CRISIL has upgraded its rating on A V Thomas & Co Ltd’s (AVTCL’s) cash credit to ‘A/Stable’ from ‘A-/Stable’, while reaffirming its rating on the letter of credit and bank guarantee at ‘P1’. The upgrade reflects the higher-than-expected improvement in AVTCL’s profitability in 2009-10 (refers to financial year, April 1 to March 31) because of increase in tea prices during the year; packaged tea accounted for about 60 per cent of the company’s revenues in 2009-10. The upgrade also reflects CRISIL’s belief that AVTCL will maintain its healthy financial risk profile over the near term, as tea prices will remain firm in the near term on the back of a combination of steady demand and only a modest increase in domestic tea production during the current year.

The company’s liquidity remains strong, supported by cash surplus of above Rs.300 million, and unutilised bank lines of Rs.100 million, as on March 31, 2010. The ratings continue to be supported by AVTCL’s established position in the branded tea segment in South India. These strengths are partially offset by geographical concentration of the company’s revenues, and moderate susceptibility of its revenues and profitability to volatility in commodity prices.

Outlook: Stable
CRISIL believes that AVTCL will maintain its business risk profile supported by its leading position in the packed-tea segment in Kerala, and second-largest position in Tamil Nadu. The company’s financial risk profile is expected to remain healthy over the medium term, given its debt-free balance sheet, and strong liquidity. The outlook may be revised to ‘Positive’ if the company’s revenue growth and profitability exceed expectations. Conversely, steep decline in the business levels or profitability, large capital spending or acquisitions, or any significant exposure to group companies, may result in revision in the outlook to ‘Negative’.

About the Company
AVTCL, established in 1935, is part of the AV Thomas group of companies, which has interests in plantations, agricultural commodities, rubber, leather, bio-technology, solvent extraction, and software. AVTCL has two divisions: the consumer products division (CPD), and trading and logistics. CPD is engaged in buying tea, processing the same, and selling it in packets under the brand name AVT. The company also packs and sells a small quantity of coffee under the AVT brand. AVTCL sells its tea through wide network of distributors across Tamil Nadu, Kerala, Karnataka, Andhra Pradesh and Orissa. CPD contributed about 63 per cent to the company’s revenues in 2008-09 (refers to financial year, April 1 to March 31). Trading and logistics division contributed about 36 per cent to the company’s revenues in 2008-09. Activities under this division include exports of natural rubber (11 per cent of revenues in 2008-09), trading of aluminium sheets (15 per cent), and trading in rubber chemicals and other agro-based commodities (9 per cent). The company is an authorised custom agent. Logistics services contributed close to 2 per cent to its revenues in 2008-09.

For 2008-09, AVTCL reported a profit after tax (PAT) of Rs.127.6 million (Rs. 102.8 million for the previous year) on net sales of Rs.3.08 billion (Rs.2.80 billion). For the nine months ended December 31, 2009, the company reported a PAT of Rs.124.4 million on net sales of Rs.2.61 billion, compared with a PAT of Rs.94.8 million on net sales of Rs.2.35 billion for the corresponding period of the previous year.