| Chaman Lal Setia Exports Limited | ||||
| Rated amount enhanced | ||||
| Rating Action | ||||
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| 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 'CRISIL A/Stable' rating on the long-term bank facilities of Chaman Lal Setia Exports Ltd (CLSEL).
CRISIL Ratings had on November 17, 2022, upgraded its rating on the long-term bank facilities of CLSEL to ‘CRISIL A/Stable’ from ‘CRISIL A-/Positive’.
The rating factors in steady improvement in the business risk profile, as indicated by revenue growth of more than 45% to around Rs 1,400 crore in fiscal 2023 (Rs 1,030 crore in the nine months of fiscal 2023) driven by increase in volume sales and better realisations. Export volume increased by more than 55% to 131,500 MT in the nine months of fiscal 2023, compared with 83,400 MT in the corresponding period of the previous fiscal. Despite increase in freight cost and paddy prices, operating margin was healthy at 10.22% in fiscal 2022 and is expected above 10.5% in fiscal 2023.
The rating continues to reflect the company’s strong market position, healthy financial risk profile and above-average operating margin. These strengths are partially offset by susceptibility to volatility in raw material prices and regulatory changes, and low brand penetration. |
Analytical Approach Unsecured loan of Rs 56.5 crore as on March 31, 2022, from the promoters has been treated as 75% equity and 25% debt as the loan is expected to remain in the business over the medium term. |
Key Rating Drivers & Detailed Description Strengths: Strong market position The promoters have experience of more than 45 years in the basmati rice business. This has enabled strong market position across domestic and global markets and healthy relationships with international customers. Export to 90 countries contributed to 90% of the sales in fiscal 2023. Moreover, the company caters to private label businesses, but around 25% sales come from its own brands: Mithas, Begum and Maharani. CLSEL deals in basmati rice, which contributes to 90-95% of the sales. It has established healthy relationships with suppliers in Haryana and Punjab. Because of high dependence on them for milling of rice, suppliers are rarely changed to maintain quality standards. Strong relationships with suppliers enable the procurement of rice at comfortable prices. Healthy financial risk profile Networth was around Rs 451 crore as on March 31, 2022, and is expected over Rs 550 crore as on March 31, 2023. In the absence of long-term loan and moderate dependence on working capital limit, gearing and total outside liabilities to tangible networth ratio were healthy at 0.17 time and 0.28 time, respectively, as on March 31, 2022. Debt protection metrics were robust, as indicated by interest coverage and net cash accrual to adjusted debt ratios of 14.05 times and 0.86 time, respectively, in fiscal 2022. The interest coverage ratio is expected over 13 times in fiscal 2023. The financial risk profile will improve over the medium term backed by healthy profitability and no major debt-funded capital expenditure (capex).
Moderate operating margin Operating margin was 10.22% in fiscal 2022 despite increase in freight cost and container shortage, supported by the healthy brand equity of the company and good quality products. The share of the company’s own brands, Mithas, Begum and Maharani, in total sales rose to over 25% in fiscal 2022 from 20% in fiscal 2020. The operating margin is expected to remain healthy at 10-11% over the medium term (10.71% in the nine months of fiscal 2023) backed by the strong market position of the company. Return on capital employed was above-average at 19.24% in fiscal 2022 and will remain at a similar level over the medium term, supported by healthy profitability.
Weaknesses: Susceptibility to volatility in raw material prices and regulatory changes Cost of raw material (paddy) accounts for 75-80% of sales cost and hence prices directly impact operating profitability. Paddy, being a kharif crop, is harvested from September to December. The water requirement for basmati is high, and though the rice-growing states (Haryana, Uttar Pradesh, Uttarakhand and Punjab) have good irrigation systems, there is high dependence on monsoon. Hence, the company remains exposed to the risk of limited availability of raw material during a weak monsoon, resulting in low operating income and subdued profitability. Moreover, government regulations directly impact raw material availability through minimum support price and procurement policies.
Low, but improving, brand penetration Majority of export is under brands of customers (private label business). To maintain quality, customers continue to procure their requirement from CLSEL, which helps in maintaining the operating margin. In the domestic market, the company sells rice under its own brands. Overall, branded sales were modest around 25% in fiscal 2022, as against 20% in fiscal 2020, and should improve over the medium term. Low brand penetration limits the ability to charge high margin compared with industry players such as KRBL Ltd. Significant increase in brand penetration should strengthen the market position and operating margin and will be a key rating sensitivity factor. |
Liquidity: Strong Cash accrual is expected above Rs 95 crore per annum against nil debt obligation in fiscal 2023 and will cover working capital requirement and capex. Fund-based working capital limit was utilised at 23% on average during the 12 months through January 2023. The promoters will continue to support liquidity through unsecured loans. Unencumbered cash and bank balance stood at Rs 258 crore as on September 30, 2022. However, same was reduced in Nov-Dec,2022 to meet the paddy procurement requirements. Current ratio was healthy at 4.72 times as on March 31, 2022 and is expected at 5-6 times over the medium term. |
Outlook: Stable CRISIL Ratings believes CLSEL will continue to benefit from its strong presence and healthy relationships with clients. |
Rating Sensitivity Factors Upward factors
Downward factors
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About the Company CLSEL was set up as a partnership firm in 1983 by Mr Chamanlal Setia, Mr Vijay Setia and Mr Rajeev Setia in Amritsar, Punjab. It was reconstituted as a public limited company in 1994 and was listed on the Bombay Stock Exchange in 1995. It undertakes milling, sorting and packaging of basmati rice for the domestic and global markets. It has its own brands in India, such as Mithas, Begum and Maharani.
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Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of instrument(s)
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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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This Annexure has been updated on 05-Apr-2023 in line with the lender-wise facility details as on 28-Feb-2023 received from the rated entity.
Criteria Details
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