Rating Rationale
June 05, 2023 | Mumbai
Associated Alcohols and Breweries Limited
Ratings reaffirmed at 'CRISIL A/Stable/CRISIL A1'; rated amount enhanced for Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.110 Crore (Enhanced from Rs.30 Crore)
Long Term RatingCRISIL A/Stable (Reaffirmed)
Short Term RatingCRISIL A1 (Reaffirmed)
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ratings on the bank facilities of Associated Alcohols and Breweries Ltd (AABL; part of the Associated Alcohols group) to ‘CRISIL A/Stable/CRISIL A1’.

 

The rating continues to reflect group’s established market position in Madhya Pradesh (MP), backed by extensive experience of its promoters, diversified product offering and presence of own brand etc. The rating also factors in group’s healthy financial risk profile driven by low gearing and healthy debt protection metrics. These strengths are, however, constrained by susceptibility of profitability to volatility in the prices of agriculture-based raw materials, presence in the highly regulated alcoholic beverages industry, and geographical concentration in revenue.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of AABL and Mount Everest Beverages Ltd (MEBL). This is because both the companies, together referred as the Associated Alcohols group, operate in the same industry, and have operational and financial linkages.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

  • Group’s established market position: The group has an established position in the liquor and beer industry, backed by its longstanding presence and the promoters’ extensive experience of over three decades and strong relationship with the supplier. The group manufactures rectified spirit (RS), extra neutral alcohol (ENA), country liquor (CL) and Indian-made foreign liquor (IMFL), and bottles vodka for large international brands. It also manufactures and sells beer under its own brands, Le Mont, Mount 600 and Dabang, and undertakes contract manufacturing of beer for United Breweries Ltd (UBL). This has given the promoters an understanding of the dynamics of the market and helped establish relationships with suppliers and customers. All these factors have aided steady growth in revenue. The group has already achieved turnover of around Rs. 1260 crore so far in fiscal 2023. Regular addition of new products, and capacity expansion will further enhance the market position and the business risk profile of the group.

 

  • Healthy financial risk profile: The capital structure is supported by estimated healthy networth of Rs 480 crore and low total outside liabilities to tangible networth ratio of less than 1 time for the three fiscals ended March 31, 2023. Debt protection metrics were comfortable due to low leverage and healthy profitability as indicated by interest coverage of 22-23 times and net cash accrual to adjusted debt ratio of 0.8-1 time in fiscal 2023. Though group intends to incur debt funded capex in fy23 and fy24, however, despite the said capex, the overall financial risk profile will continue to remain comfortable backed by expected accretion to reserve and stable operating profitability

 

Weaknesses:

  • Presence in the highly regulated alcoholic beverages industry: Group operates in the Indian brewery and distillery industry. Various facets of the industry such as production, distribution, raw material availability and advertisements are highly regulated by the state and central governments. The industry operates based on licences provided by state governments. Sale and distribution of liquor products in both the wholesale and retail sectors are controlled by each state. Thus, government regulations have a significant effect on profitability, particularly in states where the government controls the pricing and any significant change in excise policy of respective state and subsequently its impact on the group will be closely monitored.

 

  • Susceptibility of profitability to volatility in the prices of agriculture-based raw materials: The key raw materials include rice, maize and sorghum, prices of which are volatile and dependent on the extent of rainfall and government policies regarding prices and supply. The group has limited ability to immediately pass on raw material prices. For most of its liquor business (Indian-made Indian liquor and IMFL; accounting for around 65% of sales), prices are typically fixed for a year, as per state excise policies. This exposes the group to any sharp movement in raw material prices. Furthermore, the prices of packing material (15-20% of sales) depend on crude oil prices, which are volatile. Any significant movement in input prices and changes in government regulations regarding the pricing and supply of raw materials can impact profitability and will remain a key rating sensitivity factor.

 

  • Geographical concentration of revenue: The group generates majority of its revenue from MP and is susceptible to regulatory actions by the state or state specific events, which can have a significant impact on revenue and profitability. The group will likely improve its market share outside MP and is looking to enter other key consumption markets such as Delhi, Uttar Pradesh, and Chhattisgarh. The management’s focus on diversifying presence and revenue streams (entry into ethanol) will lower the geographical concentration in revenue in the long run and its sustenance to be closely monitored.

Liquidity: Strong

The group has strong liquidity backed by expected net cash accrual of Rs 120-130 crore against long-term debt obligation of Rs 10-12 crore. Cash and equivalent were at Rs 118 crore as of March 31’ 2022, hence further aiding the liquidity. Working capital limit of around Rs 42 crore was low utilised only at 10.72% through March 2023. CRISIL Ratings believes cash flow and unutilised working capital lines will comfortably cover incremental working capital requirement and capacity expansion plans in the absence of any significant term debt obligation over the next two fiscals.

Outlook: Stable

CRISIL Ratings believes the Associated Alcohols group will continue to benefit from its established market position and sustain its healthy operating performance.

Rating Sensitivity factors

Upward factors:

  • Penetration into different geographies leading to sustained revenue growth along with operating profitability at over 14-15% leading to more than expected net cash accruals
  • Efficient working capital management, amid business growth, leading to lower reliance on external debt and an improved return on capital employed

 

Downward factors:

  • Adverse regulations or highly competitive environment leading to fall in revenue below Rs 700 crore.
  • Fall in operating profitability or stretch in the working capital cycle impacting the net cash accrual and liquidity.

About the Company

Incorporated in 1989, AABL is the flagship company of the Indore-based Kedia group, promoted by the late Mr Bhagwati Prasad Kedia. The company is run by his sons Mr Anand Kedia and Mr Prasann Kedia supported by a professional board and management. The company produces a variety of alcohol, including rectified spirit, ENA, CL and IMFL, along with bottling for international brands such as Diageo. AABL has a distillery and bottling facility in Khargone, MP, with capacity of 45 MLPA. It is expanding its distillery capacity by 30 MLPA to cater to rising ethanol demand.

 

MEBL was incorporated in August 1999 by Kedia group and operates a brewery located at Memdi (MP). The company manufactures and sells beer under its own brands, Le Mont, Mount 600 and Dabang, and also undertakes contract manufacturing of beer for UBL. MEBL has installed capacity of 10 lakh hectoliters (120 lakh cases) of beer per annum. It has an assured offtake arrangement to the extent of 10 lakh cases per annum.

Key Financial Indicators

As on / for the period ended March 31

 

2022

2021

Operating income

Rs crore

513

435

Reported profit after tax

Rs crore

60

57

PAT margin

%

11.85

13.31

Adjusted debt/adjusted networth

Times

0.01

0.04

Interest coverage

Times

109.23

82.75

Status of non cooperation with previous CRA:

AABL has not cooperated with Credit Analysis & Research Ltd, which published their ratings as ‘issuer not co-operating’ through release dated 05-April-2023. The reason provided by them was non-furnishing of information by AABL for monitoring the ratings.

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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name of the instrument Date of
Allotment		 Coupon
Rate (%)		 Maturity
Date		 Issue size
(Rs. Crore)		 Complexity
Level		 Rating assigned
with outlook
NA Bank Guarantee NA NA NA 4 NA CRISIL A1
NA Bank Guarantee NA NA NA 1 NA CRISIL A1
NA Bank Guarantee NA NA NA 6 NA CRISIL A1
NA Cash Credit NA NA NA 3 NA CRISIL A/Stable
NA Cash Credit NA NA NA 8 NA CRISIL A/Stable
NA Cash Credit NA NA NA 6 NA CRISIL A/Stable
NA Proposed Fund-Based Bank Limits NA NA NA 2 NA CRISIL A/Stable
NA Term Loan NA NA Jul-28 80 NA CRISIL A/Stable

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Associated Alcohols and Breweries Limited

100%

Operational and financial linkages; common management

Mount Everest Beverages Ltd

100%

Operational and financial linkages; common management
Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 99.0 CRISIL A/Stable 04-01-23 CRISIL A/Stable 30-12-22 CRISIL A/Stable 01-11-21 CRISIL A-/Stable   -- Withdrawn
Non-Fund Based Facilities ST 11.0 CRISIL A1 04-01-23 CRISIL A1 30-12-22 CRISIL A1 01-11-21 CRISIL A2+   -- Withdrawn
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 4 IDBI Bank Limited CRISIL A1
Bank Guarantee 1 HDFC Bank Limited CRISIL A1
Bank Guarantee 6 Kotak Mahindra Bank Limited CRISIL A1
Cash Credit 3 IDBI Bank Limited CRISIL A/Stable
Cash Credit 8 HDFC Bank Limited CRISIL A/Stable
Cash Credit 6 Kotak Mahindra Bank Limited CRISIL A/Stable
Proposed Fund-Based Bank Limits 2 Not Applicable CRISIL A/Stable
Term Loan 80 HDFC Bank Limited CRISIL A/Stable

This Annexure has been updated on 05-Jun-23 in line with the lender-wise facility details as on 01-Nov-21 received from the rated entity

Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Bank Loan Ratings
CRISILs Approach for Rating SRs
The Rating Process
Assessing Information Adequacy Risk
CRISILs Criteria for Consolidation

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