- Promoters’ extensive experience in food processing industry; Established regional player in Andhra Pradesh
SVFPIL is promoted by Mr. K. Viswanada Naidu and Mr. V. Pradeep Kumar who has been associated with the company since its inception; this has helped SVFPIL to establish strong market presence in the state of Andhra Pradesh. Mr. K. Viswanada Naidu looks after the day-to-day operations of the company and is assisted by team of experienced professionals down the line. Mr. Naidu has more than 30 years’ of experience in multiple businesses and has set up the first highly modernized fruit processing unit in the region. Mr. V. Pradeep Kumar has more than 15 years of experience in Fruit Processing industry and developed good understanding in Food and Drug Administration (FDA) rules and Good manufacturing practice(GMP) in Fruit Processing sector. The revenue of SVFPIL has grown at a stable rate for last three years ending FY2022. The operating income has increased to Rs.161.64 Cr in FY2022 from Rs.108.63 Cr in FY2021, further, SVFPIL has achieved revenue of Rs.133.59 Cr for 7MFY2023. SVFPIL caters to its international customers by exporting mango pulp, natural fruit concentrates and fruit purees to global players across Europe, US and the Middle East. Acuité believes that SVFPIL will continue to derive benefits from its promoter’s experience, its established presence and diversified geographical coverage providing healthy revenue visibility over the medium term.
- Moderate financial risk profile
The company has moderate financial risk profile, is marked by moderate net worth, gearing and debt protection metrics. The net worth of the company stood at Rs.36.01 Cr and Rs.34.71 Cr as on March 31, 2022 and 2021 respectively. The improvement is on account of moderate accretion of net profit in the reserves during the period. The gearing of the company has been deteriorated in FY2022. It stood at 1.54 times as on March 31, 2022 against 1.06 times as on March 31, 2021. The deterioration is on account of increase in short term limits. Debt protection metrics – Interest coverage ratio and debt service coverage ratio stood at 1.80 times and 1.06 times as on March 31, 2022 respectively as against 1.86 times and 1.07 times as on March 31, 2021 respectively. TOL/TNW stood at 2.21 times and 1.71 times as on March 31, 2022 and 2021 respectively. The debt to EBITDA of the company stood at 5.46 times as on 31 March, 2022 as against 3.54 times as on March 31, 2021. Acuité expects the financial risk profile to remain healthy over the medium to long term period on account of moderate capital structure and stable operations of SVFPIL.
- Presence of assured orders
SVFPIL has an assured order of around Rs.167.13 Cr as on October 31, 2022 from its regular customers with vintage over 10 years. The revenue in a given year wouldn’t deteriorate below Rs.160 Cr as these are assured orders from the existing customers base. There exists a mutual understanding established between these customers and SVFPIL over the years. SVFPIL has assured orders from its customers such as Varun Beverages Limited, Jain Farm Fresh Foods Limited, Nestle Limited amongst others. Despite, the global pandemic, almost all of the assured orders were placed by its existing customers and delivered by SVFPIL. Acuité believes that SVFPIL will continue to derive benefits from these assured orders providing adequate revenue visibility over the near to medium term.
- SVFPIL aiming for diversification in it s product line t o reduce revenue concentration
SVFPIL’s flagship product has been mango pulp and concentrate over the years since inception. The management in the last few years has been venturing into various other nonseasonal fruits and vegetables to reduce dependence on seasonal fruit i.e. Mango. SVFPIL’s revenue from Green Chilli Paste, Pink Guava Pulp, Red Chilli Paste, Red Papaya Pulp, Tamerind Paste has shown improvement Year-on-Year (YoY) basis. Acuité believes that SVFPIL’s ability to diversify into other non-seasonal fruits and vegetables will remain key driver for ensuring healthy business risk profile.
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- Working capital intensive operations
The working capital management of the company remained intensive with high gross current assets (GCA) days at 224 days as on March 31, 2022 as against 264 days as on March 31, 2021. The GCA days are majorly marked by moderate inventory and debtor days. Inventory days stood at 108 days as on March 31, 2022 as against 164 days as on March 31, 2021. Subsequently, the payable period stood at 48 days as on March 31, 2022 as against 49 days as on March 31, 2021 respectively. The debtor day stood at 57 days as on March 31, 2022 as against 71 days as on March 31, 2021. Further, the average consolidated bank limit utilization in the last twelve months ended September, 2022 remained at 79 percent for fund based. Acuité believes that the operations of SVFPIL will remain moderately working capital intensive on account of nature of the food processing industry.
- Seasonal nature of business; Concentration from single product
SVFPIL operates in seasonal industry and hence remain vulnerable to agro climatic risk. As SVFPIL deals with fruits and vegetables, the prices of fruit pulp are vulnerable to vagaries of nature. Further, mango pulp and concentrates accounts for around 90 recent of total sales leading to high product.
- Susceptible to volatility in raw material prices and regulatory risks
The food processing and export business is highly fragmented with presence of several small players and dependence on fruits farms for raw material which limits bargaining power. Additionally, the procurement price of fruits depends on the season and availability during a particular period, which exposes SVFPIL to volatility in product prices. The industry has 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, SVFPIL is also exposed to risk arising from regulatory changes and demand pattern in client countries and changes such as levy of antidumping duties by importing countries.
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