Rating Rationale
February 09, 2022 | Mumbai
Diana Tea Co Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.46.25 Crore
Long Term RatingCRISIL BBB-/Stable (Reaffirmed)
Short Term RatingCRISIL A3 (Reaffirmed)
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 BBB-/Stable/CRISIL A3' ratings on the bank facilities of Diana Tea Co Limited (DTCL).

 

The ratings continue to reflect the extensive experience of the promoters in the tea industry and the established market position and healthy capital structure of the company. These strengths are partially offset by exposure to risks arising from fluctuations in tea prices, seasonality in production and changing weather conditions.

Key Rating Drivers & Detailed Description

Strengths:

Healthy capital structure: Networth improved to Rs 51.10 crore as on March 31, 2021, from Rs 44.85 crore as on March 31, 2020. Gearing and total outside liabilities to tangible networth ratio were also low at 0.44 time and 0.66 time, respectively, as on March 31, 2021, as against 0.52 time and 0.77 time, respectively, as on March 31, 2020. The outstanding debt stood at Rs 22.67 crore, (vis-à-vis Rs 23.11 crore), over the same period, while bank limit utilisation was also negligible, averaging 15% over the 12 months through December 31, 2021. 

 

Established market position and extensive experience of the promoters: Plantations owned by DTCL have been under cultivation since the early 1900s. Tea produced at its estates is well known and commands a premium. The company is present in the bulk as well as branded segments, and its brand, Diana Tea, has an established market position in Madhya Pradesh, Uttar Pradesh, Punjab, Haryana, Rajasthan, and Maharashtra. The tea is bought through auctions by reputed tea marketing companies. Healthy reputation of tea estates and high quality of tea enable the company to realise better prices at auctions. The promoters, members of the Singhania family, also have extensive experience in the tea business.

 

Weaknesses:

Susceptibility of profitability to fluctuations in tea prices: A significant portion of sales is through auctions at Kolkata and Siliguri, both in West Bengal. Auction prices are determined at the centres, based on demand-supply dynamics. The domestic scenario directly impacts prices, while the global situation could affect market sentiment. Though DTCL has some pricing discretion for tea sold through the private channel, these rates are also influenced by auction prices. Moreover, fragmentation in the tea industry limits pricing variation.


Vulnerability to seasonality in production and changing weather conditions: Being a seasonal product, the tea yield depends on the monsoon. Hence, production declines in poor weather conditions. The crop is also exposed to pest attacks. Tea plantation companies incur high fixed cost, mainly comprising labour and manufacturing expenses. If production lags normal levels, there could be a significant dip in profitability or even an operating loss.

Liquidity: Adequate

Bank limit utilisation was low averaging around 15% for the 12 months ended December 31, 2021.  Expected cash accrual of over Rs 4 crore should suffice to cover the term debt obligation of Rs 2 crore over the medium term. Current ratio was also moderate at 1.32 times on March 31, 2021. The promoters are likely to extend support via equity and unsecured loans to cover the working capital expenses and debt obligation of required. Moderate cash and bank balance of around Rs 4 crore was maintained as on March 31, 2021. Low gearing and moderate networth enhance financial flexibility to raise additional debt in case of any adverse conditions or downturn in the business.

Outlook: Stable

CRISIL Ratings believes DTCL will continue to benefit from the extensive experience of its promoters in the tea industry.

Rating Sensitivity Factors

Upward factors

  • Growth in revenue and steady operating margin leading to net cash accrual of over Rs 6.50 crore
  • Improvement in debt protection metrics

 

Downward factors

  • Raise of additional long-term debt, increasing the annual obligation and leading to net cash accrual to repayment obligation ratio of below 1.50 times
  • Decline in revenue and profitability

About the Company

Incorporated in 1911 and listed on the Bombay Stock Exchange, DTCL is an integrated tea player. The company was set up by Mr Nawab Ghulam Jabbar of Jalpaiguri. West Bengal, and was acquired by Mr Radheshyam Singhania in 1976. It is now managed by the Singhania family. It has tea plantations and manufactures crush-tear-curl (CTC) tea.

Key Financial Indicators

As on/for the period ended March 31

Unit

2021

2020

Operating income

Rs.Crore

70.44

61.12

Reported profit after tax

Rs.Crore

5.32

0.07

PAT Margin

%

6.40

0.19

Adjusted debt/adjusted networth

Times

0.44

0.52

Interest coverage

Times

3.69

1.15

 

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 instrument

Date of allotment

Coupon rate (%)

Maturity date

Issue size (Rs.Crore)

Complexity levels

Rating assigned with outlook

NA

Tea Hypothecation

NA

NA

NA

29.3

NA

CRISIL BBB-/Stable

NA

Bank Guarantee

NA

NA

NA

1.71

NA

CRISIL A3

NA

Term Loan

NA

NA

Mar-2032

11.4

NA

CRISIL BBB-/Stable

NA

Working Capital Term Loan

NA

NA

Sept-2025

3.84

NA

CRISIL BBB-/Stable

Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 44.54 CRISIL BBB-/Stable   --   -- 21-12-20 CRISIL BBB-/Stable 27-05-19 CRISIL BBB-/Stable CRISIL BBB/Stable
      --   --   -- 23-09-20 CRISIL BBB-/Negative   -- --
      --   --   -- 31-08-20 CRISIL BBB-/Negative   -- --
Non-Fund Based Facilities ST 1.71 CRISIL A3   --   -- 21-12-20 CRISIL A3 27-05-19 CRISIL A3 CRISIL A3+
      --   --   -- 23-09-20 CRISIL A3   -- --
      --   --   -- 31-08-20 CRISIL A3   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 1.71 Punjab National Bank CRISIL A3
Tea Hypothecation 29.3 Punjab National Bank CRISIL BBB-/Stable
Term Loan 11.4 Punjab National Bank CRISIL BBB-/Stable
Working Capital Term Loan 3.84 Punjab National Bank CRISIL BBB-/Stable

This Annexure has been updated on 08-Mar-2023 in line with the lender-wise facility details as on 01-Mar-2023 received from the rated entity.

Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Fast Moving Consumer Goods Industry
CRISILs Criteria for rating short term debt

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