Rating Rationale
July 06, 2020 | Mumbai
Alcobrew Distilleries India Private Limited
Rating outlook revised to 'Negative', rating reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.175 Crore
Long Term Rating CRISIL BBB+/Negative (Outlook revised from 'Stable' and rating reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has revised its rating outlook on the long-term bank facilities of Alcobrew Distilleries India Pvt Ltd (ADPL) to 'Negative' from 'Stable' while reaffirming the 'CRISIL BBB+' rating.
 
The outlook revision reflects the company's large working capital requirement constraining its financial risk profile and liquidity. Consequently, bank lines were utilised extensively at 88% on average over the 12 months through May 2020 and in few of the months it was utilized for more than 100%. Further, over the last few years GCA (gross current assets) days have remained more than 180 days resulting in high dependence on bank limits. CRISIL believes that with planned capital expenditure of around Rs. 50.00 Cr, continuously large working capital requirements and no major equity infusion will further increase company's dependence on debt over the medium term.
 
ADPL's operating profitability has also come down in last two fiscals from 11.7% in 2018 to 9.5% in 2020 (expected) and with increased debt levels its interest expenses have also increased significantly. It is expected that with increase debt over the medium term its interest coverage ratio will come down to less than 2.5 times. Timely completion of capex and prudent working capital management thereof, will remain key rating sensitivity factors.
 
The rating continues to reflect the company's established market position backed by the promoter's extensive experience and own brands, and comfortable debt protection metrics. These strengths are partially offset by large working capital requirement, and a leveraged capital structure.

Analytical Approach

Unsecured loans from the promoter (estimated at Rs 1.19 crore as on March 31, 2020) have been treated as 75% debt and 25% equity as the loans carry low interest and are expected to remain in the business over the medium term.

Key Rating Drivers & Detailed Description
Strengths: 
* Established market position
The company has been manufacturing and bottling Indian-made foreign liquor (IMFL) for over a decade, and has built a pan-India distribution network and established its own brands. Having started operations as a bottling unit for Gruppo Campari, the company started manufacturing whiskey under its own brand, and now has three brands (White and Blue, Golfer's Shot and White Hills) in the premium and semi-premium categories. This led to a healthy compound annual growth rate of around 20% in topline over the four fiscals through 2020. Though the Covid-19 pandemic will constrain scalability over the medium term, the promoter's extensive experience and improved sales of owned brands will support the business risk profile of ADPL.
 
* Comfortable debt protection metrics
Though operating profitability has remained volatile in the past on account of raw material price volatility, steady accretion to reserves (backed by improved sales) led to comfortable debt protection metrics; interest coverage and net cash accrual to total ratios are estimated at 2.95 times and 0.2 time, respectively, for fiscal 2020. Incremental debt expected over the medium term (for capex needs and working capital) might weaken the metrics and same will be key rating sensitivity factor over the medium term.
 
Weaknesses
* Large working capital requirement
Working capital needs are driven by large receivables, as realisations for CSD's [canteen store departments] (15-20% of sales) are delayed up to 3-4 months. Also, sizeable excise duty payment (categorised as prepaid expense) led to large gross current assets of 186 days as on March 31, 2020 (184 days a year earlier), with receivables at 70 days (81 days). Though inventory has been low in the past (15-20 days), it is expected to increase over the medium term on account of stock required for the malt plant.
 
* Leveraged capital structure
Despite improvement in the capital structure, total outside liabilities to tangible networth (TOLTNW) ratio of 2.2 times as on March 31, 2020 continue to remain high, hence rendering a leveraged capital structure. Further, on account of debt funded capex plans, and incremental working capital requirements expected over the medium term, capital structure shall continue to remain leveraged.
Liquidity Adequate

Liquidity remains supported by sufficient accrual to meet debt obligation and comfortable current ratio (1.4 times as on March 31, 2020). However, large working capital requirement has led to high bank limit utilisation, at 88% over the 12 months through May 2020, and in few of the months it was utilized for more than 100%. With working capital requirement expected to increase over the medium term along with debt funded capex plan, prudent working capital management will be closely monitored and shall remain a key monitorable.

Outlook: Negative

CRISIL believes ADPL's financial risk profile and liquidity will remain under pressure over the medium term on account of expected increase in working capital requirement.

Rating Sensitivity factors
Upward factors
* Efficient working capital management leading to improved financial risk profile and liquidity with TOL/TNW ratio reducing to below 1.5 times
* Increase in cash accrual to over Rs 35 crore, backed by improved scale and profitability
 
Downward factors
* Stretch in working capital requirement, or larger-than-expected, debt-funded capex, leading to interest coverage ratio less than 2 times.
* Low revenue or profitability impacting cash accrual
About the Company

Incorporated in 2005 and promoted by Mr Romesh Pandita, ADPL bottles IMFL at its plant in Dera Bassi, Punjab, which has capacity of 4.8 million cases per annum. The company manufactures IMFL under its own brands'White & Blue, Golfer's Shot and White Hills'besides bottling liquor for Old Smuggler.

Key Financial Indicators
As on / for the period ended March 31   2020* 2019
Operating income Rs crore 530.4 476.97
Reported profit after tax Rs crore 21.9 17.72
PAT margin % 4.13 3.72
Adjusted debt/adjusted networth Times 1.48 1.41
Interest coverage Times 2.94 3.73
*provisional

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
Annexure - Details of Instrument(s)
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size
(Rs crore)
Complexity level Rating assigned
with outlook
NA Bill Discounting NA NA NA 37 NA CRISIL BBB+/Negative
NA Cash Credit NA NA NA 97 NA CRISIL BBB+/Negative
NA Long Term Loan NA NA Mar-2024 41 NA CRISIL BBB+/Negative
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  175.00  CRISIL BBB+/Negative      23-05-19  CRISIL BBB+/Stable      04-10-17  CRISIL BBB/Stable  CRISIL BBB-/Stable 
            27-04-19  CRISIL BBB+/Stable           
            08-01-19  CRISIL BBB/Stable           
All amounts are in Rs.Cr.
 
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bill Discounting 37 CRISIL BBB+/Negative Bill Discounting 27 CRISIL BBB+/Stable
Cash Credit 97 CRISIL BBB+/Negative Cash Credit 69.75 CRISIL BBB+/Stable
Long Term Loan 41 CRISIL BBB+/Negative Proposed Cash Credit Limit 37 CRISIL BBB+/Stable
-- 0 -- Proposed Term Loan 35 CRISIL BBB+/Stable
-- 0 -- Rupee Term Loan 6.25 CRISIL BBB+/Stable
Total 175 -- Total 175 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies

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