- Long track record of operations and experienced management
The firm was established in 2016 by Mr. P. Stalin, who has extensive experience of over four decades in the rice milling industry. The promoter's extensive experience and long track record have helped the firm build established relationships with its suppliers and customers over the years. The firm has developed a strong brand presence (Cow Brand), primarily in Tamil Nadu and other southern states, which has enabled it to achieve a moderate scale of operations over the years. The demand prospects for rice, a staple food grain, remain favorable, with India being the world’s second-largest producer and consumer of rice. Acuité believes that CBAF will continue to benefit from its experienced management, long - track record of business operations, and well-established relationships with clients and suppliers over the medium term.
- Improvement in operating revenue
The firm registered revenue of Rs. 149.37 Cr. in FY2024, posting approximately 12.50 percent growth compared to the previous year's revenue of Rs. 132.78 Cr. in FY2023. Further, the firm estimates revenue of around Rs. 293 Cr. in FY2025. The growth in revenue is primarily driven by higher volumes of rice during the year due to healthy global demand. The operating profit margins stood in the range of 3.21-4.03 percent for the past two years ending FY2024 Going ahead, the ability of the company to sustain growth in its scale of operations while maintaining its profitability levels will remain a key monitorable.
- Moderate financial risk profile
The financial risk profile of the firm is moderate, marked by low net worth, moderate debt protection metrics, and gearing. The net worth of the firm stood at Rs. 21.32 Cr. and Rs. 20.83 Cr. as on March 31, 2024, and 2023, respectively. The gearing of the firm stood at 1.65 times as on March 31, 2024, against 1.57 times as on March 31, 2023. Debt protection metrics – the interest coverage ratio and debt service coverage ratio – stood at 1.61 times and 1.03 times as on March 31, 2024, respectively, compared to 1.53 times and 1.01 times as on March 31, 2023. TOL/TNW (Total Outside Liabilities/Total Net Worth) stood at 1.73 times and 1.61 times as on March 31, 2024, and 2023, respectively. The debt to EBITDA of the company stood at 7.33 times as on March 31, 2024, compared to 6.08 times as on March 31, 2023. Acuité believes that the financial risk profile will remain moderate in the absence of any major debt-funded capital expenditure plans in the near term.
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- Moderate Working capital operations
The firm’s working capital operations are moderate, as reflected in its gross current assets (GCA) of 127 days in FY2024, compared to 130 days in FY2023. The GCA days are led by high inventory days of 116 days in FY2024 against 115 days in FY2023. The inventory days are on the higher side, primarily due to the procurement of rice paddy from October to February, which results in high inventory days at the end of March. Inventory days are expected to remain in a similar range going forward. The debtor days stood at 12 days in FY2024, compared to 18 days in FY2023. Creditor days stood at 4 days in FY2024, compared to 2 days in FY2023. Acuité believes that the working capital operations of the firm will remain at similar levels due to the nature of the business.
- Risk of capital withdrawal associated with the partnership nature of firm
CBAF is a partnership firm and is exposed to the risk of partners withdrawing capital from the business. There has been minor withdrawal of capital over the last few years. Acuité believes that any substantial withdrawal of capital by the partners is likely to have an adverse impact on the capital structure.
- Highly competitive and fragmented industry affected by agro climatic risks and regulatory risk
The agro commodity (rice) industry is highly competitive, with multiple players and low entry barriers resulting in intense competition from both organized and unorganized players. Paddy, the main raw material required for rice, is a seasonal crop, and its adequate and timely availability is highly dependent on the monsoon. Thus, inadequate or erratic rainfall may affect the availability and pricing of paddy, which in turn impacts the pricing of rice and profitability. Moreover, changes in government regulations pertaining to the rice industry can impact industry dynamics.
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