| Candy Spirits Private Limited | ||||
| Rating Reaffirmed | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL BBB/Stable’ rating on the long-term bank facility of Candy Spirits Private Limited (CSPL; part of Candy group).
The ratings continue to reflect the group's established position in the liquor distribution business in Mumbai and Goa, supported by experienced promoters; efficient working capital management; and above-average financial risk profile. These strengths are partially offset by low profitability, vulnerability to the regulatory framework governing the liquor industry and supplier concentration risk. |
Analytical Approach For arriving at the rating, CRISIL Ratings has combined the business and financial risk profiles of CSPL and Candy Enterprises Pvt Ltd (CEPL). This is because both the companies, collectively referred to as the Candy group, are in the same business, under a common management, and have strong business and financial linkages. Please refer table 1, which captures the list of entities considered and their analytical treatment of consolidation.
Unsecured loans from promoters of Rs. 50 crores is treated as neither debt nor equity which will be maintained in the company. The remaining Rs. 21 crores is treated as debt as the same is expected to be repaid over the medium term.
Please refer Annexure - Details of Consolidation, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
Presence of four decades in the liquor distribution business has helped the promoters to establish a strong market position in Mumbai and Goa. The Candy group is one of the key distributors of Pernod Ricard India Pvt Ltd (Pernod) in the western, central suburbs, and central line areas of Mumbai and Goa. The group caters to over 5,000 liquor shops, hotels, restaurants, and permit rooms. Robust market position is reflected in large scale of operations, with topline of Rs 1,287 crore for fiscal 2021.
Gross current assets have been moderate at 45-80 days over the four years ended March 31, 2021 with low inventory of 20-35 days and offers credit of 30 days to customers. Working capital requirement is partly met through credit of up to 15-25 days from suppliers leading to moderate dependence on working capital limit.
Financial risk profile is backed by strong net worth of Rs 74.76 crore and moderate capital structure with total outside liabilities to adjusted net worth (TOLANW) of 2.35 times, as on March 31, 2021. Debt protection metrics, although averaged in fiscal 2021, with interest coverage of 1.61 times, it is expected to improve with lower debt levels and improved profitability.
Weaknesses:
Operating margin has been in the 1.5-2.5% range in the three fiscals through 2021 because of trading nature of business and intense competition. Further, due to reduction in sales volume in fiscal 2021 on account of lockdown, profit margins had reduced to 1.5%. Operating margin improvement will remain monitorable over the medium term.
The liquor industry is administered through a strict license regime for liquor production and distribution. Any adverse change in the government's license authorization policy, such as discontinuing or limiting the renewal of licenses or substantially increasing license fees, could affect the profile of players such as Candy group.
Candy group has high reliance on its key principal Pernod Ricard India Pvt Ltd (Pernod) with 70% of its revenue from Pernod's products which exposes the group to supplier concentration risk. Although, it has established relationship of 2 decades with Pernod, any changes in policy of the key supplier can imping upon the business of Candy group. In July-2021, Pernod has brought in some new distributors who would be covering central line of Mumbai city. This will adversely impact the revenues of Candy Group by ~30-35%. |
Liquidity: Adequate Bank limit utilization is low at around ~18.10 percent for the past twelve months ended August 2021. Cash accrual are expected to be Rs.8-9 crores, which are sufficient against term debt obligation of Rs 3.54 lakhs and Rs. 1.5 crores, for fiscal 2022 and fiscal 2023, respectively. Cash and bank balances stood at Rs. 7 crores, as on March 31, 2021. The promoters are likely to extend support in the form of unsecured loans to meet its working capital requirements and repayment obligations. |
Outlook: Stable CRISIL Ratings believes the Candy group will continue to benefit from its established relationship with principals and promoters' extensive experience. |
Rating Sensitivity Factors Upward factors
Downward factors
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About the Group Established in 2005, CSPL trades in Indian-made foreign liquor (IMFL), beer, and wines. The Mumbai-based company is the sole distributor for all brands of Pernod, Seagram Distilleries Pvt Ltd (part of the Pernod Ricard group), and Privilege Industries Ltd, among other liquor companies, in western Mumbai.
CEPL, established in 2005, is in the same business. The company trades in liquor in central Mumbai and some parts of Goa. |
Key Financial Indicators - Consolidated
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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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | |||||||||||||||
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Criteria Details
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