­For arriving at this rating, Acuité has consolidated the business and financial risk profiles of Nukala Ramakrishna (NRK), Naga Hanuman Agro Oils Private Limited (NHAOPL), Naga Hanuman Solvent Oils Private Limited (NHSOPL) and NAQ Foods India Private Limited (NAQFPL) together referred to as the ‘Naga Hanuman Group (NHN Group)’. The consolidation is in the view of common management, similar line of business in food processing industry, operational and financial linkages between the entities.

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 healthy revenue visibility in medium term.

Stable operating performance, albeit declining margins 
The revenue of the group has improved to Rs.1150.40 Cr in FY22 from Rs.1024.06 Cr in the previous year. This improvement in revenue is mainly due to the improved realisations in FY22 However, the operating margins have not improved commensurate with the realisations, the operating profitability recorded a slight deterioration in FY22 as it stood at 2.86 percent during the year as against 3.12 percent in the previous year. The decline in mainly on account of increased raw material prices. The raw material purchase prices are prone to fluctuations in the industry. However, Acuite expects the margins to improve in the medium term, on account of measure undertaken by the group to improve its cost efficiency.

Moderate Financial Risk Profile:
NHN Group’s financial risk profile is moderate, marked by a moderate Networth andmoderate gearing and a comfortable debt protection metrics. The net worth of the group stood at Rs.95.88Cr as on March 31, 2022 as against Rs.90.08Cr in previous year. The gearing level deteriorated to 1.92 times as on March 31, 2022 as compared to 1.52 times in previous year. This is on account of both withdrawal of capital of Rs.7.00Cr from the partnership firms in the Group  and additional debt availed for capex.. The total debt of the Group stood at Rs.183.84 Cr as on March 31, 2022 which includes Rs.121.48 Cr of short term borrowings, Rs. 34.36 Cr of long term borrowings and Rs,30 Cr of unsecured loans from promoters or related parties. The debt protection metrics of the Group is comfortable marked by interest coverage ratio of 3.63 times in FY22 as against 3.08 times in FY21. The  Debt-EBITDA stood at 5.11 times as on March 31, 2022 as against  3.95 times in previous year. 

Working capital intensive operations marked by moderate GCA days:
Naga Hanuman Group’s working capital cycle is efficiently managed which is evident from the Gross Current Asset (GCA) days in the range of 63-71 from past 3 years ending March 31,2022. GCA days slightly improved to 71 days as on March 31 ,2022 from 77 days in the previous year. This is on account of decrease in the debtors as on March 31, 2022. Creditor days has improved to 19 days as on March 31, 2022 from 25 days in the previous year. The moderate GCA days led to the moderate utilization of around 70 percent of working capital limits during the past 12 months ending December,2022. Acuité believes that the operations of the group will remain moderately working capital intensive on account of nature of the aqua-culture and agricultural related products industry.

­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.