­Experienced Management
FWPL is engaged in processing of wines and the directors of the company are Mr. Gaurav Sekhri, Ms. Puja Sekhri and  Mr. Alessio Secci. The promoters are seasoned players in the wine processing industry. Further, Fratelli has been a brand across Karnataka, Maharashtra and Delhi. Moreover, having around a decade of operational track record has helped the company to maintain strong relations with its customers as well as with suppliers. The company has a presence in Hospitality as well.  Acuité believes that the promoters' experience and healthy relations with its customers will continue to benefit company over the medium term.

Moderate Financial Risk Profile
The company has a moderate financial risk profile marked by moderate net worth, low gearing and moderate debt protection metrics. The tangible net worth of the company stood at Rs.84.09 crore as on March 31, 2023, as against Rs.67.78 crore as on March 31, 2022. The company has infused around ~Rs.6.00 crore in FY23 through rights issue. The gearing of the company stood low at 0.72 times as on March 31, 2023, as against 0.66 times as on March 31, 2022. The total debt of the company consists of long-term debt of Rs.14.22 crore, unsecured loans of Rs.2.80 crore and short-term debt of Rs.39.52 crore as on March 31, 2023. In FY23, the company has undertaken a capital expenditure of ~Rs.17 crore for addition of wines tanks and bottling machinery. This was funded through a bank loan of Rs.7.00 crore and the promoter’s infusion of ~Rs.6.00 crore and remaining through cash accruals. The company is planning to do further addition of wine tanks in FY24 of Rs.10.00-12.00 crore which will be funded by a bank loan of Rs.7.50 crore and further the promoters have already infused funds of ~Rs.2.50 crore for the same. The interest coverage ratio stood at 4.64 times as on March 31, 2023, as against 1.78 times as on March 31, 2023. The DSCR stood at 2.35 times as on March 31, 2023, as against 1.01 times as on March 31, 2022. Acuité believes that the financial risk profile of the company is likely to remain moderate over the medium term.

Improved albeit intensive working capital operations
The company’s working capital operations have improved but are however intensive as evident from the GCA days of 277 days as on March 31, 2023, as against GCA days of 307 days as on March 31, 2022. The inventory days stood at 114 days for FY23 as against 122 days for FY22. The company needs to do ageing of the wine due to which the inventory levels are high. The average inventory holding period is around 2-3 months. The debtors’ days stood at 117 days for FY23 as against 129 days for FY22. Since the company’s brand recognition is increasing in the market, hence the company is in the position of negotiating the terms with the customers. Hence the company is able to reduce the credit period offered to its customers. The average credit period allowed to the customers is around 120 days. The creditors days stood at 172 days for FY23 against 187 days for FY22. The average credit period received from the supplier is around 60-90 days. The average utilization of the bank limits is high at around 89 percent for six months ending July ‘2023. Acuité believes that the working capital management of the company will continue to remain a key rating sensitivity going ahead.

Exposure to regulatory risk
The Indian alcohol industry is highly regulated at almost every stage in the value chain. Moreover, every state has its set of regulations with respect to distribution and retail channels, registration, taxation, and pricing of alcohol. The industry is expected to remain highly regulated by the government going forward exposing the business risk profile to adverse regulatory changes. Furthermore, players within the industry are susceptible to high excise duties; any adverse change in excise duties can weaken profitability, and consequently, affect its credit risk profile.