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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 2.00 | ACUITE BB- | Stable | Assigned | - |
| Bank Loan Ratings | 4.00 | ACUITE BB- | Stable | Reaffirmed | - |
| Bank Loan Ratings | 18.00 | - | ACUITE A4+ | Reaffirmed |
| Total Outstanding Quantum (Rs. Cr) | 24.00 | - | - |
| Total Withdrawn Quantum (Rs. Cr) | 0.00 | - | - |
| Rating Rationale |
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Acuité has reaffirmed the long-term rating of ‘ACUITE BB-’ (read as ACUITE double B minus) and the short-term rating of ‘ACUITE A4+’ (read as ACUITE A four plus) on the Rs.22.00 Cr bank facilities of Tolar Ocean Products Private Limited (TOPPL). The outlook is 'Stable'.
Acuité has also assigned the long-term rating of ‘ACUITE BB-’ (read as ACUITE double B minus) to the Rs.2.00 Cr bank facilities of Tolar Ocean Products Private Limited (TOPPL). The outlook is 'Stable'. Rationale for rating reaffirmation The rating reaffirmation of TOPPL takes into account experienced management and established track record of operations along with an increase in revenue reported in FY2022 as against FY2021 post relaxation in covid restrictions. The rating is however constrained by the company’s below average financial risk profile marked by low networth, high gearing and average debt protection metrics. The rating is further constrained by the company’s elongated working capital cycle on account of high inventory levels, stretched liquidity and declining operating profitability. Going forward, ability of the company to improve its financial risk profile along with ability to improve its working capital cycle and to improve its scale of operations while improving operating profitability will remain a key rating sensitivity factor. |
| About the Company |
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TOPPL, incorporated in the year 1996, is a Karnataka-based company promoted by Dr. Prakash Tolar. The company is engaged in processing and export of frozen and chilled seafood, primarily various types of fishes. TOPPL sources its products from Goa, Andhra Pradesh, Kerala, Karnataka, Ratnagiri, Karwar and Mumbai and primarily exports it to the countries like Vietnam, Thailand, Bangkok, China, and Malaysia. The export shipment is done through Mangalore port.
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| Analytical Approach |
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Acuité has taken the standalone view of the business and financial risk profile of TOPPL to arrive at the rating.
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Key Rating Drivers
| Strengths |
| Experienced management and established presence in the sea food industry
TOPPL has an operational track record of over two decades in seafood processing. It is promoted by Dr. Prakash Tolar who possess over two decades of experience in the sea food industry. He is supported by its team of experienced professionals in managing day to day operations of TOPPL. The extensive experience of the promoter has enabled TOPPL to establish a healthy relationship with its customers and suppliers. Acuité believes that TOPPL will continue to benefit from its experienced management and established track record of operations. Increase in revenue albeit moderation in operating profitability TOPPL reported an increase in its revenues to Rs.73 Cr in FY2022 as against Rs.44 Cr in FY2021 on account of increase in the sale of its frozen fishes in both domestic and exports market during the year post relaxation in covid restrictions. Due to this, exports have remained significantly high in FY2022 which contributed ~66 percent of sales as against ~53 percent of sales in FY2021. The company primarily exports to countries like Vietnam, Thailand, Bangkok, China, and Malaysia. Despite of increase in the overall revenue, the operating margin of the company has remained subdued at 4.26 percent in FY2022 as against 5.84 percent in FY2021. This is majorly on account of increase in the cost of raw materials required in the form of raw fishes and other packing materials along with an increase in various other administrative and selling & distribution expenses. On the other hand, the net profit margin of the company remained marginally improved albeit stable at 0.69 percent in FY2022 as against 0.65 percent in FY2021. For the current year as on 9M FY2023, company has achieved revenue of Rs.75 Cr on the back of sustainable increase in demand from both domestic and exports market. Acuité believes that TOPPL’s ability to maintain its scale of operations while improving its operating profitability in near to medium term will remain a key rating sensitivity factor. |
| Weaknesses |
| Below average financial risk profile
Financial risk profile of TOPPL is below average marked by low networth, high gearing and average debt protection metrics. The networth of the company stood improved at Rs.9 Cr as on 31 March, 2022 as against Rs.8 Cr as on 31 March, 2021 on account of accretion to reserves. The gearing (debt-equity) stood marginally improved albeit remained high at 2.59 times as on 31 March, 2022 as against 2.75 times as on 31 March, 2021 on account of significant increase in the long term and short term bank borrowings during the said period. The debt profile of the company has increased on account of availing subsequent amount of GECL term loans from the bank during the covid pandemic phase in FY2021 to meet the working capital requirements. The gearing of the company is however expected to improve and remain moderate over the medium term on account of absence of any debt funded capex plans. The total debt of Rs.22 Cr as on 31 March, 2022 consists of long term bank borrowings of Rs.6 Cr and short term bank borrowings of Rs.16 Cr. The interest coverage ratio and DSCR stood lower at 1.82 times and 0.71 times for FY2022 as against 1.95 times and 1.29 times for FY2021. The Net Cash Accruals to Total debt stood at same level of 0.05 times for FY2022 and FY2021. The Total outside liabilities to Tangible net worth stood high at 3.25 times for FY2022 and 3.24 times for FY2021. The Debt-EBITDA ratio stood improved albeit remained high at 7.13 times for FY2022 as against 8.62 times for FY2021. Acuité believes that TOPPL’s ability to improve its financial risk profile over the medium term will remain a key rating sensitivity factor. Working capital-intensive operations The operations of TOPPL are moderately working capital intensive marked by its Gross Current Assets (GCA) of 162 days for FY2022 which stood moderately high albeit improved against 246 days for FY2021. This is due to inventory cycle of the company which stood at 164 days in FY2022 as against 246 days in FY2021. The average bank limit utilization for 6 months’ period ended December 2022 was moderate at ~60 percent. Further, the receivable days stood improved at 3 days in FY2022 as against 7 days in FY2021 whereas the creditor days stood at 24 days in FY2022 as against 26 days in FY2021. Acuité believes that ability of TOPPL to improve its working capital cycle will remain a key rating sensitivity factor. High competition and susceptibility to risks inherent in the sea food industry TOPPL operates in a highly competitive industry with the presence of a large number of organized as well as unorganized players in India. In addition to this, the company remains vulnerable to the inherent risks in the seafood industry. These include susceptibility to diseases, climate changes, and adverse changes in policies among others. |
| Rating Sensitivities |
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| Material covenants |
| None |
| Liquidity position - Stretched |
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TOPPL has stretched liquidity position marked by low cushion in net cash accruals (NCA) against its debt repayment obligations and elongated working capital cycle. The company generated cash accruals of around Rs.1 Cr during FY2020 to FY2022 against its repayment obligation of Rs.1 Cr to Rs.2 Cr during the same period. Going forward the NCA are expected in the similar range of Rs.1 Cr to Rs.2 Cr for period FY2023-FY2024 against its repayment obligation of around Rs.2 Cr for the same period. The gap is expected to be met through infusion of funds by promoters in the form of unsecured loans. The working capital operations of the company are moderately intensive marked by its gross current asset (GCA) days of 162 days for FY2022 as against 246 days for FY2021 on account of its moderately high inventory cycle during the same period. This makes the company dependent on bank borrowings for working capital requirement. The average bank limit utilization for 6 months’ period ended December 2022 stood moderately high at ~60 percent. Current ratio stands at 1.47 times as on 31 March 2022. The company has maintained low cash & bank balance of Rs.0.18 Cr in FY2022.
Acuité believes that the liquidity of TOPPL is likely to remain stretched over the medium term on account of generating low cash accruals against its debt obligations. |
| Outlook: Stable |
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Acuité believes that TOPPL will maintain 'Stable' outlook over the medium term on account of its experienced management with established track record of operations. The outlook may be revised to 'Positive' in case of significant and sustained growth in revenue and profitability while effectively managing its working capital cycle and keeping the debt levels moderate. Conversely, the outlook may be revised to 'Negative' in case of lower than expected growth in revenue or deterioration in the financial and liquidity profile most likely as a result of higher than envisaged working capital requirements.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 22 (Actual) | FY 21 (Actual) |
| Operating Income | Rs. Cr. | 72.67 | 44.05 |
| PAT | Rs. Cr. | 0.50 | 0.28 |
| PAT Margin | (%) | 0.69 | 0.65 |
| Total Debt/Tangible Net Worth | Times | 2.59 | 2.75 |
| PBDIT/Interest | Times | 1.82 | 1.95 |
| Status of non-cooperation with previous CRA (if applicable) |
| Not applicable |
| Any other information |
| None |
| Applicable Criteria |
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• Manufacturing Entities: https://www.acuite.in/view-rating-criteria-59.htm • Default Recognition: https://www.acuite.in/view-rating-criteria-52.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.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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