CRISIL has revised its rating outlook on the long-term bank facility of Shalimar Hatcheries Ltd (SHL; part of the Shalimar group) to ‘Positive’ from ‘Stable’, while reaffirming the rating at ‘BBB’. The rating on the short-term facility has been reaffirmed at 'P3+'.

The revision in the outlook reflects CRISIL’s belief that the Shalimar group will exhibit strong growth in revenues and earnings over the medium term, while maintaining a low gearing, and comfortable debt protection metrics. The group’s operating revenues and net cash accruals was more than expected in 2009-10 (refers to financial year, April 1 to March 31), while it maintained its capital structure and debt protection metrics.

The ratings continue to reflect the Shalimar group’s established market position in the poultry segment, promoters’ industry experience, and its healthy financial risk profile marked by comfortable debt protection metrics. These rating strengths are partially offset by geographic concentration in the group’s operations and vulnerability of its margins to risks inherent in the poultry industry.

For arriving at its ratings, CRISIL has combined the business and financial risk profiles of SHL, Shalimar Pellet Feeds Ltd (SPFL), Contai Golden Hatcheries (Eastern) India Pvt Ltd (CGHPL), Sona Vets Pvt Ltd (SVPL) and SPL’s wholly owned subsidiary, Utkal Feeds Pvt Ltd (UFPL), together referred to as the Shalimar group. This is because these companies have a common management, and sizeable intra-group sales and purchase transactions. Furthermore, SVPL has guaranteed the bank facilities of SHL; SPFL and SHL have cross-guaranteed each other’s bank facilities; CGHPL has guaranteed the bank facilities of SPFL.

Outlook: Positive
CRISIL believes that the Shalimar group will benefit from the improvement in operating efficiency on the back of its integrated operations, established market position and the extensive experience of its promoters in the poultry industry. The ratings may be upgraded if the group further integrates its operations and demonstrates significant improvement in revenues and profitability while maintaining its debt protection metrics. Conversely, the outlook may be revised to ‘Stable’ if the group undertakes a larger-than-expected debt-funded capital expenditure programme or delays in project implementation, resulting in deterioration in its debt protection metrics.

About the Group
The Shalimar group, established in early 1970s by Mr. Chiranjilal Agarwal, is an integrated player in the poultry industry. It is vertically integrated, with all infrastructure facilities, including, breeder farms, hatcheries, broiler farms, and feed mills. These facilities are being operated by the group primarily in West Bengal, Jharkhand, and in other states in eastern India. The facilities are owned, leased, or contracted. The group has hatcheries with a combined capacity of 0.66 million chicks per week, broiler farms with a combined capacity of 9.02 million birds per annum, parent farms with a combined placement capacity of 0.28 million birds per annum, and feed mills with a combined capacity of 0.2 million tonnes per annum.

Set up in 1994 by Mr. Chiranjilal Agarwal and Mr. Sameer Agarwal, SHL operates hatcheries, broiler farms, and parent farms. The company runs hatcheries with a combined capacity of 10.9 million chicks per annum, broiler farms with a combined capacity of 13.3 million birds per annum, and parent farms with a combined placement capacity of 0.18 million birds.

SHL reported a profit after tax (PAT) of Rs.64.90 million on net sales of Rs.1.79 billion for 2009-10, against a PAT of Rs.28.90 million on net sales of Rs.1.32 billion for 2008-09.