| Chaman Lal Setia Exports Limited | ||||
| Rating outlook revised to ‘Positive’; 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 revised the outlook on the long term bank facilities of ‘Chaman Lal Setia Exports Limited (CLSE) to ‘Positive’ from ‘Stable’ while reaffirming rating at ‘CRISIL A-‘.
The revision in outlook reflects improvement in business risk profile which is expected to continue to improve over the medium term. The improvement was led by 21% increase in volumes in fiscal 2021 and increase in contribution from own branded products increasing to 25% in fiscal 2021 from 20% in fiscal 2020. CLSE has one of the most diversified geographical and customer profile as demonstrated by penetration having increased to over 80 countries compared to 60 countries four years back. With new geographies gradually picking-up while sustaining demand from many of the old geographies, CRISIL Ratings expects continued volume growth along with increased contribution from own branded products over the medium term.
The operating profitability improved in fiscal 2021 to 13.6% in fiscal 2021 compared to 10% in fiscal 2020 largely because of decline in paddy prices happened at a higher rate compared to realizations for the entire Basmati rice industry during the period. Because of the improved profitability, debt protection metrics continued to remain healthy with interest coverage of 18.8 times and net cash accrual of 0.9 times for fiscal 2021. And with continued low reliance on debt, capital structure was healthy with gearing of 0.25 times as on March 31, 2021.
The rating continues to reflect CLSE's strong market position, prudent working capital management, healthy financial profile and sound operating efficiency. These strengths are partially offset by susceptibility to volatility in raw material prices and regulatory changes and low brand penetration. |
Analytical Approach Of the unsecured loans of Rs 56.5 crore provided by the promoters as on March 31, 2021, 75% has been treated as equity and 25% as debt, as the loans are expected to remain in the business over the medium term. |
Key Rating Drivers & Detailed Description Strengths: Strong market position: More than 45-year-long experience of the promoters has led to CLSE’s strong market position across domestic and global markets and healthy relationships with international customers based on high quality standards. Exports to approximately 80 countries contributed to 90% of the sales in fiscal 2021. In export and domestic markets, the company primarily caters to the private label business, but around 25% is derived from sales under its own brands: Mithas, Begum and Maharani.
CLSE primarily 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 the company’s dependence of them for milling of rice, suppliers are not changed frequently in order to maintain quality standards. Strong relationships with suppliers enable the procurement of rice throughout the year at comfortable prices.
Prudent working capital management: Gross current assets were 120-160 days over the four years ended March 31, 2021, compared to around 100 days over the previous four years ended March 31, 2016. The increase is largely because of higher inventory in recent times to support growth across new geographies. Inventory has remained at 80-110 days over the four years ended March 31, 2020, compared to 40-70 days over the previous four years ended March 31, 2016.
Despite increase in inventory, CSEL’s working capital management continues to be prudent compared to its peers. Any significant increase in inventory or receivables because of CLSE’s expectation about driving volume by entering new markets will be a key monitorable over the medium term.
Healthy financial profile: CLSE’s capital structure has been healthy because of low reliance on external funds, leading to low total outside liabilities to tangible networth ratio of less than 0.4 time over the four years ended March 31, 2021. CLSE’s debt protection metrics have also been strong because of leverage and healthy profitability. Interest coverage and net cash accrual to adjusted debt ratios were estimated at 18.8 times and 0.9 times, respectively, in fiscal 2021. In the absence of any major debt-funded capital expenditure, the metrics should remain stable over the medium term.
Sound operating efficiency: CLSEL has sound operating efficiency, backed by continued healthy return on capital employed of over 20% in the four years ended March 31, 2021.
Weaknesses: High susceptibility to volatility in raw material prices and regulatory changes: Raw material (paddy) constitutes 75-80% of the sales, and its prices directly impact operating profitability. Paddy, being a kharif crop, is harvested only in September-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 dependence on the monsoons. Hence, the company is 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. Operating profitability has varied at 8.9-13.6% over the four fiscals through 2021.
Low but improving brand penetration: Majority of the exports by CLSE are under customers’ brands (private label business). To maintain quality, customers continue to procure their requirement from CLSE; this helps in maintaining margin.
In the domestic market, the company sells rice in retail packaging under its own brands. Overall the contribution from own branded products globally is still low at 25% in fiscal 2021. However, it jumped from 20% in fiscal 2020 and is expected to continue to improve over the medium term. Low brand penetration currently limits the ability to charge high margin in comparison with industry players such as KRBL Ltd. Significant increase in brand penetration should strengthen the market position and operating margin. The extent of improvement will be a key rating sensitivity factor. |
Liquidity: Strong The strong liquidity profile is indicated by healthy cash accrual of Rs 35-80 crore over the four fiscals ended 2021 in the absence of any debt obligation. Bank limit utilisation averaged 21% over the 11 months through April 2021. Liquidity is supported by unsecured loans from the promoters. Current ratio was healthy at over 5 times as on March 31, 2021. |
Outlook: Positive CRISIL Ratings believes CLSE’s business risk profile will continue to improve over the medium term driven by increasing contribution from own branded products supported by strong presence in more than 80 countries. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company CLSE was established as a partnership firm in 1983 by Mr Chamanlal Setia, Mr Vijay Setia and Mr Rajeev Setia in Amritsar. 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: 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 - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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* - Issuer did not cooperate; based on best-available information
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Annexure - Details of Bank Lenders & Facilities
| Facility | Amount (Rs.Crore) | Rating |
| Export Packing Credit | 95 | CRISIL A-/Positive |
| Export Packing Credit | 30 | CRISIL A-/Positive |
Criteria Details
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