| Empee Distilleries Limited | ||||
| Rating outlook revised to 'Positive'; 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 revised its outlook on the long-term bank facilities of Empee Distilleries Limited (EDL; part of the SNJ Group) ‘Positive’ from ‘Stable’ while reaffirming the rating at ‘CRISIL A-‘.
The revision in outlook reflects sustenance of a strong business performance and a healthy financial profile. Revenues grew at a compound annual growth rate (CAGR) of 18% in the three years through fiscal 2023. Operating profitability margin has been sustained at 11.5-13.5% during this period. The group is likely to report 20 percent growth in the revenue in the current fiscal marked by operating income of Rs.1700 crore in first 7 months of fiscal 2023. Steady growth in revenues stems from a steady growth in demand from a diversified revenue profile and staggered capacity additions to support such offtake. The growth factors in both organic and inorganic expansions done by the group in the past few years and successful ramp up in capacities resulting in sustained growth and profitability. The rating action also factors in a strong market position for the group under both the SNJ and Empee brands. British Empire, Chevalier, King Louis, are a few brands that command a strong recall amongst consumers.
A healthy operating performance ensured sustenance of a strong financial profile. TOLTNW is estimated at less than 1.25 times as on March 31, 2023 and interest coverage is estimated at 7.5 times for fiscal 2023. Any large debt funded capital expenditure / acquisition that impacts financial risk profile would remain key rating sensitivity factor.
The rating reflects the strong operational and financial support received by EDL from the SNJ group, SNJ group’s established market position in the liquor industry in Tamil Nadu (TN), and an above-average financial risk profile. These strengths are partially offset by the vulnerability to high regulatory risk, geographical concentration in revenue, and volatile input prices with limited pricing power. |
Analytical Approach For arriving at EDL’s ratings, CRISIL Ratings has applied the parent notch-up framework to factor in the intensity of financial support available to EDL from its parent, SNJDPL. This is because EDL is critical to the SNJ group for its operations with capacities in distillery |
Key Rating Drivers & Detailed Description Strengths: Strong operational and financial support to EDL from the SNJ group: EDL has been acquired by the SNJ group in August 2020 for Rs.475 crore and the acquisition has been funded by unsecured loans of Rs.275 crore and external debt of Rs.200 crore. With this acquisition, SNJ group has expanded its capacities in the liquor segment and hence its geographical penetration outside of TN. EDL receives strong operational support from the group for its operations, leveraging the group’s experience in the sector. Further, any financial requirements of EDL are expected to be supported by the SNJ group.
Established market position in TN: The SNJ group has diversified its business since inception in 1969. The promoters’ strong focus on expanding the brand’s market share has led the group to successfully acquire and set up SNJB, SNJS and EDL. SNJ group has achieved revenue of around Rs.2325.43 crore in fiscal 2022. The SNJ group has prominent presence in the IMFL and beer segment in Tamil Nadu. The group’s revenue share has increased with the acquisition of the EDL in fiscal 2020 and same is expected support the growth over the medium term. Further, the group is diversifying its presence through penetration to new territories apart from Tamil Nadu, which include Karnataka and Kerala.
Healthy financial risk profile: Capital structure is healthy marked by gearing at 0.36 times estimated as on 31st March 2023 (0.66 times as on 31st March 2022), aided by healthy accretion to reserves and steady repayment of term debt. Debt protection metrics continued to remain comfortable, with estimated interest coverage ratio and net cash accruals to adjusted debt ratio of 7.51 times and 0.36 times in Fiscal 2022 (7.35 times and 0.34 times in fiscal 2022)
Weakness: Exposure to high regulatory risk and geographic concentration in revenue: The group’s exposure towards TN remains high at 59 percent where the state-owned Tamil Nadu State Marketing Corporation entirely controls the distribution. Thus, any regulatory changes or implementation of the current government's proposal to prohibit liquor sales in a phased manner could adversely affect the business risk profile. However, this risk is partially mitigated by the fact that the group has started to venture into new geographies with the acquisition of EDL.
Volatile input prices and limited pricing power: The key raw materials include molasses, malt and barley for the IMFL and brewery segment, while it is sugar cane for SNJS. All the materials are agro based and is dependent upon the vagaries of the monsoon; consequently, their prices remain volatile. The group has limited pricing power as the prices are governed by the regulatory authorities. |
Liquidity: Adequate Bank limit utilisation is low at around 35.96 percent for the past twelve months ended November 2022. Cash accruals are expected to be over Rs.225 crore which are sufficient against term debt obligation of Rs.45-70 crore in fiscal 2023 and fiscal 2024. Current ratio is estimated at over 1.67times on March 31, 2023. Current ratio is healthy at 1.48 times on March 31, 2022. The promoters are likely to extend support in the form of equity and unsecured loans to meet its working capital requirements and repayment obligations. Low gearing and moderate net worth support its financial flexibility and provides the financial cushion available in case of any adverse conditions or downturn in the business. |
Outlook: Positive CRISIL Ratings believes that EDL will continue to benefit from the strong parent support and its healthy financial risk profile. |
Rating Sensitivity Factors Upward factors
Downward factors
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About the Group Empee Distilleries was established over 4 decades back and is into manufacturing of liquor. SNJ Group acquired EDL in fiscal 2021 and the operations have commenced in its plants from August 2020.
SNJDPL manufactures IMFL in TN and beer in AP. SNJB, set up in 2009, operates a brewery in Kancheepuram (TN). Set up in 1994, SNJS manufactures sugar. It also has a facility for distilling extra-neutral alcohol and operates a co-generation power plant. Operations of all the three companies are overseen by the managing director, Mr S N Jayamurugan. |
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-Jan-2023 in line with the lender-wise facility details as on 05-Jan-2023 received from the rated entity
Criteria Details
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