| Gokul Agro Resources Limited | ||||||
| Ratings reaffirmed at 'CRISIL A-/Stable/CRISIL A2+'; rated amount enhanced for Bank Debt | ||||||
| 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 ratings on the bank facilities of Gokul Agro Resources Limited (GARL; part of the Gokul Agro group) at 'CRISIL A-/Stable/CRISIL A2+’.
The ratings factor in established business risk profile with revenue of Rs 10,739 crore in FY23 (reflects y-o-y growth of 3.4%) backed by marginally growth in volume and largely stable average sales realisation. Furthermore, the revenue contribution from palm oil declined from 63% in FY22 to 58% in FY23 and contribution from soya, mustard, etc have grown y-o-y. CRISIL Ratings believes the business risk profile will remain healthy driven by product mix and increase in geographical reach. Subsequently, the operating margin improved from 2.16% in FY22 to 2.62% in FY23, resulting in healthy cash accrual of Rs 161 crore and the same expected to sustain backed by risk management practices followed by group.
The financial risk profile as reflected in total outside liabilities to tangible networth ratio (TOLTNW) ratio improved to 2.26 times as on March 31, 2023, though, remains leverage. Despite large debt funded capital expenditure (capex) undertaken by the group, the financial risk profile expected to improve over the medium term backed by strengthening of networth. Timely stabilisation of operations at the capex, leading to significant increase in revenue and profitability, will remain a key monitorable.
The ratings reflect the group’s strong business risk profile, backed by established industry presence, large scale of operations, efficient working capital management, improving operating efficiency, comfortable debt protection metrics and prudent risk management practices. These strengths are partially offset by leveraged capital structure, exposure to risks related to ongoing projects, and susceptibility to regulatory changes, climatic conditions, or unfavourable movement in commodity prices or foreign exchange (forex) rates. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of GARL and its wholly owned subsidiary, Maurigo Pte Ltd, and step-down subsidiary (wholly owned subsidiary of Maurigo Pte Ltd), Riya International Pte Ltd. This is because the entities, collectively referred to as the Gokul Agro group, are under the same management and have operational and financial linkages.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
Mr Kanubhai Thakkar and his family members are the promoters of the group and have industry experience of over three decades. The group generates 10-12% of its revenue through exports of soya meal, mustard deoiled cake, castor oil and its derivatives, while the domestic revenue is spread throughout the country.
The group has a customer base with over 500 dealers and distributors; the top five clients contribute to 20-25% of the overall revenue. The group is well established and has a reputed clientele, which includes Parle, ITC Ltd, Britannia Industries Ltd, Godrej Industries Ltd among others. It also enjoys wide presence through its brands Vitalife, Zaika, Mahek, Pride, Richfield, Puffpride and Biscopride.
On the procurement side, the group benefits from the presence of its subsidiaries in Singapore (which is a key oil trading hub) and its longstanding association with the largest of industry players and plantations. Its longstanding presence in its segment of operations has enabled the group to maintain healthy relationships with suppliers and buyers, which is critical for its line of activity.
The Gokul Agro group has seed processing capacity of 3,200 tonne per day (TPD), DOC capacity of 1,000 TPD, oil refining capacity of 3,400 TPD, vanaspati manufacturing capacity of 200 TPD and castor derivative capacity of 100 TPD at its plant at Gandhidham, Gujarat. The group registered revenue of Rs 10,739 crore in fiscal 2023 at compounded annual growth rate of 19% over the five fiscals through 2023. With majority revenue from the palm products segment, the group has established its place among the top players in the segment. The group will continue to benefit from its established position and the promoters’ experience over the medium term.
The group efficiently manages its working capital, with minimal stocking of goods and low receivables. The group’s gross current assets (GCAs) were at 42 days as on March 31, 2023, driven by receivables and inventory of 14 and 23 days, respectively. The working capital will remain well managed, with GCAs expected at 40-50 days over the medium term.
The healthy operating efficiency is reflected in robust return on capital employed (RoCE) of over 28% in fiscal 2023 (against 32.46% in fiscal 2022). RoCE has been healthy at 17-32% in earlier fiscals as well. The maintenance of healthy RoCE in fiscal 2023 was backed by low yet improving operating margin and faster rotation of capital resulting in scale-up of operations. The average capacity utilisation is around 80-90% at the refining unit (through the year) and the seed crushing unit (during the season).
The debt protection metrics of group remains comfortable with interest coverage ratio of 3.15 times and net cash accruals to adjusted debt ratio at 0.35 times in fiscal 2023. However, with expected benefit derive from incremental capacity (refining unit of Krishnapatnam and Haldia), the debt protection metrics expected to improve over the medium term.
The group covers itself against inventory price fluctuations through back-to-back purchase arrangements, wherein 70-75% of the stock is pre-sold. Also, the remaining stock is hedged through commodity exchange at CBOT, MCX, NCDEX. Given the large crude oil imports, the group is exposed to high forex risk; however, it covers its forex as soon as it books revenue against the stock. The domestic prices reflect fluctuations in international oil prices and exchange rates. Hence, the group keeps its forex exposure open until sales take place. Also, the group exports around a tenth of its revenue, providing a partial natural hedge. The counterparty risk is mitigated by the large clientele and long-standing customer base, quantitative restrictions and limit on exposure with single customer base.
Weaknesses:
Networth of the Gokul Agro group is estimated at a healthy Rs 650 crore as on March 31, 2023; however, total outside liabilities to tangible networth ratio (TOLTNW) was moderately high at 2.26 times, though it improved from 2.65 times a year earlier. TOLTNW is high on account of significant funding requirement for the group’s scale of operations. However, adjusted indebtedness (fixed deposit, cash balance, secured receivables netted off from total outside liabilities) was moderate at 1.6 times as on March 31, 2023. The group’s TOLTNW, is expected to remain leveraged on account of significant working capital and capex requirement.
The group has undertaken a debt-funded capex of Rs 230 crore in fiscal 2022 for establishment of the oil refining unit at Krishnapatnam, Andhra Pradesh, which has capacity of 1,400 TPD. The capex is funded through term debt of Rs 160 crore and balance through internal accrual. Further, in June 2023, the group acquired oil refining unit in Haldia, West Bengal under NCLT, which has capacity of 1,200 TPD. The total cost of capex is Rs 150 crore, funded through term debt of Rs 120 crore and balance through internal accrual. Hence, the company’s capital structure is expected to remain leveraged over the medium term. Timely completion of capex, successful ramp-up of operations with improvement in operating margin and generation of sufficient cash accrual for debt servicing shall remain crucial.
The edible oil industry is closely monitored and regulated by the government because of its direct bearing on the average person’s food plate composition. At various points in time, the government has imposed restrictions through imposition/reduction in duties and exemptions/limitations in imports of certain edible oils or from certain countries. Furthermore, India’s high import dependence makes the industry vulnerable to international demand-supply dynamics and regulations in the origin country. The Gokul Agro group derives around 60-65% of its revenue from the palm products segment, indicating high revenue concentration and import dependence risks. Moreover, edible oil, being an agricultural commodity derivative, is affected by changes in weather, epidemics and monsoon, which may affect the yield, price and availability in a particular year. Thus, the group’s performance is exposed to these factors. The susceptibility is further compounded by the group’s low and volatile operating margin, which is exposed to sudden commodity price and forex fluctuations.
On account of low value-added business activities and high competition, the Gokul Agro group has historically had low and volatile operating margin, ranging between 1.7% and 2.6% over the last five years. While the group hedges against commodity and forex risk, its margin remains susceptible to sharp movements in forex or commodity prices. Though the operating margin will remain volatile, it is expected at around 2.5% over the medium term on account of cost-saving measures undertaken by the group. |
Liquidity: Adequate Liquidity is supported by optimum management of letter of credit maturity, healthy cash accrual against debt obligation and moderate bank limit utilisation. The company relies on significant letter of credit facilities to support the import of crude oil and domestic purchases. It ensures timely and adequate funds for servicing letter of credit through continued build-up of funds from sale proceeds. The usual bank balance and margin money fixed deposit balance of over Rs 330 crore as on March 31, 2023 (Rs 329 crore as on March 31, 2022) will cover the upcoming maturing letter of credit obligation. Bank limit utilisation (export packing credit) averaged 80% over the six months through May 2023. Net cash accrual, expected at Rs 150-200 crore per annum, will sufficiently cover yearly debt obligation of Rs 24-66 crore over the medium term. Current ratio was moderate at 1.3 times as on March 31, 2023. |
Outlook: Stable The Gokul Agro group will continue to benefit from the promoters’ extensive experience and established relationships with clients. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Group GARL came into existence following the demerger of Gokul Refoils and Solvent Ltd (GRSL). The demerger received approval and sanction from the High Court of Gujarat, with the effective date being July 01, 2015. GRSL started operations in 1982 as a partnership firm to carry out trading of sugar and edible oil, with Mr Kanubhai Thakkar and Mr Balvantsinh Rajput as its promoters. In 1992, the firm was incorporated as Gokul Refoils and Solvent Pvt Ltd. Over the years, it has expanded its refining capacity and has set up crushing and extraction facilities at different locations.
Operations of GARL are managed by Mr Kanubhai Thakkar and his family members. The Gokul Agro group has seed processing capacity of 3,200 TPD, DOC capacity of 1,000 TPD, oil refining capacity of 3,400 TPD, vanaspati manufacturing capacity of 200 TPD and castor derivative capacity of 100 TPD at its plant in Gandhidham.
GARL has a subsidiary, Maurigo Pte Ltd, and step-down subsidiary, Riya International Pte Ltd. These entities are based in Singapore and are engaged in procurement and supply for GARL. Their presence in Singapore eases procurement of crude oil by the group and lowers the borrowing cost. |
Key Financial Indicators (Consolidated)
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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 – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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