| Established track record of operations and experienced management
Coimbatore-based, Havukal Group (HG) was established in 1976; thus, the group has an operational track record of over four decades in the tea industry. The promotors of the group, Mr. Anandkumar Rengaswamy, Mr. Ramaswami Nandakumar, Mr. Thangavelu Jayaraman, Mr. Karthik Narayan Jayaraman, Mr. Thangavelu Raghuraman and R. Ajaykumar have over three decades of experience in the aforementioned line of business. The long track record of operations and experience of the management have helped the group develop healthy relationships with its customers. Acuité believes that the experience of the management in the industry is also likely to favourably impact the business risk profile of the group over the near to medium term.
Moderate financial risk profile:
The group’s financial risk profile remained moderate in FY23 with moderate networth, low gearing levels and moderate debt protection metrics. The net worth of the group has declined to Rs.20.81 Cr. as of March 31, 2023, from Rs.22.20 Cr. as of March 31, 2022, due to net loss reported during the year. The gearing level remained healthy at 0.39 times as of March 31, 2023 against 0.35 times as of March 31, 2022. Total outside liabilities/tangible net worth (TOL/TNW) remained low at 0.50 times as of March 31, 2023 against 0.52 times as of March 31, 2022. Interest coverage ratio (ICR) and debt service coverage ratio (DSCR) stood comfortable at 3.43 times and 1.76 times respectively, as of March 31, 2023 against 3.34 times and 1.33 times respectively, as of March 31, 2022. Debt to EBITDA improved marginally by 3.92 times as of March 31, 2023 from 4.72 times as of March 31, 2022 due to an increase in absolute EBITDA. Acuite believes that the financial risk profile of the group will remain moderate for FY2024 as well on account of moderate net worth and low debt levels.
Efficient working capital operations:
The group’s working capital operations are efficiently managed, marked by gross current asset days (GCA) of 61 days in FY2023 against 70 days in FY2022. The inventory days stood at 36 days in FY2023, against 42 days in FY2022. The inventory holding policy depends on market conditions. Generally, the group maintains an inventory holding policy of at least 1 month. The debtors’ days stood at 17 days in FY2023 as against 21 days in FY2022, which corresponds to normal terms with the customers. However, working capital bank lines remained utilised at an average of ~80 percent for Havukal and ~46 percent for Maris Agro during the last 6 months of the of the period ending March 2024. Acuite believes that the working capital operations would remain in similar range over the medium term.
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| Stagnant growth in operating performance.
The group has registered stable operating revenue of Rs.54.71 Cr. in FY2023 against Rs.56.67 Cr. in FY2022. Further, the group is estimated to register stable revenue in the range of Rs.55-57 Cr. for FY2024. However, the performance of the group in terms of revenue has declined when compared to the pre-COVID range of Rs.65-70 Cr, due to a decline in orders. The group is having difficulty in procuring raw materials, due to intense competition, the group sometimes purchases raw materials at higher rates. Despite the increase in raw material costs, the operating profit margin has improved marginally to 3.74 percent in FY2023 from 2.85 percent in FY2022 and is further expected to improve in the range of 4-4.5 percent in FY2024 due to the group's adoption of a fully automated production process, leading to a decline in employee costs, and the use of firewood, which is cheaper than coal. The group has incurred a net loss of Rs. 1.42 Cr. for FY2023 due to higher depreciation costs. Further, it is estimated to incur net loss for FY2024 as well due to depreciation. Going forward, the revenue of the group is expected to remain in a similar range. However, operating profit margins are expected to improve marginally due to the expected reduction in production costs.
Susceptibility to volatility in raw material prices.
The operating margins of the group are highly depended on raw material prices. Further, raw material price depends on various factors such as exposure to agro-climatic risk which could affect the availability of tea leaves in adverse weather conditions. Thus inadequate rainfall could affect the tea plantation, further adverse change in the raw material price due to supply-demand scenario can lead to fluctuation in operational margins of all the players across the industry.
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