CRISIL has assigned its ‘B-/Negative’ rating to the bank facilities of Lakshya Food (India) Ltd (Lakshya). The rating reflects Lakshya’s limited track record, weak financial risk profile marked by small net worth, high gearing, and weak debt protection metrics. The rating also factors in the company’s exposure to government regulations, and risk of cattle-related epidemics. These weaknesses are partially offset by the benefits that Lakshya derives from its promoters’ experience in the agriculture industry, and by its moderate operating efficiency driven by integrated operations.

Outlook: Negative
CRISIL believes that Lakshya’s liquidity position is expected to remain under pressure due to large interest payment and term loan instalments. The company’s cash accruals are expected to remain low because of the start-up phase of its operations vis-à-vis its large debt obligations and the expected increase in working capital requirements. The rating may be downgraded in case of a steep deterioration in liquidity. Conversely, the outlook may be revised to ‘Stable’ in case of a significant increase in the company’s scale of operations and profitability, leading to higher-than-expected cash accruals and improvement in liquidity profile.

About the Company
Incorporated in 2007 as a private limited company, Lakshya was reconstituted as a public limited company in 2008. The company has been promoted by Mr. Baljit Singh Redhu and his nephews Mr. Amardeep Singh Redhu and Mr. Pardeep Singh Redhu. The company has a dairy farm (capacity to produce 15,000 litres of raw milk per day), and a milk-processing unit (capacity to process 150,000 litres per day), in Jind (Haryana). It sells dairy products, such as pasteurised milk, ghee, butter, curd, cheese, and ice-cream, under the Lakshya brand. The promoters also operate Redhu Hatcheries Pvt Ltd and Redhu Farms Pvt Ltd, engaged in poultry hatching and farming businesses respectively.

Lakshya reported a profit after tax (PAT) of Rs.0.5 million on net sales of Rs.76.8 million for 2008-09 (refers to financial year, April 1 to March 31), against a PAT of Rs.0.3 million on net sales of Rs.123.5 million for 2007-08.