| Agro Tech Foods Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
| ||||||
| ||||||
| 1 crore = 10 million | ||||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
|
CRISIL has reaffirmed its rating on the long-term bank facilities of Agro Tech Foods Ltd (Agro Tech) at 'CRISIL AA-/Stable', while reaffirming the short-term facilities and commercial paper programme at 'CRISIL A1+'. |
| Analytical Approach |
|
For arriving at the ratings, CRISIL has applied its framework for mapping global scale ratings to CRISIL's scale. The ratings factor in support from the parent, ConAgra. |
| Key Rating Drivers & Detailed Description |
|
Strengths * Established position in the branded edible oils market: Agro Tech is one of the largest players in the domestic refined edible oils segment. It has created strong brands in the sunflower oil segment; these brands enjoy high recall among consumers, besides a pricing premium. The brand, Sundrop, is the third largest in the refined oil consumer pack segment with a market share of 5% (as per CRISIL estimates). Introduction of new variants such as Sundrop Heart, Sundrop Nutrilite, and Sundrop Goldlite, under the flagship brand, and the extensive distribution network with more than 300,000 outlets, and innovative marketing have helped maintain market position. The business risk profile will continue to benefit over the medium term from an established market position and improving revenue diversity. * Healthy financial risk profile: Financial risk profile is expected to remain healthy because of absence of long-term debt, strong debt protection metrics, and steady cash accrual. Adjusted gearing improved to 0.05 time as on March 31, 2017, from 0.31 time as on March 31, 2016, because of decrease in debt to Rs 18 crore from Rs 96 crore over this period. The debt reduced further to Rs 0.22 crore as of September 2017, while the cash and cash equivalents were Rs 13.38 crore. Capex intensity is likely to wane significantly over the medium term as most of the planned capacity expansion, primarily in the food segment, has been completed. * Support from the parent: Access to the parent's branded foods portfolio, including ACT II (popcorn) and Peter Pan Peanut Butter, has helped the company steadily improve its own branded foods portfolio in the Indian market. Continued focus on the 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 21% in fiscal 2017 from 11% in fiscal 2010. The company is likely to continue to benefit over the medium term from its synergies with ConAgra, and the favourable growth potential for the branded foods business in India. However, any revision in the rating on ConAgra by S&P Global Ratings will remain a rating sensitivity factor for the rating of Agro Tech. Weakness * Modest operating profitability because of large share of sales in the low-margin edible oils segment: Sales of low-margin edible oils contribute around 75% to Agro Tech's revenue. Despite the price premium charged on its edible oils by virtue of the strong brands, Agro Tech's profitability remains largely in line with that of the industry. The banded foods business, which has higher margins, is still in the development phase, and contributes less than 25% to overall revenue. However the contribution of branded foods should grow in line with the company's strategy. This is likely to improve overall profitability. 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. * Exposure to 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 the 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 industry also faces significant intervention by the government, given the commoditised nature of the product. In order to ensure remunerative prices to farmers, the government periodically fixes the minimum support price on oilseeds. Moreover, the government restricts any major increase in end-product prices, as edible oil is an essential commodity that has a bearing on the wholesale price index and inflation. |
| Outlook: Stable |
|
CRISIL believes Agro Tech will maintain a stable business risk profile over the medium term, supported by an expanded product profile and steady operating margin. The financial risk profile should remain healthy, too, supported by low debt. Any revision in the rating on ConAgra by S&P Global Ratings will, however, lead to a similar revision in CRISIL's rating on Agro Tech. |
| About the Company |
|
Agro Tech sells edible oils and food products. Its primary brands are Sundrop, Crystal, and ACT II. Over the past few years, it has exited its low-margin trading businesses and is now focused on high-margin, value-added products. Furthermore, the company has strengthened its position in the branded foods market by introducing new products such as peanut butter and ready-to-eat food items under the Sundrop and ACT II brands. |
| Key Financial Indicators | ||||||||||||||||||||||||
|
|
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) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
^ 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 |
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
^ 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 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| For further information contact: | ||||||
|