| Promoters’ extensive experience in food processing industry; Established regional player in Andhra Pradesh
NHN Group is promoted by Mr. Nukala Ramakrishna who has been associated with the group since its inception; this has helped the group to establish strong market presence. Mr. N Ramakrishna looks after the day-to-day operations of the group and is assisted by his son Mr. N Lakshmana Rao and Mr. N. Balaji along with a team of experienced professionals down the line. The group caters to the international customers by exporting the products into various countries namely USA, China, UAE and South Korea amongst others. In the domestic market, the group supplies its products in the state of Gujrat, Madhya Pradesh, Tamil Nadu, Maharashtra, Punjab, Andhra Pradesh and Telangana amongst others. Over the years, Naga Hanuman group has a developed a positive brand value in mindset of the stakeholders such as farmers, customers and creditors and is among the top renowned brand in the southern region of India. Acuité believes that the group wil continue to derive benefits from its promoter’s experience, its established presence and diversified geographical coverage providing stable revenue visibility in medium term.
Stable operating performance:
The group registered revenue of Rs. 1135.77 crore in FY23 against Rs. 1150.40 crore in FY22. Growth in revenue for Naga Hanuman Solvent Oils and NAQ foods is partially offset by a decline in revenue for Naga Hanuman Agro Oils and Nukala Rama Krishna during FY23. However, in FY24, the revenue of the group has marginally improved to Rs. 1180 crore as per YTD for FY24, primarily supported by improved production volume. Low realizations during the year have led to a decline in revenue for Naga Hanuman Agro Oils, which is estimated to be at Rs. 422 crore for FY24 against Rs. 494.25 crore. However, on the consolidated level, the revenue is estimated to improve marginally due to improvements in quantity sold and stable realizations in Naga Hanuman Solvent Oils and NAQ Foods. The operating margins stood stable at 3.04 percent in FY23 against 2.86 percent in FY22 and are estimated to remain stable in the range of 3.10–3.50 percent for FY24. From FY25 onwards, the EBITDA margins are expected to improve further, as the group has made progress towards the installation of new boilers and capacity expansion, which improves productivity and eliminates bottlenecks in the production process.
Efficient working capital operations:
Naga Hanuman Group’s working capital cycle is efficiently managed, which is evident from the Gross Current Asset (GCA) days of 92 days as of March 31, 2023. GCA days deteriorated marginally in FY23 because of elongation in the debtor days to 47 days as of March 2023 against 30 days in the previous fiscal. Creditor days stood at 22 days as of March 31, 2023 as against 17 days as of March 31,2022. The inventory days of the group stood at 32 days as of March 31, 2023 against 19 days as of march 2022. The reliance on working capital limits is moderate which remained utilized at an average of 69 percent during the past 6 months ending March 2024. Acuite believes that the working capital operations will continue to remain in the similar range over the medium term.
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| Moderate financial risk profile:
The financial risk profile of the group is moderate, marked by moderate net worth, average gearing levels, and debt protection metrics. The group’s net worth improved to Rs. 98.48 crore as of March 31, 2023, from Rs. 95.8 crore as of March 31, 2022, despite the withdrawal of capital worth Rs. 6.81 crore and the deduction of tax amount worth Rs. 2.70 crore (Partnership Firm) owing to the healthy profits registered by the group in FY23. The group’s capital structure has marginally deteriorated, with gearing and total outside liabilities to total net worth (TOL/TNW) of 2.38 times and 3.22 times, respectively, as of March 31, 2023, as against 1.92 times and 2.50 times as of March 31, 2022. The coverage indicators were healthy, with a DSCR of 2.17 times as of March 31st, 2023, as opposed to 3.27 times as of March 31st, 2022. Interest coverage stood at 2.49 times as of March 31st, 2023, as opposed to 3.63 times as of March 31st, 2022. Debt to EBITDA further deteriorated to 6.18 times during FY23 from 5.11 times during the previous year. Acuite believes that the financial risk profile of the group will remain moderate over the medium term due to its higher reliance on short-term debt for working capital management.
Susceptible to volatility in raw material prices and regulatory risks
The shrimp processing and export business is highly fragmented with presence of several smal players and dependence on shrimp farms for raw material which limits bargaining power. Additionaly, the procurement price of shrimp depends on catch and availability during a particular period, which exposes the company to volatility in product prices. The Indian edible oil industry is highly fragmented, with the presence of a large number of participants in the organized and unorganized sectors. This is due to low entry barriers such as low capital, low technical requirements of the business and liberal policy regime. This has resulted in severe competition and inherently thin profitability margins. Furthermore, as a portion of revenue is generated from exports, credit risk profile remains susceptible to volatility in forex rates. Besides, the company is also exposed to risk arising from regulatory changes and demand pattern in client countries and changes such as levy of anti-dumping duties by importing countries.
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