Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil BBB-/Stable/Crisil A3’ ratings on the bank loan facilities of Bhagwati Lacto Vegetarian Exports Private Limited (BLVEPL; part of the Bhagwati group).

 

Crisil Ratings had assigned its ‘Crisil BBB-/Stable/Crisil A3’ ratings to the bank loan facilities of BLVEPL on January 17, 2025.

 

The group has an established market position in the basmati rice industry, driven by the promoters’ extensive experience of more than three decades and geographical diversification. The group derives 50-55% of its revenue from the domestic market and 45-50% from exports wherein it sells to Iran and Qatar. The group has achieved revenue of ~Rs 1,842 crore in the first nine months of fiscal 2025 and is expected to clock Rs 2,800-2,850 crore for the full fiscal (Rs 2,211 crore in fiscal 2024) driven by volumetric growth. A new unit under its group company, Bhagwati Agrochem Pvt Ltd (BAPL) partially commenced operations in Madhya Pradesh from January 2025 to process rice. Operating margin is expected to be 5.5-6% in fiscal 2025 (5.3% in fiscal 2024) driven by the group’s focus on exports and increased sales through its own brand wherein realisation is high. Healthy revenue growth will be supported by ramp-up of operations at the new unit along with operating margin sustaining at around 6%, which will be key rating sensitivity factors. 

 

The group is undertaking capital expenditure (capex) of around Rs 805 crore under its group company, BAPL, spread through fiscals 2024 and 2025. The capex is to set up an industrial food park in Madhya Pradesh, funded through term loan of Rs 600 crore and balance Rs 205 crore through promoters’ contribution in the form of equity and unsecured loans. The plant is partially operational with the rice plant starting operations from January 2025 and full commencement of operations expected by March 2025. Timely commencement and ramp-up of operations will remain a key monitorable.

 

The ratings reflect the established presence of the Bhagwati group in the basmati rice industry and strong networth. These strengths are partially offset by exposure to risks related to implementation of debt-funded capex and timely commercialisation, weak debt protection metrics, leveraged capital structure and large working capital requirement.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of BLVEPL, BAPL, Bhagwati Lacto Foods Ltd (BLFPL) and Healthy Harvested Foods Pvt Ltd (HHFPL), collectively referred to as the Bhagwati group. This is because these entities are in the same business, under common management with strong 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:

• Established presence of the Bhagwati group in the basmati rice industry and geographical diversification: The promoters have experience of more than three decades in the basmati rice business. This has enabled them to strengthen the group’s market position across domestic and global markets and establish healthy relationships with international customers. Exports contributed ~48% in the first half of fiscal 2025 and the remaining 52% was from the domestic market. Moreover, the company caters to private label businesses, but 6-7% sales come from its own brands, including Garimaa, Kasturika, Shah Mahal, Shah Begum and Ruhab. The group deals in basmati rice, which contributes 90-95% of the revenue. It has established healthy relationships with suppliers in Haryana and Punjab. Because of high dependence on them for milling rice, suppliers are rarely changed to maintain quality standards. Strong relationships with suppliers enable the procurement of rice at a comfortable price. This has led to a healthy compound annual growth rate of ~18% over the three fiscals through fiscal 2025.

 

• Healthy networth: Networth is expected to be Rs 610-620 crore as on March 31, 2025 (Rs 520 crore as on March 31, 2024) driven by accretion to reserves and expected infusion of unsecured loans of around Rs 80 crore (treated as 75% equity and 25% debt) during fiscal 2025. The promoters infused equity of around Rs 122 crore in fiscal 2024 in BAPL for funding capex. Going forward, networth is expected to improve to over Rs 650 crore, driven by healthy accretion to reserves.

 

Weaknesses:

• Exposure to risks related to implementation of debt-funded capex and timely commencement of full operations: The group is undertaking sizeable debt-funded capex of Rs 805 crore spread through fiscals 2024 and 2025 to set up an industrial food park for manufacturing rice, rice bran oil, wheat flour and atta. The capex is funded through term loan of Rs 600 crore and balance Rs 205 crore through promoters’ contribution in the form of equity and unsecured loans. While the rice unit began its operations in January 2025, commercial operations in rice bran oil and wheat flour units are expected to commence from March 2025. Timely commencement and stabilisation of operations, leading to improvement in the overall credit profile, will remain monitorable.

 

• Weak debt protection metrics and leveraged capital structure: The group has a leveraged capital structure and modest debt protection metrics. Gearing and total outside liabilities to tangible networth (TOLTNW) ratio are expected to be 1.8-1.9 times and 2.8 times, respectively, as on March 31, 2025 (1.2 times and 1.86 times, respectively, as on March 31, 2024) owing to debt-funded capex in BAPL for setting up an industrial food park in Madhya Pradesh. Interest coverage and net cash accrual to adjusted debt (NCAAD) ratios are expected to be 2.0-2.1 times and 0.06 time, respectively, in fiscal 2025 (2.38 times and 0.1 time, respectively, in fiscal 2024) due to an increase in finance cost following an increase in the debt level.

 

• Large working capital requirement: Operations are working capital intensive because of stretched receivables and sizeable inventory of paddy procured at the end of the year owing to the seasonal nature of the business. Gross current assets (GCAs) are expected to be 170-180 days as on March 31, 2025 (184 days as on March 31, 2024), driven by large inventory of 90-100 days (as paddy and rice are stocked up during the peak procurement season, which begins in the third quarter of every fiscal) and receivables of 80-90 days. It is supported through payables of 45-60 days. GCAs are expected to remain at 160-180 days over the medium term. Improvement in the working capital cycle supported by faster receivables collection will remain monitorable.

Liquidity: Adequate

Expected net cash accrual of Rs 70-110 crore per annum will be sufficient to meet annual debt obligation of Rs 16-17 crore in fiscal 2025 and Rs 40-75 crore per annum thereafter. The bank limits were utilised at 90% on average over the 12 months through December 2024. The current ratio was 1.41 times as on March 31, 2024. Liquidity is also supported by unsecured loans from the promoters which is expected to be around Rs 201 crore as on March 31, 2025, as against Rs 122 crore as on March 31, 2024.

Outlook: Stable

The Bhagwati group will continue to benefit from the extensive experience of the promoters and their established relationships with customers.

Rating sensitivity factors

Upward factors:

• Healthy growth in revenue supported by ramp-up of operations from the new unit along with operating margin sustaining at around 6.0% leading to healthy net cash accrual
• Improvement in the financial risk profile with gearing below 1.5 times

 

Downward factors:

• Slower-than-expected ramp up in scale of operations or operating margin falling below 5% leading to lower-than-anticipated cash accrual
• Substantial increase in working capital requirement, leading to contraction of higher-than-expected debt, weakening the liquidity and financial risk profiles.

About the Group

Incorporated in 2007, BLVEPL is engaged in the processing of paddy since fiscal 2008. The company operates a single manufacturing facility in Ferozepur, Punjab, with installed capacity of 55 TPH (tonne per hour). BLVEPL is primarily engaged in the export of basmati rice to the Middle East, Canada and Australia, among other countries. Income from exports constitute around 50% of the total operating income in fiscal 2024. The company also caters to the domestic market through a network of distributors and wholesalers located all over India. The group entities of the company include BAPL, HHFPL and BLFPL.

 

Bhagwati Lacto Foods Pvt Ltd

BLFPL is an associate company of the Bhagwati group. It was incorporated in 2009 in Ferozepur, Punjab, with installed capacity of 8 TPH and is involved in domestic and export sale of rice and other food items. The company was incorporated by Mr Kishan Kumar Mittal and Mr Rahul Mittal.

 

Healthy Harvested Foods Pvt Ltd

HHFPL was incorporated in 2020 by Mr Sushil Mittal and Mr Sameer Mittal. The company is engaged in the reprocessing of semi-finished rice to produce export-worthy basmati rice with capacity of 32 TPH.

 

Bhagwati Agrochem Pvt Ltd

BAPL was incorporated in 2021 by Mr Sushil Mittal and Mr Sameer Mittal to establish a food park in Madhya Pradesh. The unit will be an integrated unit for rice shelling, wheat flour mill, solvent extraction and oil refinery.

Any other information: Not Applicable