Detailed Rationale

CRISIL Ratings has upgraded its ratings on the bank facilities of B.L. Agro Industries Limited (BLAIL) to ‘CRISIL BBB+/Stable/CRISIL A2’ from 'CRISIL BBB/Stable'/CRISIL A3+'.

 

The ratings upgrade factors in expectation of continued improvement in the overall business risk profile of BLAIL. Operating performance has improved, driven by its strong market position in the edible oil industry, particularly the mustard oil segment, with well-established brands such as Bail Kolhu. Also, there has been steady increase in revenue from the fast-moving consumer goods (FMCG) segment led by the Nourish brand launched in fiscal 2018. Demand has improved across all product segments despite significant increase in edible oil and FMCG product prices during fiscal 2022. The mustard oil segment reported volume growth of 30% during fiscal 2022 along with continuous improvement in realizations (Rs 1,952 crore revenue in fiscal 2021 against Rs 1,136 crore in fiscal 2021).

 

Operating income is expected to register compound annual growth rate of 12-15% over the medium term, supported by timely commercialization of expanded capacities in edible oil and FMCG segment from the second half of the current fiscal. Operating profitability has remained stable at 3.5-4.5% in the five fiscals through 2022. However, the company is setting up new fully automated packaging lines for FMCG products. The timely completion of the capital expenditure (capex), its funding mix and extent of moderation in operating profitability will remain key rating sensitivity factors.

 

The ratings also factor in BLAIL’s above-average financial risk profile due to its high dependency on external debt for funding capex and incremental working capital requirement. Consequently, the company’s total outside liabilities to tangible networth (TOLTNW) ratio increased to 2.7 times as on March 31, 2022, from 2.3 times as on March 31, 2020, despite continuous healthy accretion to reserves. With networth expected to be strong at more than Rs 385 crore as on March 31, 2023 (Rs 330 crore as on March 31, 2022) and large liquid assets to fund incremental working capital requirement and absence of any large, debt-funded capex, the financial risk profile is expected to improve over the medium term.

 

The ratings reflect the extensive experience of the promoters, established brand presence, diversification in revenue and improving working capital cycle. These strengths are partially offset by modest operating profit because of intense competition, susceptibility to fluctuations in raw material prices and above-average financial risk profile.

Key Rating Drivers & Detailed Description

Strengths:

Extensive experience of the promoters and the company’s strong brand presence

The two-decade-long experience of the promoters, strong brands of BLAIL, including Bail Kolhu and Nourish, and its presence in 11 states across the country with a large network of over 440 distributors and 77,000 retailers shall continue to support the business. Revenue has increased by more than 60% to Rs 3,575 crore in fiscal 2022 from Rs 2,179 crore in fiscal 2021 backed by sales growth in Bail Kolhu and Nourish. Furthermore, new capacity in the oil refinery plant is expected to help expand operations. Revenue is expected to increase 12-15% further in the current fiscal.

 

Diversification in the revenue profile

The company has diversified its product portfolio with strong presence in edible oil and FMCG product segments. In fiscal 2018, the company started manufacturing products, such as pulses, besan and maida under the brand name, Nourish. It started with 12 products in fiscal 2018 and is currently selling more than 25 distinct products, such as Nourish Chakki Fresh Atta, chana besan, roasted daliya, flaxseeds and all kinds of pulses and cereals, among others. Revenue has increased to Rs 534 crore in fiscal 2022 from Rs 63 crore in fiscal 2020 due to continuous penetration in the FMCG market. The Nourish segment is expected to grow further at a fast pace, backed by strong investment in brand building, product diversification, geographical diversification and setting up of exclusive Nourish stores across states and is expected to contribute Rs 750-800 crore in fiscal 2023.

 

Improving working capital cycle

Despite significant increase in geographical reach and improvement in scale of operations, the company’s working capital has considerably improved over the last three fiscals, as indicated by gross current assets (GCAs) of 85 days in fiscal 2022 from 128 days in fiscal 2020, largely driven by improvement in debtors (11 days in fiscal 2022 from 32 days in fiscal 2020). Brand development has helped the company reduce its debtors and inventory, thereby reducing its working capital requirement. Credit period of 15-20 days from the supplier, further supports the working capital cycle.

 

Weaknesses:

Modest profitability driven by intense competition and susceptibility to fluctuations in raw material prices

Intense competition has constrained operating margin to 3.5-4.5% over the five fiscals through 2022. Furthermore, the edible oil industry is price-sensitive and fragmented. Increase in raw material cost cannot be easily passed on to consumers. However, players in the branded segment enjoy some degree of pricing flexibility, as consumers are not too price sensitive. Cost of the raw material, oilseed, accounts for 85-88% of the total cost of sales of edible oil producers. The industry is highly dependent on timely availability of raw materials, domestic production of oil seeds, rainfall, global price fluctuations and consumer preferences. The operating margin is likely to increase with a higher share of sales under the Nourish brand.

 

Above-average financial risk profile

Adjusted networth was Rs 330 crore as on March 31, 2022 (Rs 282 crore in fiscal 2021). Gearing has remained moderate and range-bound at 1.7-2.0 times in the five fiscals through 2022 due to large, debt-funded capex and high reliance on external debt to meet increasing working capital requirement. The TOLTNW ratio has remained high on account of continuous debt-funded capacity expansion undertaken by the company. Leverage is expected to moderate in the near term on account of the absence of any further debt-funded capex and sustenance of improved working capital cycle. The debt protection metrics of BLAIL remained adequate, as reflected by interest coverage ratio of 2.7 times and net cash accrual to adjusted debt ratio of 0.10 time in fiscal 2022. The debt protection metrics are expected to remain comfortable in the near term as well.

Liquidity: Adequate

Net cash accrual is expected to be Rs 90-120 crore per annum which will sufficiently cover yearly debt obligation of Rs 45-70 crore over the medium term. Bank limits were highly utilised at 90% on average over the 12 months through May 2022. The company has large, unencumbered cash and equivalent of Rs 59.95 crore as on May 31, 2022 to support the incremental working capital requirement in case of any exigencies. Current ratio has remained healthy at over 1.6 times as on March 31, 2022.

Outlook: Stable

BLAIL will continue to benefit from its strong market position and brand recognition over the medium term.

Rating Sensitivity Factors

Upward factors

• Improvement in the financial risk profile, as indicated by moderation in TOLTNW ratio to below 2.0 times and sustenance of improved working capital cycle
• Increase in scale of operations while sustaining profitability above 4.5%, leading to increase in net cash accrual to above Rs 90 crore

 

Downward factors

• Any large, debt-funded capex or stretch in the working capital cycle, weakening the financial risk profile, leading to TOLTNW ratio of more than 2.8 times
• Significant decline in revenue or operating margin, leading to lower cash accrual to below Rs 65 crore

About the Company

Incorporated in 1993 in Bareilly, Uttar Pradesh, BLAIL processes and packages edible oils, such as mustard, groundnut, soya, sunflower, cotton oil, rice bran and palm oil. It has also started selling products such as atta, besan, maida, suji, dry fruits, rice, pulses and pickles over the past few fiscals. The company’s key brands include Bail Kolhu, Nourish, Aviral Dhara, Mohan Dhara and Balance Light, which primarily have presence in North India. Operations are managed by Mr Ghanshyam Khandelwal, Mr Ashish Khandelwal and Ms Richa Khandelwal.

Key financial indicators

As on/for the period ended March 31	Unit	2022*	2021
Operating income	Rs crore	3574.6	2179.0
Reported profit after tax (PAT)	Rs crore	48.3	10.8
PAT margin	%	1.4	0.5
Adjusted debt/Adjusted networth	Times	2.0	1.9
Interest coverage	Times	2.7	2.0

*Provisional

Status of non-cooperation with previous CRA:

BLAIL has not cooperated with Brickwork Ratings which has classified it as issuer not cooperative vide its release dated September 06, 2021. The reason provided by Brickwork Ratings is non-furnishing of information for rating.

 

BLAIL has not cooperated with India Ratings which has classified it as issuer not cooperative vide its release dated August 22, 2017. The reason provided by India Ratings is non-furnishing of information for rating.

Any other information: Not applicable