Rating Rationale
January 10, 2019 | Mumbai
Gujarat Ambuja Exports Limited
Rating Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.1016.4 Crore
Long Term Rating CRISIL A+/Stable (Reaffirmed)
Short Term Rating CRISIL A1 (Reassigned)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its rating on the long-term bank facilities of Gujarat Ambuja Exports Limited (GAEL) at 'CRISIL A+/Stable' and reassigned its 'CRISIL A1' rating on the short-term bank facilities. 
 
During first six months ended 30th September 2018, GAEL posted revenue growth of 8% over corresponding period of the last fiscal backed by healthy growth in maize processing segment and operating margin improved to 10.9% as against 6.1% in the corresponding period last year. The increase in operating margin was on account of higher realisations of starch and its derivative (Rs. 26-27 per kg against Rs 21-22 per kg earlier) and change in revenue mix. Margins are expected to sustain over the medium term with higher realizations and increasingcapacity utilisation.
 
CRISIL also takes into accountapplication filed by Delta Global Resources Private Limited (Delta) before National Company Law Tribunal, Ahmedabad filed on December 24, 2018 seeking payment of past dues worth Rs. 1.25 crores. The plea is yet to be admitted by NCLT.The company has, in its response to the exchanges, stated that the matter is a pre-existing commercial dispute with Delta and GAEL had also filed a civil suit against Delta for recovery of amounts as per its books of accounts. Further, GAEL has sufficient cash & bank balances to settle the dues and this event is not expected to impact the financial risk profile of the company. CRISIL will closely monitor the developments and will take an appropriate rating action, if required.
 
The ratingscontinue reflect the company's established position in the edible oil refining and maize-processing segments, diversified revenue profile and its strong financial risk profile because of a healthy capital structure and robust debt protection metrics. These rating strengths are partially offset by exposure to risks inherent in agricultural commodity businesses leading to volatility in revenue and profitability, and working capital-intensive operations.

Analytical Approach

For arriving at the ratings, the business and financial risk profile of GAEL is assessed as a standalone entity.

Key Rating Drivers & Detailed Description
Strengths
* Established position in the edible oil and maize processing business
GAEL is one of the established players in agro and maize processing in India. The company is the largest player in maize processing with a capacity of 3000 tons crushed per day (TCD) and market share of 21%. Maize division contributed 40% and 57% to GAEL's revenue and Earnings before Interest, Tax, Depreciation and Amortisation (EBITDA) respectively in fiscal 2018 and has grown at a Cumulative Aggregate Growth Rate (CAGR) of 18% over fiscals 2013-2018. GAEL offers a wide range of products such as starch, starch derivatives, and starch bye products which find application in the food processing, pharmaceutical, paper, and textile industries. Further, addition of 1000 tpd maize processing capacity through new green field project in Malda, West Bengal is expected to enhance the scale of GAEL's operations over the medium term.

In the agro-processing division, the company primarily operates in the domestic market and sells soya oil and deoiled cakes. Customers of GAEL in the agro and maize processing include some of the leading names in the industry such as ITC Ltd (ITC, rated 'CRISIL AAA/Stable/CRISIL A1+'), Cargill India Pvt. Ltd ('CRISIL A1+'), BL Agro Oils Ltd, Agro Tech Foods Ltd ('CRISIL AA-/Stable/CRISIL A1+'), and Godrej Agrovet Ltd.

* Diversified revenue profile
The company's diversification into maize processing improved the revenue profile and helped improve overall operating margins. The contribution from this business was 39% of total revenue in fiscal 2017, up from 30% in fiscal 2014. Operating margins in maize processing are around 15%. The increased contribution from maize processing division has improved the margins from 6.5% in fiscal 2013 to 9.5% in fiscal 2018. The full ramp up of the newly commissioned maize processing plant at Chalisgaon in March 2018 is expected to help the company maintain operating margins around 9-10% going forward offsetting volatility in operating margins in agro processing division. Sustenance of operating margins at over 9% over the medium term would be a key rating sensitivity factor.
 
* Strong financial risk profile
Steady cash generation and prudent funding of capital expenditure (capex) have resulted in comfortable gearing, expected around 0.5 times as on March 31, 2019 as compared to 0.63 times as on March 31, 2018. A significant portion of the debt is short-term in nature to support working capital requirement. Debt protection metrics are also adequate; interest coverage and net cash accrual to total debt ratios are expected to remain comfortable estimated at around 13.55 times and 0.40 times in fiscal 2019.

Weakness
* Exposure to inherent risks in the agricultural commodity business
Operations are exposed to the inherent risks associated with the agriculture-based commodity business, such as availability of raw materials, fluctuations in prices, and changes in government regulations. For instance, the solvent extraction business is exposed to availability of soya bean seeds in domestic market as well as the international prices of degummed soya oil and crude palm oil that are imported. Further, the demand-supply of soya bean oil and De-oiled cake (DOC) and cotton is affected by change in regulations in exporting and importing countries. For instance, during fiscal 2015, exports and operating margins of company's De-Oiled Cakes (DOC) declined by 82% and 28 basis points (bps) yoy respectively as global soybean prices declined to USD 360-370 per tons, against Indian soymeal prices of USD 500 making Indian exports uncompetitive.
 
* Working capital intensive operations
Operations of GAEL are working capital intensive due to the need to stock seeds, corn, and crude oil for further processing. Working capital requirement peaks during the soya crushing season of October to December. Maize is procured throughout the year. The company has access to fund-based and non-fund-based limits up to Rs. 1000 crore which had an average utilization of 40% for the last 6 months ended December, 2018. Liquidity is supported by company's high cash accruals, low term debt repayments and moderate capital expenditure plans.
Outlook: Stable

CRISIL believes GAEL will continue to benefit over the medium term from a strong market position in the maize and edible oil business, leading to steady cash generation.
 
Upside scenario
* Continued growth in revenue while achieving sustained improvement in operating profitability ' leading to improvement in return on capital employed and debt protection metrics.
 
Downside scenario
* Operating profitability is significantly weaker-than-expected leading to lower cash accruals
* Substantial increase in working capital requirement or higher than expected debt funded capital expenditure adversely impacting credit metrics.
 
Liquidity
Liquidity is adequate with expected cash accruals of Rs. 250 crore per annum over next 2 fiscals sufficient for repayment obligations of Rs. 7.24 croresfor fiscal 2019 and fiscal 2020.  Planned capex is also expected to be funded through internal accruals over fiscals 2019 and 2020. Company has cash and equivalents (including investments) of Rs. 33 crores as on Jan 05, 2019.

About the Company

GAEL was established in 1991 by late Mr Vijay Kumar Gupta. The company manufactures refined oil (mainly soya bean oil) and de-oiled cakes (DOC); maize products such as starch, glucose, sorbitol, dextrose monohydrate powder, and maltose dextrine powder (obtained through wet corn milling technology); and cotton yarn.
 
It has solvent extraction facilities in Kadi, Gujarat, Akola, Maharashtra, and Pithampur and Mandsour, both in Madhya Pradesh, with a total seed-crushing capacity of 1.32 million tonne per annum (mtpa) and refining capacity of 0.39 mtpa. The company has maize processing capacities of 3000 tonne per day in Himatnagar, Gujarat, Sitarganj, Uttarakhand, Hubli, Karnataka and Chalisgaon, Maharashtra. Its cotton yarn spinning unit, with capacity of 74,160 spindles, is in Himatnagar.
 
For six months ended Septemer 30, 2018, GAEL reported revenue of Rs. 1580 crores (Rs. 1466 crores as on September 30, 2017) and Profit After Tax (PAT) of Rs. 86 crores (Rs. 38 crores as on September 30, 2017).

Key Financial Indicators
Particulars Unit 2018 2017
Revenue Rs crore 3366 3333
Profit after tax (PAT) Rs crore 178 157
PAT margin % 5.3 4.7
Adjusted debt/adjusted networth Times 0.63 0.75
Interest coverage Times 17.9 7.9

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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)
ISIN Name of Instrument Date of Allotment Coupon Rate Maturity Date Issue Size Rating Assigned with Outlook
NA Cash Credit* NA NA NA 588.0 CRISIL A+/Stable
NA Proposed Fund-Based Bank Limits NA NA NA 16.4 CRISIL A+/Stable
NA Export Packing Credit@ NA NA NA 377 CRISIL A1
NA Foreign Letter of Credit$ NA NA NA 35 CRISIL A1
*Limits can be used interchangeably with Letter of Credit, Export Packing Credit/Pre-shipment Credit in Foreign Currency, Export bills, Working Capital Demand Loan, Trade credit for imports, Bank Guarantee, Vendor finance, Customer Finance, FCNR, Import Letter of Credit
@ Limits can be used interchangeably with Cash Credit, Pre-shipment Credit in Foreign Currency, Export bills, Working Capital Demand Loan, Trade credit for imports, Bank Guarantee, Vendor finance, Customer Finance, FCNR, Letter of Credit
$ Fully Interchangeable with Bank Guarantee
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  981.40  CRISIL A+/Stable/ CRISIL A1      30-04-18  CRISIL A+/Stable  16-01-17  CRISIL A+/Stable      CRISIL A+/Stable 
Non Fund-based Bank Facilities  LT/ST  35.00  CRISIL A1    --    --  16-01-17  CRISIL A1      CRISIL A1 
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit* 588 CRISIL A+/Stable Cash Credit# 1000 CRISIL A+/Stable
Export Packing Credit@ 377 CRISIL A1 Cash Credit# 60 Withdrawn
Foreign Letter of Credit$ 35 CRISIL A1 Proposed Fund-Based Bank Limits 16.4 CRISIL A+/Stable
Proposed Fund-Based Bank Limits 16.4 CRISIL A+/Stable -- 0 --
Total 1016.4 -- Total 1076.4 --
*Limits can be used interchangeably with Letter of Credit, Export Packing Credit/Pre-shipment Credit in Foreign Currency, Export bills, Working Capital Demand Loan, Trade credit for imports, Bank Guarantee, Vendor finance, Customer Finance, FCNR, Import Letter of Credit
#Limits can be used interchangeably with Letter of Credit, Export Packing Credit/Pre-shipment Credit in Foreign Currency, Export bills, Working Capital Demand Loan, Trade credit for imports, Bank Guarantee, Vendor finance, Customer Finance, FCNR
@ Limits can be used interchangeably partly with Cash Credit, Pre-shipment Credit in Foreign Currency, Export bills, Working Capital Demand Loan, Trade credit for imports, Bank Guarantee, Vendor finance, Customer Finance, FCNR, Letter of Credit
$ Fully interchangeable with Bank Guarantee
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
CRISILs Criteria for rating short term debt

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