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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 247.66 | ACUITE A- | Stable | Reaffirmed | - |
| Total Outstanding Quantum (Rs. Cr) | 247.66 | - | - |
| Rating Rationale |
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Acuité has reaffirmed the long-term rating of ‘ACUITE A-’ (read as ACUITE A minus) on the Rs. 247.66 Cr bank facilities of Sheel Oil and Fats Private Limited. The Outlook is 'Stable'.
Rationale for reaffirmation The rating on SOFPL takes into account the expected growth in the operating income and stability in operating margins over the medium term. The rating is supported by the experienced management, long track record of operations. These strengths are, however, partly offset by the moderation in operating margin in 9 Month of FY 23, price violatility and intense competition in the Industry. |
| About Company |
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Sheel Oil and Fats Private Limited was incorporated in 2009 however, the entity commenced its commercial operations in February 2019. The manufacturing plant of the entity is located in Gandhidham, Gujrat, near Kandla Port. SOFPL is engaged in the manufacturing of edible oils, oleo chemicals, fatty acids, and glycerin. Sheel Chand Agroils Private Limited holds an 80% stake in SOFPL.
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| About the Group |
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Sheel Chand Group is promoted by Mr. Mohan Goel and his brother, Mr. Pramod Goel along with family members Mrs. Kanta Devi, Ms. Pinky Goel and Mr. Mohak Goel. The group consists of two companies, Sheel Chand Agroils Private Limited which is the promoter entity, and Sheel Oil and Fats Private Limited, which is the subsidiary entity in which Sheel Chand Agroils Private Limited holds an 80% stake. The group is engaged in manufacturing of edible oils, non edible oils, vanaspathi, glycerin, and oleo chemicals. The group has a combined manufacturing capacity of 5,40,00 MT.
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Analytical Approach
| Extent of Consolidation |
| •Full Consolidation |
| Rationale for Consolidation or Parent / Group / Govt. Support |
| Acuité has considered consolidated business and financial risk profiles of Sheel Chand Agroils Private Limited and Sheel Oil and Fats Private Limited hereafter referred to as 'Sheel Chand Group'. The consolidation is mainly on account of similarity in the line of business, operational synergies and common management.
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Key Rating Drivers
| Strengths |
| Experienced management and long track record of operations
The promoters of the group have been in the vegetable oil business for a long time and have more than two decades of experience in the industry. The management has gained valuable experience since the inception of the group and has developed strong relationships with customers and suppliers. This has enabled them to navigate the market and helped grow the group to the scale it is presently operating at. Going forward the group will benefit from the relationships fostered by the management and will be able to grow on a sustainable basis. Augmentation in the business risk profile Sheel Chand Group’s operations improved, which is apparent from the growth in consolidated revenue from operations by ~19% in FY2022 to Rs. 2110.36 crore as against Rs. 1770.87 crore for FY2021.(improved by ~ 48 percent over the last three years FY 20 to FY 22). The increase in revenue is attributable to growing demand for edible oils and Oleo chemicals. Furthermore, the group has recorded revenue of Rs ~2553 crore (including interparty sales) for FY 23. The operating profit margin of the group remains stable (minuscule improvement of 6 bps in FY 22). The operating profit margin of group stood at 6.20% in FY2022 as against 6.14% in FY2021. Furthermore, the net profit margin of the group also improved by 39 bps and stood at 2.23 percent in FY2022 as against 1.84 percent in FY2021. ROCE of the group stood at 14.17 times in FY2022. Financial risk profile Group has healthy financial risk profile marked by healthy net worth and comfortable debt protection metrics. Group’s net worth stood at Rs~310 Cr as on 31st March 2022 as against Rs.~239 Cr as on 31st March 2021.Networth improved on account of profit accretions and unsecured loans treated as quasi equity. Group follows a conservative leverage policy. Gearing levels (debt-to-equity) witnessed a minuscule improvement and stood at 1.44 times as on March 31, 2022 as against 1.48 times in FY 2021. The gearing ratio in FY22 witnessed minuscule growth despite of healthy profits due to additional debt taken by SOFPL in form of optionally convertible debentures of Rs 50 crore. The outstanding debt of the group is Rs. 446.58 crore as on 31 March, 2022 which consists of long term borrowings of Rs.118.88 crore, short term working capital limit of Rs.276.69 crore and current maturities of long term debt Rs 20.84 crore. Further, the interest coverage ratio stood strong at ~5 times for FY2022 as against 3.10 times in FY2021. debt service coverage ratio stood comfortably at 2.28 times for FY2022 as against 1.75 times in FY2021.Total outside liabilities to total net worth (TOL/TNW) stood at 1.68 times as on FY2022 vis-à-vis 1.60 times as on FY2021. However, Debt-EBITA stood at 3.53 times as on 31st March 2022 as against 2.89 times as on 31st March 2021. The net cash accruals to total debt stood at 0.18 times as on FY2022 and 0.20 times for FY2021. The financial risk profile of the group is expected to remain comfortable in near term as the group does not have any new capex plans in the short term. Working capital operations Group has moderate working capital requirements as evident from gross current assets (GCA) of 102 days in FY2022 as compared to 91 days in FY2021. Debtor moderated by 18 days and at 30 days in FY2022 (12 days in FY2021). Inventory days stood at 52 days in FY2022 as against 58 days in FY2021. Fund based working capital limits are utilized at ~88 per cent during the last six months ended March 23.Current ratio of group stood at 1.59 times as on March 31, 2022. |
| Weaknesses |
| Competition in Edible Oil Industry
The industry is highly fragmented with both big manufacturers and numerous unorganised players in the market. There is intense competition in the industry with the players serving regional markets, which is a strategy followed to save on transportation costs. Hence, the group might face pricing pressure from other competitors. Therefore, having an established brand name is of utmost importance in this industry, along with the continuous addition of value added products in the product offerings. Price volatility in the commodity market Prices of edible oil are linked to prices of crude palm oil which is volatile and the sudden movement in price direction might affect the margins of the group going forward. The raw materials are also purchased from the international market apart from the domestic market, and disruptions in the supply chain can affect the availability of raw materials and further impact the price of raw materials. |
| Rating Sensitivities |
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Improvement in profitability margins.
Movement of raw material prices Elongation in working capital operations |
| Material Covenants |
| None |
| Liquidity Position |
| Adequate |
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Group has adequate liquidity marked by net cash accruals to its maturing debt obligations. Group generated cash accruals of Rs. 78.57 crore for FY2022 as against obligations of Rs. 20.32 crore for the same period. Current Ratio stood at 1.59 times as on 31 March 2022 as against 1.94 times in the previous year. Fund based working Limit utilization in last six months ended March 23 ~88% leaving low cushion available with group to meet contingencies. Cash and Bank Balances of group stood low at Rs 0.30 crore. Group has unencumbered Fixed Deposits of Rs 5.65 crore as on March 31, 2022. The liquidity of the group is further expected to improve with group expected to generate cash accruals in the range of Rs. 80 Cr. against repayment of ~Rs. 21 Cr. will also support the liquidity of the company.
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| Outlook: |
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Acuité believes that Sheel Chand Group will maintain a ‘Stable’ business risk profile over the medium term. The group will continue to benefit from its experienced management. The outlook may be revised to ‘Positive’ in case the group registers healthy growth in revenues, while achieving sustained improvement in operating margins, capital structure and working capital management. Conversely, the outlook may be revised to ‘Negative’ in case of decline in the group’s revenues or profit margins, or in case of deterioration in the group’s financial risk profile and liquidity position.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 22 (Actual) | FY 21 (Actual) |
| Operating Income | Rs. Cr. | 2110.36 | 1770.87 |
| PAT | Rs. Cr. | 47.10 | 32.66 |
| PAT Margin | (%) | 2.23 | 1.84 |
| Total Debt/Tangible Net Worth | Times | 1.44 | 1.48 |
| PBDIT/Interest | Times | 4.99 | 3.10 |
| Status of non-cooperation with previous CRA (if applicable) |
| None |
| Any Other Information |
| None |
| Applicable Criteria |
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• Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm • Consolidation Of Companies: https://www.acuite.in/view-rating-criteria-60.htm • Default Recognition: https://www.acuite.in/view-rating-criteria-52.htm • Manufacturing Entities: https://www.acuite.in/view-rating-criteria-59.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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