| Long track record of operation and experienced management
The company was established in 1995 by Mr. Purushottam Agarwalla and Mr. Pradeep Agarwalla with the objective of engaging in the processing and export of non-basmati rice. The company has a significant reputation in the business due to its long track record of operation in the rice milling industry. The promoters of SBRIPL have more than two decades of experience in the rice milling business. The managing director, Mr. Purushottam Agarwalla, possesses almost three decades of experience in the rice milling industry. Director Pradeep Kumar Agarwalla also possesses more than two decades of experience in the rice milling industry. The extensive experience of the management has helped the company establish long-term relations with suppliers, resulting in the direct procurement of agricultural produce through local farmers and traders from Chhattisgarh, Andhra Pradesh, Jharkhand, and West Bengal. Moreover, their experience has also helped in building healthy customer relations outside India, as the company exports 100% of its total finished goods. The company majorly exports to countries like Singapore, Switzerland, Austria, and the U.A.E., among others. Acuité believes that SBRIPL will continue to benefit from its established position in the market and experienced management.
Efficient working capital management: The efficient working capital management of the company is marked by comfortable GCA days of 83 days in FY2023 (prov.) as compared to 91 days in FY2022. The debtor days of the company stood comfortably at 13 days in FY2023 (prov.) as compared to 52 days in the previous year. The inventory holding period of the company increased and stood at 51 days in FY2023 (Prov.) as compared to 29 days in the previous year. Further, the company utilised 54 percent of its working capital facility for the last six months ended March 2023. Acuite believes that the working capital cycle of the company will stretch in the coming days, resulting in high working capital utilisation.
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A sharp decline in revenue coupled with a moderate profitability margin
The revenue of the company decreased to Rs. 2109 crore during FY2023 (prov.) as compared to Rs. 2496.20 crore in the previous year and missed the projections by 22.89%. This dip in the top line is due to lower orders from the export market. Acuite believes that going forward, the revenue of the company will grow at a healthy level, backed by a healthy order book from the global market, better realisation, and steady demand for non-basmati rice.
The operating profitability margin of the company has declined to 3.14% in FY2023 (prov.) as compared to 4.61% in FY2022. This decrease in operating margin is on account of foreign exchange losses. Going forward, Acuite believes that the profit margin will improve and sustain at the same level, backed by heavy demand and order flow for non-basmati rice and parboiled rice from the global market, along with incentive receivables of 1% of total FOB value from the Indian government for export of rice.
Comfortable leverage policy with declining coverage position: The company has a moderate leverage policy marked by relatively high gearing levels historically. The gearing of the company stood at 1.04 times in FY 23 (prov.) as compared to 1.70 times in FY 22 and 2.13 times in FY 21. The gearing of the company has improved mainly on account of a significant increase in its net worth on account of the accretion of profit to reserves. The net worth of the company stood at Rs. 257.76 crore in FY23 (prov.) as compared to Rs. 223.58 crore in FY22. Even though the leverage position of the company has improved, the coverage ratios have shown a significant dip, as can be seen from the interest coverage ratio (ICR) of the company, which stood at 3.56 times in FY23 (prov.) as against 9.66 times in FY22. Further, the debt service coverage ratio (DSCR) of the company declined and stood at 2.95 times in FY23 (prov.) as against 7.51 times in FY2022. The coverage indicator moderated due to a 50 percent increase in interest costs and a dip in operating margin. The net cash accruals to total debt (NCA/TD) stood at 0.14 times in FY23 (Prov.) as compared to 0.21 times in FY2022. Acuite believes that the leverage profile of the company will further moderate as the company plans to increase its revenue, for which it will be relying on externally borrowed funds for the working capital requirement.
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