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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 37.22 | ACUITE BB | Stable | Reaffirmed | - |
| Total Outstanding | 37.22 | - | - |
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Rating Rationale |
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Acuité has reaffirmed its long-term rating of ‘ACUITE BB’ (read as ACUITE double B) on the Rs.37.22 crore bank facilities of Cow Brand Agro Foods (CBAF).The outlook is ‘Stable’
Rationale for rating reaffirmation
The rating reaffirmation considers long track record of operations and extensive experience of management of over four decades in rice milling industry. It further considers the moderation recorded in operating revenues in FY2023 and estimated in FY2024 primarily on account of inflation in rice prices leading to lower sales volumes for its branded rice. Further, the working capital operations moderated with elevated GCA days of 130 days in FY2023 against 95 days in FY2022 primarily on account of increased inventory levels. The rating further remains constrained due to average financial risk profile marked by average networth, coverage indicators and moderate gearing levels. Going ahead, CBAF’s ability to improve its scale of operations and profitability levels, while maintaining its capital structure and adequate liquidity will remain key monitorable. |
| About the Company |
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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 firm are Mr. P. Stalin, Ms. S. Jayanthi, Mr. S. Nirmal, Ms. N. Karthika and Ms.N. Megha.
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| Unsupported Rating |
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Not Applicable
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| Analytical Approach |
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Acuité has considered the standalone business and financial risk profiles of the Cow Brand Agro Foods post merger of the group firm Shyam Modern Rice Mill, to arrive at this rating.
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| Key Rating Drivers |
| Strengths |
| Long track record of operations and experienced management
The firm was established in 2016 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 firm in building established relationships with its suppliers and customers over the years. Over the years, the firm has been able to develop a strong brand presence (Cow Brand), primarily in Tamil Nadu and other South states, which enabled it to achieve moderate scale of operations over the years. 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 CBAF 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 financial risk profile of company is above-average marked by average networth, coverage indicators and moderate gearing level. The gearing levels moderated to at 1.57 times in as on March 31, 2023 against 1.36 times as on March 31,2022. It is further estimated to moderate to ~1.65 times in FY2024. The moderation is due to a higher increase in debt levels as compared to increase in net worth. Further, there has been regular minor withdrawals from the capital over the last two years ending March,2023. The ICR stood at 1.59 times in FY2023 against 1.89 times in FY2022 and is estimated to remain ~1.60 times in FY2024. The DSCR, however, stood below unity at 0.96 times in FY2023 against 1.00 times in FY2022. However, there have been no delays in debt servicing as confirmed by the lender. The NCA/TD stood average at 0.05 in FY23 as against 0.07 in FY22. The Debt/EBITDA level stood high at 7.06 times in FY2023 against 6.21 times in FY2022. Going ahead, the financial risk profile is expected to remain average over the near to medium term on account of estimated average accruals generation. Moderate Working Capital Management The working capital operations of the firm are moderate in nature marked by GCA days of 130 days in FY2023 against 95 days in FY2022. The GCA days are led by high inventory days of 114 days in FY2023 against 82 days in FY2022. The increase in inventory days is on account of lower rice sales during the year due to inflation in its prices. The debtor days stood at 18 days in FY2023 against 13 days in FY2022. Further, the creditor days stood same at 2 days for FY23 and FY22. ??Acuite believes going ahead, working capital operations are estimated to remain in similar range over the medium term. |
| Weaknesses |
| Moderation in Operating Revenue: albeit Stable margins
The CBAF's total operating income stood at Rs.132.78 Cr. in FY2023 against Rs.158.05 Cr. in FY2022. The decline in operating income is on account of lower sales of rice due to inflation in its prices levels during the year and shift in consumer demand towards locally available(unbranded) rice.Further, the revenue is estimated to be around Rs.149.37 Cr. in FY2024. The operating margin increased in the FY2023 to 3.33 percent from 2.83 per cent in FY2022. The reason for the increase in the operating margin primarily due to high price realisations during the year.The PAT margin remains range-bound at 0.35 percent in FY23 and FY22 as well. Acuité believes that growth in revenues and profitability will remain key rating sensitivity factors in improving its business and financial risk profile over the medium term. Inherent risk of capital withdrawal in a partnership firm The Firm is susceptible to the inherent risk of capital withdrawal given its constitution as a partnership. Any significant withdrawal from the partner’s capital will have a negative bearing on the financial risk profile of the firm. Highly competitive and fragmented industry affected by agro climatic risks and regulatory risk 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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| Liquidity Position |
| Adequate |
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The liquidity position of CBAF is adequate marked by generation of sufficient net cash accruals to service its debt obligations. The firm has generated cash accruals in the range of Rs.1.60 – 1.86 Cr. against repayment obligations in the range of Rs. Rs.1.76-1.85 Cr. during the period FY2022 and FY2023. Going ahead, the net cash accruals are expected to remain sufficient to meet repayment obligations over the medium term. The company has unencumbered cash and bank balances of Rs.0.16 crore as on March 31, 2023. The current ratio of the company stood moderate at 1.44 times as on 31 March, 2023. The reliance on working capital limits remained moderately high at ~84% over the last 6 months ending April 2024. |
| Outlook: Stable |
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Acuité believes that the firm 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 the firm records lower than expected operating income and profitability or 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 |
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None
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| Particulars | Unit | FY 23 (Actual) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 132.78 | 158.05 |
| PAT | Rs. Cr. | 0.47 | 0.56 |
| PAT Margin | (%) | 0.35 | 0.35 |
| Total Debt/Tangible Net Worth | Times | 1.57 | 1.36 |
| PBDIT/Interest | Times | 1.59 | 1.89 |
| Status of non-cooperation with previous CRA (if applicable) |
| Not Applicable |
| Any other information |
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None
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| Applicable Criteria |
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• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Manufacturing Entities: 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 |
| 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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