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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 61.94 | ACUITE BB- | Stable | Downgraded | - |
| Bank Loan Ratings | 0.75 | - | ACUITE A4 | Downgraded |
| Total Outstanding | 62.69 | - | - |
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Rating Rationale |
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Acuité has downgraded the long term rating to 'ACUITE BB-' (Read as ACUITE double B minus) from 'ACUITE BB' (Read as ACUITE double B) and short term rating at 'ACUITE A4' (Read as ACUITE A four) from 'ACUITE A4+' (Read as ACUITE A four plus) on the Rs.62.69 Cr. bank facilities of Karnani Solvex Private Limited. The outlook is ‘Stable’.
Rationale for Downgrade The recommendation factors in a stable business risk profile with slight decline in margins. Also, the liquidity of the company has weakened slightly as reflected by net cash accruals which are insufficient to repay the debt repayment and the shortfall were met by bringing in unsecured loans. The rating draws comfort from the experienced management and the established track record of operations in the same line of business, increase in operating revenue which stood at Rs.338.60 Cr. in FY2024 (Prov.) as against Rs.291.11 Cr. in FY2023. However, the company witnessed decline in the operating margin which stood at 1.36% in FY 2024 (Prov.) against 1.53% in FY 2023 due to incremental expenses. Further, the working capital operations of the company are moderate where in average fund based utilization stood at 74.62 % in last nine months ended May 2024. The rating is further constrained by the demand and supply demographics due to highly competitive and fragmented industry, average financial risk profile exhibited by gearing which stood at 2.48 times as on 31st March 2024 (Prov.) as against 1.93 times as on 31st March 2023 and coverage indicators reflected by interest coverage ratio and debt service coverage ratio which stood at 1.27 times and 0.90 times respectively as on 31st March 2024 (Prov.). |
| About the Company |
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Karnani Solvex Private Limited (KSPL), incorporated in 2007. The company is engaged in manufacture of rapeseed meal (De-Oiled Cake) and mustard solvent oil. The present directors of the company are Mr. Narayan Karnani and Mr. Sanjay Kumar Karnani. The registered office of the company is in Rajasthan.
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| Unsupported Rating |
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Not Applicable
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| Analytical Approach |
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Acuité has considered the standalone business and financial risk profile of Karnani Solvex Private Limited to arrive at the rating.
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| Key Rating Drivers |
| Strengths |
| Experienced management and moderate track record of operations
KSPL was incorporated in 2007. The Final products include De-oiled cakes and Mustard solvent oil. The directors of the company are Mr. Sanjay Kumar Karnani and Mr. Narayan Karnani. The expertise and experience in industry gained over the years and the long term presence in the industry has helped KSPL garner reputed clientele which include names like Adani Wilmar Ltd, Agrocorp International PTE Ltd, Wilmar Trading PTE Ltd, etc. Acuité believes that going ahead, the promoter’s experience would continue to support KSPL’s growth. Moderate Working Capital operations The working capital operations of the company is moderate marked by GCA days which stood at 78 days as on 31st March 2024 (Prov.) as compared to 71 days as on 31st March 2023. The debtor days of the company stood at 36 days as on 31st March 2024 (Prov.) against 16 days as on 31st March 2023. The increase in exports resulted into higher debtor days as compared to previous year. Further, the inventory holding improved and stood at 39 days as on 31st March 2024 (Prov.) against 51 days as on 31st March 2023 and the creditor days stood constant at 10 days as on 31st March 2024 (Prov.) as compared to previous year. In addition, the average fund based bank limit utilization of the company stood at 74.62% in last nine months ended May 2024. Acuité believes that the working capital operations of the company will remain at similar levels in near to medium term. |
| Weaknesses |
| Susceptibility to fluctuations in agriculture based commodity business
Operations are exposed to the inherent risks associated with the agriculture based commodity business, such as availability of raw materials, fluctuations in prices, and changes in government regulations. The prices of edible oil are volatile in nature hence the profitability is highly susceptible to the ability of the company to pass on the same to its customers. Further, the demand-supply of vegetable is affected by change in regulations in exporting and importing countries. Average Financial Risk Profile The financial risk profile of the company is average marked by net-worth of Rs.23.64 Crore as on 31st March 2024 (Prov.) against Rs.23.28 Crore as on 31st March 2023. The modest increase in the net-worth is on an account of low accretion of profits to reserves. Further, the total debt of the company stood at Rs.58.52 Crore as on 31st March 2024 (Prov.) against Rs.45.00 Crore as on 31st March 2023. The capital structure of the company is marked by gearing ratio of the company which stood at 2.48 times as on 31st March 2024 (Prov.) against 1.93 times as on 31st March 2023. Further, the coverage indicators of the company are reflected by interest coverage ratio and debt service coverage ratio, which stood at 1.27 times and 0.90 times respectively as on 31st March 2024 (Prov.) as against 1.29 times and 0.96 times respectively as on 31st March 2023. The TOL/TNW ratio of the company stood at 2.85 times as on 31st March 2024 (Prov.) against 2.25 times as on 31st March 2023 and DEBT-EBITDA of the company stood at 12.61 times as on 31st March 2024 (Prov.) against 10.01 times as on 31st March 2023. In addition, the company has no capex plans in near to medium term. Going Forward, Acuité expects that the financial risk profile of the company is likely to remain similar in near to medium term and will remain a key rating sensitivity. |
| Rating Sensitivities |
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| Liquidity Position |
| Stretched |
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The liquidity profile of the company is stretched marked by net cash accruals of Rs.0.92 Cr. as on 31st March 2024 (Prov.) against the debt repayment obligation of Rs.1.41 Cr. over the same period. Going forward, the company is expected to generate net cash accruals under the range of Rs.0.9 Cr. to Rs.1.10 Cr. against the debt repayment obligations of up to Rs.4.38 Cr. over the same period. The shortfall is expected to be met by bringing in unsecured loans. The current ratio of the company stood at 1.33 times as on 31st March 2024(Prov.) against 1.56 times as on 31st March 2023. Further, the cash and bank balance available with the company stood at Rs.0.32 Cr. as on 31st March 2024 (Prov.). Acuité believes that going forward the company is expected to remain in line with the previous year hence the ability of the company to manage and improve its liquidity position will remain a key rating sensitivity.
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| Outlook: Stable |
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Acuité believes that KSPL would maintain 'Stable' outlook on the back of experienced management, healthy revenue growth and timely support from the promoters in form of unsecured loans to meet debt repayment obligations. The outlook may be revised to 'Positive' in case the company reports better than expected improvement in the revenue and operating margins or debt protection metrices. Conversely, the outlook may be revised to 'Negative' in case the company reports lower than expected revenue, or reports delays in meeting debt obligations timely or any further stretch in the financial risk profile.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 24 (Provisional) | FY 23 (Actual) |
| Operating Income | Rs. Cr. | 338.60 | 291.11 |
| PAT | Rs. Cr. | 0.29 | 0.24 |
| PAT Margin | (%) | 0.09 | 0.08 |
| Total Debt/Tangible Net Worth | Times | 2.48 | 1.93 |
| PBDIT/Interest | Times | 1.27 | 1.29 |
| Status of non-cooperation with previous CRA (if applicable) |
| Not Applicable |
| Any other information |
| None |
| Applicable Criteria |
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• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Manufacturing Entities: https://www.acuite.in/view-rating-criteria-59.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm |
| Note on complexity levels of the rated instrument |
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In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuite’ s categorisation of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow patterns, number of counterparties and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Rating Criteria “Complexity Level Of Financial Instruments” on www.acuite.in
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