For arriving at the ratings, Acuité has consolidated the financial and business risk profiles of Gubba cold storage private limited (GCS), Gubba Green Cold Storage Private Limited (GGCS), Gubba Agro Fresh Private Limited (GAF), GNR Cold storage Private Limited (GNRCS) hereinafter, referred to as “Gubba Group” on account of their common management and brand name, strong operational and financial linkages.

Extensive industry experience with demonstrated track record of operations
Gubba group has a history of 125 years with the 'Gubba' brand that started in 1857 with trading of agri-commodities. The group provides cold storage facilities for preserving seeds, food items and Pharmaceuticals at its temperature-controlled cold storages/warehouses (TCW). The group started its operations by setting up its first private cold storage in 1987 for groceries through the flagship company of the group named 'Gubba Cold Storage Pvt Ltd' (GCS) which was established in 1985 in Andhra Pradesh. GCS was established by Mr. Gubba Nagender Rao foreseeing the necessity to store agri-commodities for retaining their market value and efficient future use. It was further expanded in year of 1992 and 1993 and expanded in 1996 for the pre-cooling of fruits. Group has an in-house Gubba Germplasm Bank, which is one of the finest innovations of the Indian seed Industry in the private sector. Currently the group has 24 warehouses across Telangana and Andhra Pradesh and few in Aurangabad, out of which company owns 5 warehouses and rest were taken on lease. Acuité believes that the groups' extensive industry experience and demonstrated track record will continue to aid the business risk profile of the group over the medium term.

Stable operating performance during FY23:
Gubba group has reported consolidated revenue of Rs.73.65Cr for FY23 (Prov), recording a growth of 15 percent against previous year's Rs.63.93Cr. The growth in operating income is mainly due to increased demand for cold storage in seeds and frozen foods segment and addition of warehouses to capture the demand. The group has added 3 ware houses during the second half of FY23 and 2 ware houses during Q1FY24 which will fully operational from Q2 of FY24. With in addition of ware houses the group is expected to achieve 15-20 percent growth in operating income for FY24. Operating margin of the group was in the range of 39- 38 percent during the past 3 years, presence of long term lease agreements and escalation clauses aid in maintaining margins in the similar levels. Acuite believes that the group will improve its operating revenue while maintaining its current operating margins in the medium term on account of recent addition of ware houses and escalation clauses.

Moderate financial risk profile:
The financial risk profile of the group moderate which is reflected by moderate net worth position, moderately healthy capital structure and average debt protection metrics. The net worth of the group stood at Rs.67.99Cr as on March 31, 2023 (Prov.) against Rs.59.46Cr during previous year. The growth in net worth is mainly due to accretion of profits to reserves. Gearing ratio of the group improved to 1.58 times during FY23 (Prov.) from 2.04 times during previous year. Improvement in gearing level is on account of accretion of profits to reserves and addition of equity of Rs.4.6Cr from the promoters. Total outside liability to net worth stood at 1.74 times as on March 31, 2023 (Prov.) against 2.26 times of previous year. The coverage indicators of the group are moderate with DSCR of 1.55 times as on March 31, 2023 (Prov.) against 1.27 times during previous year. Interest coverage ratio stood at 2.10 times as on March 31, 2023 (Prov.) against 2.29 times of previous year. Debt to EBITDA has marginally improved to 3.69 times during FY23 from 4.86 times of previous year. Acuite believes that financial risk profile of the group will improve in the medium term in absence of major debt funded capex.

­Moderate Intensive working capital operations:
The working capital operations of the group are moderately intensive which is evident from the improving Gross current asset days of 278 days during FY23 (Prov.) from 319 days during previous year. This improvement in GCA days is on account of improvement in operating income and decline in current assets. Debtors days of the group deteriorated to 149 days during FY23 (Prov.) from 120 days of previous year. The same is on account of higher debtor outstanding balance of Rs.30.12Cr as on March 31, 2023 (Prov.) against Rs.21.05Cr during previous year. Generally, the group allows credit period of 60-90 days to its customers. However, receivables pertaining to seeds from farmers will be realised in 3-4 months. Payables mainly consist of electricity charges and monthly lease charges which will be paid within 15-20 days. Elongated debtor days has resulted in increased dependency on working capital limits. The limits were moderately utilized in the range 75-80 percent during past 12 months ending May, 2023. Acuite believes that operations of the group will continue to remain working capital intensive.

Highly Fragmented Industry and sensitivity to power cost
The cold chain industry in India is dominated by the presence of several domestic players catering to localised markets. The organised players account for a small portion of the total cold chain industry market. The company faces intense competition from the unorganised players. The fragmented nature of industry could constrain the pricing power and the operating profit margin of the group. Albeit, increasing demand for temperature-controlled services by the pharmaceutical, seeds and food industry, due to increasing urbanisation and changing consumer consumption patterns partially offsets the risk. Besides, Cost of electricity forms nearly 14-14.5 percent of temperature controlled warehouses. Any chronic interruption leading to increased dependency on backup power generators or adverse hike in electric charges by various state electricity boards may have negative impact on the operating margins.