| Agro Tech Foods Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL has reaffirmed its 'CRISIL AA-/Stable/CRISIL A1+' ratings on the bank facilities and commercial paper programme of Agro Tech Foods Ltd (Agro Tech). |
| Analytical Approach |
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For arriving at the rating, CRISIL has combined the business and financial risk profiles of Agro Tech and its subsidiaries. CRISIL has applied its parent notch-up framework to factor in the extent of support available to Agro Tech from parent, Conagra. |
| Key Rating Drivers & Detailed Description |
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Strengths * Established position in the branded edible oils market, with growth in food segment: Business risk profile should continue to benefit over the medium term from the established market position and improving revenue diversity. Agro Tech has an established market position driven by strong brand in Sundrop with high recall among consumers and also enjoys a pricing premium. Revenue from the foods segment increased to 27% in the first nine months of fiscal 2019, from 22% in fiscal 2016, backed by strong brand awareness of ACT II (in the ready-to-cook and ready-to-eat segments), and growing sales of tortilla chips. Revenue from the foods segment should grow further in fiscal 2020, with the launch of breakfast cereal and chocolates products. CRISIL believes the business risk profile will continue to benefit over the medium term from an established market position and improving revenue diversity. * Strong financial risk profile: Financial risk profile is expected to remain strong, driven by steady cash accrual of more than Rs 40 crore and zero debt. Cash accrual should remain sufficient to support incremental working capital and capital expenditure requirement thereby minimizing reliance on debt. Therefore, strong financial risk profile is expected to sustain over the medium term, supported by healthy cash accrual of more than Rs 40 crores, no debt, and absence of any large capex. * Support from parent: Agro Tech benefits from the business support of parent, Conagra. Access to the parent's branded foods portfolio, including ACT II (popcorn), and assistance in the launch of Sundrop peanut Butter, has helped the company steadily improve its own branded foods portfolio in the Indian market. Continued focus on its ACT II product portfolio and steady addition of food products under the Sundrop brand have resulted in strong growth for this segment, with its revenue contribution increasing to 27% currently from 22% in fiscal 2016. Agro Tech is likely to continue to benefit over the medium term from its synergies with Conagra, and the favorable growth potential for branded foods business in India. Weaknesses * Risks associated with the agro-based nature of products: The edible oil business is susceptible to risks pertaining to availability of oil, and to regulations and pricing. Availability of oil, both in domestic and international markets, is linked to oilseed production, which, in turn, is exposed to factors such as monsoon, acreage under cultivation, and yield. The edible oils as well as packaged food industry also faces significant intervention by the government, given the commoditized nature of the product. In order to ensure remunerative prices to farmers, the government fixes the minimum support price on oilseeds, periodically. Moreover, it restricts any major increase in end-product prices, as edible oil is an essential commodity, which has a bearing on the wholesale price index and inflation. * Modest operating profitability because of larger proportion of sales in the highly competitive edible oils segment: Around 73% of revenue was derived from the highly competitive edible oils segment during the 9 months ending December 31, 2018. Though the company commands a pricing premium on edible oils by virtue of its strong brand, its profit margin is lower than that of integrated branded oil manufacturers. Operating margin will, over the medium term, remain sensitive to movements in commodity prices, continued ability to adjust pricing in the branded oils segment, and the level of sales promotion and advertising expenditure required to support the increasing scale of the branded foods segment. |
| Liquidity |
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Liquidity is adequate with cash and balance of Rs 29 crore as on March 31, 2018. Healthy cash accrual of Rs 40 crore expected should support moderate capital expenditure of Rs 20-25 crore is fiscals 2019 and 2020. The company has no debt outstanding. Liquidity is also supported by bank lines of Rs 231.7 crore, which remained largely unutilized in the 12 months through December 2018. |
| Outlook: Stable |
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CRISIL believes Agro Tech will continue to benefit over the medium term from its established brand, expanded product profile and steady operating margin. Financial risk profile is also expected to remain healthy supported by no debt and strong liquidity. |
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
#This facility can be inter changed between working capital loan and Cash Credit | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - List of Entities Consolidated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
#This facility can be inter changed between working capital loan and Cash Credit !Fully-interchangeable with Working Capital Demand Loan/Export credit/Bill Discounting ^Fully-interchangeable with vendor financing; interchangeable with EPC up to Rs.10 crores @Interchangeable with overdraft facility up to Rs.10 crores $Fully-interchangeable with vendor financing; interchangeable with overdraft facility up to Rs.15 crores ~Fully interchangeable with fund based limits | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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