CRISIL has assigned its ‘B-/Negative’ rating to the bank facilities of Redhu Hatcheries Pvt Ltd (RHPL), which is part of the Redhu group. The rating reflects the Redhu group’s weak financial risk profile marked by average net worth, high gearing, weak debt protection measures and liquidity, working-capital-intensive operations, and exposure to risks inherent in the poultry-farming business. These rating weaknesses are partially offset by the benefits that the Redhu group derives from its promoters’ experience in the poultry-farming business.

For arriving at its rating, CRISIL has combined the business and financial risk profiles of RHPL and Redhu Farms Pvt Ltd (RFPL), together referred to as the Redhu group. This is because RHPL and RFPL are in the same line of business, have common management, as well as financial and business linkages with each other, reflected in intra-group transactions. Moreover, both RHPL and RFPL have provided corporate guarantees for each other’s bank facilities.

Outlook: Negative
CRISIL believes that the Redhu group’s financial risk profile and liquidity could weaken over the medium term, given the group’s large term debt obligations and working capital requirements. The rating may be downgraded in case of steep deterioration in the group’s liquidity. Conversely, the outlook may be revised to ‘Stable’ if the group reports a significant and sustained increase in its cash accruals, leading to improvement in its liquidity.

About the Group
RHPL (incorporated in 1992) and RFPL (incorporated in 1997) are in the poultry farming business. The Redhu group sells day-old chicks, eggs, and culls, and trades in poultry feed. The group started its broiler business in 2008-09 (refers to financial year, April 1 to March 31). RHPL and RFPL have about 150,000 and 100,000 egg-laying birds, respectively. The hatchery units and broiler farms are located in Jind (Haryana). The promoters have also set up Lakshya Food (India) Ltd (Lakshya), which is engaged in dairy farming and manufacture of milk products. Lakshya does not have significant business linkages with the other entities in the Redhu group.

The Redhu group reported a profit after tax (PAT) of Rs.2.5 million on net sales of Rs.1127.9 million for 2008-09, against a PAT of Rs.2.9 million on net sales of Rs.222.5 million for 2007-08.