https://www.acuite.in/view-rating-criteria-59.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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