Rating Rationale
September 05, 2024 | Mumbai
Cargill India Private Limited
Rating reaffirmed at 'CRISIL A1+'
 
Rating Action
Rs.300 Crore Commercial PaperCRISIL A1+ (Reaffirmed)
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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 A1+' rating on the commercial paper programme of Cargill India Pvt Ltd (Cargill India).

 

During fiscal 2024, revenues have grown by 3% to ~Rs 13,850 crores basis the provisional financials provided in August 2024, supported by strong growth across commodity trading and animal feed segment offsetting the decline in edible oil prices. Operating margin improved to 3% in fiscal 2024 from 0.2% in the previous year mainly due to moderation in oil seed prices. Going forward, revenue is expected to remain at similar levels in fiscal 2025 with subdued oil prices and higher volumes. Growth will be supported by higher volumes from South India with the commencement of Nellore oil refinery CRISIL Rating expects the operating profitability to remain range bound at 1.8-1.9% considering lower volatility in oil prices. Revenue and profitability continue to remain susceptible to global demand-supply dynamics and volatility in commodity prices and foreign exchange rates.

 

The rating continues to reflect the strong support the company receives from its parent, Cargill Inc., USA (Cargill; rated ‘A/Stable/A-1’ by S&P Global Ratings [S&P]). The rating also factors in Cargill India’s established position in the agricultural commodities trading and processing, and edible oil refining businesses. These strengths are partially offset by its average financial risk profile.

Analytical Approach

CRISIL Ratings has notched up the standalone rating based on expectation of strong support from the ultimate parent, Cargill Inc., both on an ongoing basis and in the event of distress. Cargill Inc. owns 100% stake in Cargill India through group companies. This is in line with the CRISIL Ratings criteria for notching up standalone ratings of companies based on parent support. Loans in the form of buyer’s credit from fellow subsidiaries have been treated as debt because these are interest bearing.

Key Rating Drivers & Detailed Description

Strengths:

  • Strong support from the parent, Cargill: Cargill’s product and geographical diversity, and extensive supply chain and distribution network, helps Cargill India optimise the movement of its products. Cargill India also leverages its parent’s established customer relationships and expertise in commodity risk and supply chain management. Moreover, the company receives strong financial support from the parent through continuous equity infusion and guaranteed bank lines of over Rs 3,650 crore ($435 million). These limits were moderately utilised at around 43% as of May 2024. Furthermore, Cargill India has been extended credit lines of over Rs 2,500 crore ($300 million) in the form of trade credit from fellow subsidiary, Cargill Asia Pacific Treasury Ltd, of which Rs 1900 crore was outstanding as on March 31, 2024. Cargill’s ownership of Cargill India, and the latter’s strategic importance to the former, underscore the parent’s moral obligation to support the subsidiary.

 

  • Established market position: Cargill India is one of the few large, organised players in the edible oil and commodities trading business in India. The company’s brands - Nature Fresh, Gemini, Sweekar, Leonardo and Rath - have established retail presence and strong recall. The company also caters to strategic institutional customers. The agricultural commodities portfolio is diversified, including edible oil, soya meal, oil seeds, corn, wheat, rice, pulses, cotton, sorghum and flour, along with animal nutrition products. The company has well established brands in the animal nutrition business including Provimi, Purina and EWOS.

 

Weakness:

  • Average financial risk profile: Debt levels are estimated to be steady at Rs 2,534 crore as on March 31, 2024, compared to Rs 2,312 crore a year earlier. The company has capital expenditure (capex) plans of Rs 200-210 crores in fiscal 2025 which will be funded through internal accruals and infusion from the parent via equity. Though periodic equity infusions have strengthened the capital structure, the debt protection metrics remain modest for the rating category due to low operating margins, working capital requirement and capex plans.

Liquidity: Superior

Liquidity is driven by expectation of ongoing and need-based support from the parent, Cargil Inc. The company’s bank lines are at majority guaranteed by under Cargill Inc, but the commercial paper is not backed by a corporate guarantee from the parent. The company has bank lines of over Rs 3,650 crore ($ 435 million) which was moderately utilised at 43% on average as of May 2024. CRISIL Ratings expects unutilised bank lines to be sufficient to meet any incremental working capital requirement. There is no long-term debt repayment. Liquidity is also supported by the availability of over Rs 2500 crore ($ 300 million), credit lines in the form of trade credit from a fellow subsidiary, of which Rs 1900 crore (76%) were utilised as on March 31, 2024.

Rating sensitivity factors

Downward factors:

  • Significant deterioration in operating performance or capital structure
  • Diminution in support from the parent, Cargill Inc
  • Downgrade in S&P’s rating on Cargill by 2 notches or more

About the Company

Cargill India was incorporated in April 1996 as a 100% subsidiary of Cargill. It primarily produces edible oil, animal & aqua feed, starches & sweeteners, bio-industrial products and trades in agricultural commodities, including corn, wheat, oilseed meal, cotton, sorghum and oil seeds. The company has three edible oil refining plants, one each in Kurkumbh, Maharashtra; Kandla, Gujarat and Nellore, Andhra Pradesh; and a corn starch & sweetener processing plant in Davangere, Karnataka, Bio Industrial production plant at Kurkumbh, Maharashtra and two each of animal & aqua feed production facilities in Punjab & Haryana and Andhra Pradesh state respectively. Between November 2010 and February 2014, Cargill India acquired vanaspati brands, Rath and Sunflower, sunflower oil brand Sweekar, and olive oil brand Leonardo, expanding its product portfolio in the consumer foods business. The company also generates revenue from its active treasury management operations.

Key Financial Indicators

Particulars

Unit

2023

2022

Operating income

Rs crore

13,485

14,540

Profit after tax (PAT)

Rs crore

-113

99

PAT margin

%

-0.8

0.7

Adjusted debt/adjusted networth

Times

1.83

1.66

Interest coverage

Times

0.12

2.7

FY2024 audited numbers not yet available

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 Commercial Paper NA NA 7-365 days 300 Simple CRISIL A1+
Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper ST 300.0 CRISIL A1+ 17-07-24 CRISIL A1+ 06-09-23 CRISIL A1+ 07-09-22 CRISIL A1+ 24-09-21 CRISIL A1+ CRISIL A1+
All amounts are in Rs.Cr.
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
Mapping global scale ratings onto CRISIL scale
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

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