| Aarti Distilleries Private Limited | ||||
| Rated amount enhanced | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL BBB-/Stable’ rating on the long-term bank facilities of Aarti Distilleries Private Limited (ADPL).
The rating continues to reflect the extensive experience of the promoters in the liquor industry, strong operational and financial support from joint venture (JV) partners, Rajasthan Liquors Ltd (RLL) and Pernod Ricard India Pvt Ltd (PRIPL; subsidiary of Pernod Ricard SA rated ‘BBB+/A-2’ by S&P Global Ratings). These strengths are partially offset by exposure to project implementation and stabilisation risk, and regulatory changes in the liquor industry.
The rating also considers the project implementation till date, increase in project cost by Rs 64 crore owing to increase in bottling capacity from 75 lakh cases per annum to 100 lakh cases per annum, minimum offtake arrangements with PRIPL (26% shareholder) for ADPL’s upcoming grain-based distillery plant with 125 kilo litres per day (KLPD) capacity, and bottling capacity of 100 lakh cases per annum in Kanpur Dehat, Uttar Pradesh. PRIPL’s commitment for minimum offtake of 70% for the first year and 80% from the second year onwards for both capacities, limits demand risk. 60-65% of the project work has been completed till date and operations may commence in July-September 2022.
Funding is being managed prudently with project cost of Rs 355 crore to be met through a mix of external debt (45%), equity (22%) and loans (33%), from both shareholders. Repayment will be spread over a door-to-door tenor of nine years and begin from the third quarter of fiscal 2024. Further, the rating also considers timely need-based support and Corporate Guarantee from the parent, RLL, for debt servicing and project implementation. |
Analytical Approach CRISIL Ratings has applied the parent notch up framework for ADPL to factor in the support from parent RLL due to strong business linkages, common management, and strong financial support. The ratings also factor benefit of financial flexibility and business linkages with PRIPL due to support in the form of loans and offtake arrangement.
Secured Loans of Rs 59.11 crores from PRIPL are treated as 100% NDNE as these loans are lower than market rate, are subordinated to bank term loans and repayment schedule aligned with that of bank loan. |
Key Rating Drivers & Detailed Description Strengths Articulated support from parent RLL ADPL's rating is supported by Corporate Guarantee and letter of comfort from RLL, committing to infuse an additional sum to meet any shortfall in meeting debt obligations and operational expenses. RLL has an improving credit profile owing to strong demand recovery and realizations with low repayment obligations. Financial risk profile will also remain comfortable, marked by gearing of 0.50 time, expected as on March 31, 2022, and interest cover seen at 8.08 times for fiscal 2021, driven by low debt obligation and no major capital expenditure plans. For fiscal 2022, RLL may see its revenue increase by 60-64% year-on-year, owing to strong demand recovery and improved realizations aided by newly added PRIPL distribution rights in Nashik and Thane city and successful ramp up of the oil business segment. The margin is expected to sustain above 11% in fiscal 2022 with better capacity utilization and realizations. ~95% of the equity commitment and funding requirement for the project has been infused by RLL’s promoters till date. CRISIL expects RLL to support in case of exigency for timely debt servicing.
Strong experience of the promoters in the industry With over three decades of experience in the liquor industry, the promoters have managed the liquor manufacturing and trading business for renowned players, with presence in Rajasthan, Punjab, Uttar Pradesh, Maharashtra, Chandigarh and Delhi. RLL undertakes bottling for its principal supplier, PRIPL, and has been associated with the latter for over 15 years. The company has also entered into a franchisee agreement with United Spirits Ltd (USL) for sale of liquor under the latter’s brand in Rajasthan for five years and the same is expected to be renewed in the current fiscal. ADPL would benefit from the established operational linkages, given the common sales, distribution and supply chain logistics with RLL.
Strong support from JV Partner PRIPL mitigating off-take risk ADPL has been formed as a 74:26 JV between RLL and PRIPL for setting up a 125 KLPD distillery and 100 lac cases per annum bottling project. PRIPL is one of the major players in the domestic liquor industry with brands of Seagram’s whiskies, such as Royal Stag, Royal Stag Barrel Select, Blenders Pride, Blenders Pride Reserve Collection, Imperial Blue, and 100 Pipers. It also has premium international brands such as Chivas Regal, Ballantine’s, The Glenlivet, Royal Salute and Jameson Irish whiskey. PRIPL has a ~12% market share in India, and ~52% share by volume in Uttar Pradesh.
As per the proposed agreement with ADPL, PRIPL shall assure minimum offtake of 70-80%, and thus mitigate demand risk and safeguard the margin. It has also provided secured loans of Rs 59 crore for financing the project at a low interest rate. The management of PRIPL is involved in technical design, engineering and processes to ensure adherence to global standards. Further, both RLL and PRIPL have infused entire equity of Rs 80.33 crore as on November 30th, 2021 towards this project.
PRIPL has a strong financial risk profile with net worth of Rs 3,500 crore and no external debt as on March 31, 2020. This also reflects its ability to honor its offtake commitments. Any deviation in the offtake arrangement remains a key monitorable.
Weaknesses Project implementation and stabilization risk Commercial operations may commence by July-September 2022, while financial closure has been achieved in October 2021. ADPL plans to install annual distillery capacity of 125 KLPD, and bottling capacity of 100 lakh cases of Indian Made Foreign Liquor (IMFL). The project is one of the largest bottling setups in India, spread over 3.2 lakh square feet. The company has incurred Rs 186.84 crore as on November 09, 2021 which is ~52% of the total project cost. CRISIL Ratings expects capacity utilisation of 50-60% in fiscal 2023, with a gradual ramp up post commercialisation. ADPL will be the sole supplier of ENA to PRIPL in Uttar Pradesh. Timely commencement of commercial operations, within the budgeted cost, is a rating sensitivity factor. The plant is also susceptible to initial stabilisation issues with capacity utilisation being a key monitorable.
Vulnerability to regulatory changes in the liquor industry The liquor industry is highly regulated, and any adverse changes could affect the players across the value chain. The complex structure of duties and taxes also differs from state to state. Any change in duty structure may affect the demand-supply dynamics. Also, the industry is governed by strict government restrictions on advertising and brand promotion, and even liquor distribution in few states.
The industry is also administered through a strict license regime. Different licenses are mandated at stages of production and distribution, including separate ones for manufacturers, distributors, and retailers. Any adverse change in the government's license authorisation policy, such as discontinuation or caps on renewal of licenses or sharp hike in license fees, could affect players such as ADPL. |
Liquidity: Adequate Liquidity remains adequate, aided by the Corporate Guarantee and letter of comfort from the parent, RLL assuring funding support in case of a shortfall or an exigency. RLL is expected to complete capital expenditure (capex) of around Rs 291 crore by fiscal 2022; capex is being funded through term loan of Rs 160 crore and the rest from JV partners, RLL and PRIPL, via preference and equity capital. Bank limit utilisation averaged 76% over the 12 months ended October 31, 2021. Unencumbered cash and equivalents stood at Rs 11.8 crore as on November 30, 2021. |
Outlook: Stable CRISIL Ratings believes ADPL’s credit profile should be supported by offtake arrangements with PRIPL and sustenance of financial support from RLL. The ratings will remain sensitive to any change in the stance of support from the JV partners. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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About the Company ADPL was incorporated as a private limited company on April 20, 2020, under the Companies Act, 2013. The company was initially formed as a wholly owned subsidiary of RLL. However, the promoters later decided to partner with PRIPL by offering them a 26% stake, thereby making ADPL a 74:26 JV between RLL and PRIPL.
ADPL shall set up a 125 KLPD grain-based distillery along with a bottling plant with capacity of 100 lakh cases per year, of IMFL, with a 4.50 MW captive source of power at Kanpur Dehat in Uttar Pradesh. |
About the Parent RLL was incorporated as a private limited company in 1998 and commenced commercial operations in fiscal 2003. It was reconstituted as a closely held public limited company in 2010. The company manufactures ENA and undertakes bottling of IMFL, even for USL’s liquor brands. The company has two units; one at Dera Bassi (Punjab) and the other at Kala Dera (Rajasthan).
Further, in a move to diversify and integrate, RLL acquired an edible oil company, Swadisht Oils Pvt Ltd RLL; it was later renamed as Aarti Oils Pvt Ltd and merged with RLL. Aarti Oils manufactures vegetable oil and other by-products through its high capacity plant and solvent and refinery plant at Rania, Kanpur Dehat.
Operations are managed by the promoters, Mr Tilak Raj Sharma, along with his son, Mr Chetan Sharma and nephew, Mr Honey Sharma. |
Key Financial Indicators*
*Operations yet to commence |
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||
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This Annexure has been updated on 23-Dec-2021 in line with the lender-wise facility details as on 23-Dec-2021 received from the rated entity
Criteria Details
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