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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 15.00 | ACUITE B+ | Stable | Reaffirmed | - |
| Total Outstanding Quantum (Rs. Cr) | 15.00 | - | - |
| Rating Rationale |
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Acuité has reaffirmed its long-term rating of ‘ACUITE B+’ (read as ACUITE B plus) on the Rs. 15.00 Cr bank facilities of Nanda Gokula Industries (NGI). The outlook is ‘Stable’.
Rationale for Reaffirmation The rating reaffirmation continues to take into account the extensive experience promoters in the cashew processing industry and the established relationship with its customer base. The rating, albeit remains constrained by the vulnerability of NGI’s profitability to volatility in the cashew kernel and raw cashew nut (RCN) prices, below average fiannacial risk profile and working capital intensive nature of operations. |
| About the Company |
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Established in 2012, Nanda Gokula Industries (NGI) is a proprietorship concern promoted by Mrs. Chandramathi Shetty. The day to day operations are managed by Mr. Premanand Shetty. NGI is engaged in the processing of plain cashew kernels from raw cashew nuts (RCNs). The processing unit is located in Mangalore (Karnataka) with an installed capacity to process 5 tonnes of raw cashew nuts per day.
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| Standalone (Unsupported) Rating |
| Not Applicable |
| Analytical Approach |
| Acuité has considered the standalone business and financial risk profile of Nanda Gokula Industries (NGI) to arrive at the rating. |
Key Rating Drivers
| Strengths |
| Extensive experience of promoters in cashew industry
Established in 2012, NGI has nearly a decade of track record in the cashew processing business. Mr. Premanand Shetty possesses experience of over three decades in cashew industry. The extensive experience has enabled the firm to generate healthy relationship with its customers and suppliers which ensures repeat orders to an extent. Diversified customer base The entity caters to customers in the domestic market, comprising of traders and food processors. The firm has a strong long-term association with its customers across the states like Punjab, Karnataka, Gujarat, Rajasthan and Maharashtra, among others, from whom it gets repeat orders. This apart, the firm constantly endeavours to add new customers and enter new geographies. This has helped the firm to sustain its topline to some extent. Further, the NGI’s long-established track record of procurement from African regions continues to be a key credit positive. |
| Weaknesses |
| Below-average financial risk profile
The financial risk profile of the firm is below average marked by low net worth, high gearing (Debt-Equity), total outside liabilities to total net worth (TOL/TNW) and moderate debt protection metrics. The net worth of the firm stood at Rs.1.82 Cr in the FY2023 (prov) against Rs.2.43 Cr in the FY2022. Proprietor has withdrawn total of Rs.1.12 Cr of capital in the FY2023 (prov). It mainly includes Rs.0.91 Cr drawings for house construction, Rs.0.15 Cr for the payment of income tax. The gearing (debt-to-equity) and TOL/TNW stood high at 4.34 times and 4.47 times as on 31 March, 2023 (prov) vis-à-vis at 4.20 times and 4.26 times as on 31 March, 2022. The same is due to high reliance on working capital borrowings. The debt protection metrics of interest coverage ratio and net cash accruals to total debt (NCA/TD) stood moderate at 2.12 times and 0.12 times, respectively in FY2023 (prov) vis-à-vis 2.22 times and 0.10 times respectively FY2022. Acuité believes that the financial risk profile is expected be at similar levels over the medium term. Working capital intensive nature of operations NGI operations are working capital intensive marked by gross current assets (GCA) of 127 days in FY 2023 (prov). NGI imports a significant portion of raw cashew nuts, and therefore maintains an inventory of around 60-90 days. Hence, to meet the regular demand in the market, the entity has to maintain inventory at high levels. The firm’s inventory cycle stood at 69 days in FY 2023(prov). Debtor’s cycle improved to 47 days as on 31st March 2023 (prov) as against 69 days as on 31st March 2022. The firm's creditors days are low and stood at 4 days as on 31st March 2023 (prov). The bank utilization level remained moderately utilized at an average of nearly 79.90 per cent for the 12 months ending May 2023. Intense competition in the export and domestic Cashew industry The domestic cashew industry is highly fragmented, with the presence of numerous unorganised players, owing to low entry barriers. The Indian players face competition from other countries in the export market. The intense price competition, along with low product differentiation, limits the firm’s pricing flexibility. Also, the margins are exposed to volatility in kernels and RCN prices. The procurement of RCN is seasonal. The prices of cashew kernels and RCNs vary on a daily basis, depending on the international demandsupply scenario, exposing the company’s margins to the price fluctuations. Moreover, the availability of RCNs is subject to agro climatic risks. |
| Rating Sensitivities |
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• Increase in scale of operations along with profitability margins
• Improvement in capital structure and leverage ratios |
| All Covenants |
| None |
| Liquidity Position |
| Adequate |
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The liquidity position is adequate marked by the Net cash accruals to its maturing debt obligation going forward. NGI has generated cash accruals in the range of Rs.0.91-1.12 Cr during last three years ending FY2023 (prov) as against its long term debt obligations of Rs.0.21-0.31 Cr for the same period. The company is expected to generate NCAs in the range of Rs.1.18-1.60 Cr. in the FY2024 –FY2026. The Cash and Bank balance as on 31st March 2023 (prov) stood at Rs.0.14 Cr. Current ratio of the company stood at 1.14 times as on 31st March 2023 (prov). Acuité believes that the liquidity of the NGI is likely to remain adequate over the medium term on account of adequate cash accruals against its repayment obligations.
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| Outlook: Stable |
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Acuité believes that NGI will maintain a ‘Stable’ outlook in the medium term backed by its promoter's extensive experience. The outlook may be revised to 'Positive' if the firm registers more than expected growth in its revenues while maintaining its profitability and improves its capital structure by equity infusion. Conversely, the outlook may be revised to 'Negative' if there is any stretch in its working capital cycle or any significant withdrawal of capital leading to deterioration of its financial risk profile and liquidity.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 23 (Provisional) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 22.09 | 18.80 |
| PAT | Rs. Cr. | 0.54 | 0.50 |
| PAT Margin | (%) | 2.44 | 2.64 |
| Total Debt/Tangible Net Worth | Times | 4.34 | 4.20 |
| PBDIT/Interest | Times | 2.12 | 2.22 |
| Status of non-cooperation with previous CRA (if applicable) |
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CRISIL vide its press release dated 17th Aug 2022, had rated the company to CRISIL B+/Stable; Issuer Not Cooperating.
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| 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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