Established track record of operations across country, experienced management in cashew industry

Gayathri Exports(GE) is a Karnataka-based partnership firm established in 1995. The firm engaged in the processing of raw cashew nuts into cashew kernels as well as trades raw cashew nuts and cashew kernels and other cashew allied products. Mr. Bola Prabhakar Kamath, has an extensive experience in the cashew processing industry for more than five decades. The firm is managed by Mr. Bola Prabhakar Kamath and his sons Mr. Bola Srinivas Kamath and Mr. Bola Prashanth Kamath. The extensive of all the partners and its long standing presence of the firm has enabled it in establishing strong ties with its key customers which also includes the Indian Army, which has resulted in repeat  orders. The firm majorly imports the raw cashew nuts and also has established ties with its suppliers from Ivory Coast, Benin, Tanzania, etc. It also exports about ~16 percent (in FY2022) of its products to countries like USA, UAE, etc. Acuité believes that the partner's extensive industry experience in cashew industry, established relationships with its customers and suppliers will aid GE's business risk profile in medium term.

Robust growth in operating Income and profitability Margins

The operating income of GE has increased from Rs 99.47 Cr in FY2021 to Rs 149.17 Cr in FY2022(Prov) and EBIT margins improved from 6.80% in FY2021 to 12.46% in FY2022(Prov). Increase in sales in primarily due to increase in demand in domestic markets which had dropped due to covid-19 pandemic, has seen a sharp rebound post pandemic. The increase in demand is observed from Western India,  specifically from Rajasthan and Gujarat  markets  where firm is  receiving orders from customers engaged in sweets and confectionery and restaurant business. Firm also witnessed consistence rise in exports as well specially to countries like UAE, Singapore, Saudi Arabia, USA and Canada. GE is also involved in trading of raw cashew nuts, they maintain stock of raw cashew nuts, and when the price is high they realize certain amount of stock to make a profit, which has contributed for increase in overall profitability margins of the firm. Acuité believes that with an ongoing growth in demand in the industry backed by reputed clientele profile, the business risk profile of the firm is expected to improve over the medium term.

Moderate financial risk profile

GE’s financial risk profile is moderate marked by healthy capital structure and coverage ratios GE’s net worth stood moderate at Rs 24.04 Cr as on March 31, 2022(Prov) against Rs 18.17 Cr as on March 31, 2021. The EBITDA margins of the firm improved to 8.91 per cent in FY2022 (Prov) against 6.84 in FY2021. The improvement is attributable to decrease in operational overheads of the firm such as administrative expenses and selling expenses during the period. The total debt of Rs.25.39 Cr as on March 31, 2022(Prov) consists of Rs.2.70 Cr unsecured loan from promotors and short term working capital debt of Rs.5.62 Cr. Interest coverage ratio stood comfortable at 4.61 times as on March 31, 2022(Prov) and 2.39 times as on March 31, 2021. The net cash accrual (NCA) to total debt (TD) is 0.40 times as on March 31, 2022(Prov) and 0.11 times as on March 31, 2021. The Total outside liabilities to Tangible net worth stood at 1.10 times for FY2022(Prov) as against 1.77 times in FY2021. Acuité expects the financial risk profile to remain moderate over the medium to long term period on account of improvement in scale of operations and moderately leveraged capital structure.

Moderate working capital cycle

GE’s working capital is marked by moderate its gross current asset (GCA) days of around 75- 120 days during last 3 years through FY2022. The GCA days are majorly marked by moderate inventory and debtor days. he company maintains an inventory of about 27 to 80 days and gives credit period of 10-25 days to its customers during last 3 years through FY2022. Its creditor’s days stood at 01-05 days during last 3 years through FY2022. Moderate GCA led to low average utilization of its working capital limits at about 16.42 percent over the past 6 months ended June 2022. Acuité believes that the operations of the firm will remain moderately working capital intensive on account of presence of low level of credit period from suppliers due to the firm’s nature of business line.

Risk of withdrawal associated with the partnership nature of firm

GE is a partnership firm and is exposed to the likeliness of the partners withdrawing capital from the business. It can be observed that the Net worth of the firm has not witnessed any growth over the last 3 financial years through FY2022 on account of capital withdrawal by the partners. Acuité believes that any substantial withdrawal of capital by the partners is likely to have an adverse impact on the capital structure.

Highly fragmented and intensely competitive cashew industry

The domestic cashew industry is highly fragmented with the presence of many unorganized players, owing to low entry barriers. Intense price competition, along with low product differentiation, limits the firm’s pricing flexibility. Further the firm’s margins have fluctuated over the years due to variations in RCN and cashew kernel prices. Cashew prices are highly volatile. Kernel prices are determined by buyers and brokers, in line with the prevailing demand-supply scenario.