| Coromandel Agro Products and Oils Limited | ||||
| Rating upgraded to 'CRISIL BBB-'; Rating outlook revised to 'Stable' | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has upgraded its rating on the long-term bank facility of Coromandel Agro Products And Oils Limited (CAPOL) to 'CRISIL BBB-/Stable' from 'CRISIL BB+/Positive’.
The upgrade reflects the improvement in the business and financial risk profiles of CAPOL, supported by healthy operating performance. Revenue improved to Rs 212 crore in fiscal 2022 from Rs 118 crore in fiscal 2021, supported by steady demand and favourable oil prices. Profitability will remain susceptible to volatility in input prices and will be a key rating monitorable.
Healthy operating performance and efficient working capital management have resulted in higher accretion and lower debt, strengthening the financial risk profile. The financial risk profile is expected to improve as revenue and cash accrual increase and given the absence of debt-funded capital expenditure over the medium term.
The rating continues to reflect the company’s strong market position in the cotton seed oil industry, moderate financial risk profile and prudent working capital management. These strengths are partially offset by susceptibility to volatility in raw material prices, regulatory changes and intense competition. |
Key Rating Drivers & Detailed Description Strengths: Strong market position The three-decade-long experience of the promoters, their healthy relationships with customers and suppliers and strong understanding of the market dynamics will continue to support the business.
Moderate financial risk profile The financial risk profile is supported by moderate networth, healthy capital structure and adequate debt protection metrics. Networth is estimated at Rs 26 crore on March 31, 2022. The capital structure should remain healthy as reflected in gearing of 0.27 time and TOLTNW ratio of 0.63 time as on March 31, 2022. The debt protection metrics were above average with interest coverage estimated over 16 times and net cash accrual to adjusted debt ratio at 1.15 times in fiscal 2022.
Prudent working capital management The prudent working capital management is reflected in estimated gross current assets of 60 days in fiscal 2022., driven by comfortable receivables and inventory. CAPOL provides credit of 15 days to customers and maintains large inventory during the peak season from October to March.
Weaknesses: Susceptibility to volatility in raw material prices and regulatory changes The company faces risks related to availability of raw materials, regulatory changes and pricing pressure. The availability of inputs, mainly cotton seeds, is ultimately linked to cotton production, which, depends on various factors, such as monsoon, climatic conditions, acreage and yield. Profitability will continue to be constrained by risks inherent in agro-based activities and will remain susceptible to volatility in raw material prices.
Exposure to intense competition The edible oil segment is highly fragmented, with a few big and several small, unorganised players. About 60% of the industry is serviced by the unorganised sector, which caters primarily to regional demand to save on transportation cost. Intense competition has resulted in low operating margin for players. Furthermore, prices of edible oil are directly linked to the prices of crude palm oil (CPO), which are highly volatile. The domestic vegetable oil market depends on availability of CPO and vegetable oil substitutes in the international market. |
Liquidity: Adequate Bank limit utilisation averaged 2% over the 12 months through March 2022. Cash accrual is expected at Rs 7-8 crore against debt obligation of Rs 0.3-0.7 crore in fiscals 2022 and 2023. The unutilised bank lines cushion liquidity. Low gearing and moderate networth support the financial flexibility to withstand adverse conditions or downturn in the business. |
Outlook: Stable CAPOL will continue to benefit from the promoters’ extensive experience and healthy relationships with customers and suppliers. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company Incorporated in 1976, CAPOL is a part of the ML group and processes cotton seed oil, de-oiled cakes, hulls, linters, soap stock, acid oil and sludge oil. The manufacturing facility is in Chirala, Andhra Pradesh. The company also has two windmills, one each in Tamil Nadu and Gujarat, with capacity of 0.65 megawatt (MW) and 0.80 MW, respectively. Mr Maddi Lakshmaiah, Mr Maddi Venkateswara Rao and Mr Maddi Ramesh are the promoters of the company. |
Key Financial Indicators
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Status of non cooperation with previous CRA: CAPOL has not cooperated with India Ratings & Research, which has classified the company as non-cooperative through a release dated April 05, 2019. The reason provided is non-furnishing of information for monitoring the ratings. |
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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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||
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This Annexure has been updated on 30-May-2022 in line with the lender-wise facility details as on 05-Apr-2022 received from the rated entity.
Criteria Details
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