| Established track record and steady improvement in operations:
The Thirumurugan group is led by Mr.R.R.Chidambarasamy and his Wife Mrs. S Dhanalakshmi and his son Mr .C. Srinivasan. The promoter Mr. R.R.Chidambarasamy possesses nearly three decades of experience in the rice milling industry. The extensive experience of the promoters has enabled the firm to forge healthy relationships with customers for repeated business resulting in steady growth in operations and profitability over the years. The Group has reported operating income of Rs.66.76Cr against Rs.58.43Cr of previous year, the steady growth in revenue is attributable to the improved realisations for rice. The sale price of 26kg rice bag (Amman Sona quality, which is popularly known as Sonamasuri in south India) was at Rs.1830 per bag in FY23 against Rs.1450 per 25Kg bag in previous year.
Simultaneously, the raw material (Paddy) has also increased to Rs.40-43 per Kg(Rs. 40,000 per Tonne) for old paddy and newly grown paddy at Rs.30-35 per Kg. However, the management was able to pass on the burden of price increase to its customers resulting stable growth in EBITDA margin to 8.47 percent in FY23 from 8.32 percent in previous year. The group sustained its growth in revenue during current year as well with consolidated revenue of ~Rs.60Cr till December, 2023 (TATRI- Rs.35Cr, TMR-Rs.25Cr) and expected to register revenue in the range of Rs.70-75Cr by the end of FY24, while margin is expected to remain in the range of 8.4-8.5 owing to the better realizations of rice and promoters’ ability in passing on the burden to customers. Acuité believes that the firm will continue to benefit from its experienced management and established relationships with its customers over the medium term.
Moderate financial risk profile
Thirumurugan group’s financial risk profile is moderate, marked by moderate net worth, capital structure and average debt protection metrics. Group’s net worth stood at Rs. 13.12 Cr as on March 31, 2023 as compared to Rs. 10.29 Cr as on March 31, 2022. Improvement in net worth is on account of infusion of capital worth Rs.0.67Cr by the partners coupled by accretion for profits to reserves. Group's capital structure is moderate marked with high gearing and total outside liabilities to total net worth (TOL/TNW) of 2.35 times and 2.48 times respectively as on March 31, 2023 as against 2.93 times and 3.07 times as on March 31, 2022. The improvement was on account of partial prepayment of long term debt during the year. The gearing levels are expected to improve over the near to medium term on account of no major debt funded capital expenditure.
The coverage indicators remained average with DSCR of 1.08 times as on March 31st 2023 as against 1.13 times as on March 31st 2022. Interest coverage stood at 2.41 times as on March 31st 2023 as against 2.33 times as on March 31st 2022. Debt to EBITDA improved though remained high at 5.39 times during FY23 against 6.11 times during previous year
Acuite believes that financial risk profile will improve on account of its improving scale of operations and expected improvement in profitability.
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| Moderately intensive working capital operations:
Working capital operations of the group are moderately intensive which is reflected by the Gross current assets of 152 days during FY23. The debtor days stood at 61 days for FY23. Generally, the group allows a credit period of 45-60 days to its customers. However, the elongation in GCA is caused by high inventory holding period. Inventory days stood at 96 days in FY2023 against 92 days in FY2022. High inventory period with low creditor days has resulted in high dependence on its fund based working capital limits at an average of ~88 percent during the past 12 months ending October 2023. Acuite believes that working capital operations of the group will remain moderately intensive over the medium term.
Highly competitive and fragmented industry affected by agro climatic risks:
The agro commodity (rice) industry is highly competitive with multiple players coupled with low entry barriers resulting into intense competition from both the organised as well as unorganised players. Paddy which is the main raw material required for rice is a seasonal crop and production of the same is highly dependent upon monsoon. Thus, inadequate rainfall may affect the availability of paddy. The rice milling business remains working capital intensive in nature, with high requirement to stock paddy in season majorly on cash and carry business leading to a relatively higher procurement cost; also the profitability is partly susceptible to the volatile paddy costs and Government regulation of minimum support price (MSP) of paddy besides prone to monsoon and availability of paddy. The Group is further exposed to the risks inherent to a partnership firm; including the capital withdrawal risk, any substantial cash withdrawals by the partners are likely to have an adverse impact on the capital structure.
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