Rating Rationale
November 27, 2020 | Mumbai
Gujarat Ambuja Exports Limited
Ratings upgraded to 'CRISIL AA-/Stable/CRISIL A1+'
 
Rating Action
Total Bank Loan Facilities RatedRs.1016.4 Crore
Long Term RatingCRISIL AA-/Stable (Upgraded from 'CRISIL A+/Positive')
Short Term RatingCRISIL A1+ (Upgraded from 'CRISIL A1')
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has upgraded is ratings on the bank facilities of Gujarat Ambuja Exports Limited (GAEL) to 'CRISIL AA-/Stable/CRISIL A1+' from 'CRISIL A+/Positive/CRISIL A1'

The rating action reflects CRISIL's expectation of sustained improvement in GAEL's business profile with increasing contribution from the relatively stable and high margin maize processing segment, where the company enjoys a strong market position, and is further solidifying the same through capacity additions. Further, within the maize processing segment (52% of company's revenues in fiscal 2020), the proportion of high margin derivatives products (60% in fiscal 2020) is expected to further improve in fiscal 2021 with new derivatives capacities recently commissioned in Chalisgaon, Maharashtra. Overall, the maize processing division is expected to contribute to over 50% of GAEL's revenues in fiscal 2021, and register operating margins in excess of 15%, driving overall operating profitability to ~11% in fiscal 2021.

Additionally, the company's agro- processing segment is also performing better than expectation with favourable demand and realisations of edible oil. Overall, despite a tepid first quarter due to Covid pandemic, GAEL's revenues are expected to register flat revenues in fiscal 2021, and 8-10% revenue growth over the medium term, with steady growth across business segments. The company is also expected to focus only on profitable conversion orders in its cotton yarn business, and scale will continue to be modest.

Over next 2 years, the contribution from GAEL's maize division is expected to increase further with new capacity of 1000 tonne per day (TPD) coming up in Malda, West Bengal resulting the overall capacity rising to 4000 TPD, also leading to better  geographic reach and more stable and healthier operating margins. This, along with profitability focussed approach in agro processing division and ongoing initiative to enhance captive power capacity, will lead to operating profitability stabilising at 10-11% over the medium term. Earlier, in fiscal 2020, significant spike in maize prices due to lower crop as well as pest related issues, had affected operating profitability. However, the company managed to partly pass on the raw material volatility to customers (especially for domestic sales) limiting the impact of the same. Exports (contributing ~25-30% to overall revenues) however dropped significantly in fiscal 2020 which is expected to be normalise in fiscal 2021.

Company's financial risk profile remains comfortable with negligible long term debt and prudent funding of expansions in the recent past largely out of internal accruals. Besides, the steady annual cash accruals of Rs 250-300 crore, and disciplined working capital management have also enabled to keep overall debt levels under control, resulting in strong debt metrics, for instance, the ratio of net cash accrual to total debt and interest coverage ratio remained healthy at 1.48 times and 32.6 times for fiscal 2020. The company has healthy cash & cash equivalents of over Rs 150 crore as on September 30, 2020 while its bank lines remain moderately utilised, resulting in comfortable liquidity position. While the company has capital spending plan of ~Rs.450-500 crores spread over fiscals 2021-2023, the same is expected to be funded mainly from internal accruals with negligible reliance on long term debt, resulting in continued strong debt metrics.

The rating continues to reflect the company's established position in the maize-processing and edible oil refining segments, improving operating efficiencies and its comfortable financial risk profile. These rating strengths are partially offset by exposure to risks inherent in agricultural commodity businesses leading to volatility in revenue and profitability and weak performance of its yarn business.
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 maize processing and edible oil 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 25%. Maize division contributed 52% and 78% to GAEL's revenue and Earnings before Interest, Tax, Depreciation and Amortisation (EBITDA) respectively in fiscal 2020 and has registered at a cumulative aggregate growth rate (CAGR) of 15% over fiscals 2015-2020. GAEL offers a wide range of products such as starch, starch derivatives, and starch by products which find application in the food processing, pharmaceutical, paper, and textile industries. Further, addition of 1000 Tonnes per day (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. Further, within the maize processing, the proportion of high margin derivatives products (60% in fiscal 2020) is expected to further improve with new derivatives capacities recently commissioned in Chalisgaon, Maharashtra.

In the agro-processing division, the company primarily operates in the domestic market and sells soya edible 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. The revenues from agro-processing segment have grown at a CAGR of 4% from fiscal 2015 to 2020, while the operating margin has improved from ~0% to ~5% during this period, owing to company's focus on profitability.  

* Improving operating efficiencies and disciplined working capital management.
The company's operating profitability has been on increasing trend owing to increasing contribution from maize processing segment. The contribution from this business was 52% of total revenue in fiscal 2020, up from 29% in fiscal 2014. Operating margins in maize processing are around 17-18%. The increased contribution from maize processing division has improved the margins from 6.5% in fiscal 2013 to expected ~11% in fiscal 2021. Improving profitability has enabled healthy return on capital employed (RoCE) in the range of 13-18% in the past five fiscals. The utilisation of around 80% of the newly commissioned maize processing plant at Chalisgaon and increased share of derivatives in the maize segment are likely to support operating margins, offsetting volatility in operating margins of the agro processing division. Furthermore, with favourable demand for edible oil, currently margins from agro-processing division remains healthy. The company has its own warehouses as well as fleet and not on rent, unlike its competitors supporting the margins. Also most of company's processing plants are near to the raw material sources which reduces the freight costs and improves the operating efficiency.  

Additionally Also while the company needs to stock seeds, corn, and crude oil for further processing, the disciplined working capital management practices of the company has resulted in the gross current assets (GCA) days of 80-110 days over last six fiscals. The company stocks soya seeds during crushing season of October to December while maize is procured throughout the year.

* Comfortable financial risk profile
Steady cash generation and prudent funding of capital expenditure (capex) in addition to lower working capital requirement, have resulted in comfortable gearing of 0.11 time as on March 31, 2020. All the debt is short-term in nature to support working capital requirement. Over the last two years, with efficient working capital management, company has brought down the gross current asset (GCA) days to below 80 days in fiscal 2019 and fiscal 2020 compared to 109 days in fiscal 2018. Debt protection metrics are also healthy; interest coverage, net cash accrual to total debt and TOL/TNW ratios are expected to remain comfortable at around 57 times, 3.15 times and 0.5 time respectively in fiscal 2021 compared to 33 times, 1.48 times and 0.31 time respectively in fiscal 2020. ROCE to remain at 20% in fiscal 2021.

Going forward, annual cash accruals of Rs 320-350 crore, annual capex of Rs 100-150 crore and nil term loan repayments will keep dependence on short term borrowings lower. Company will be incurring this capex for the Malda plant and on upgradation of its power plants. Material increase in debt levels due to sizeable capex, acquisitions or elongation of working capital cycle will remain a monitorable.

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 (edible oil) 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. Over the past 6 years, operating margins for the agro processing division have ranged from 0-7%. Margins for the cotton yarn division have also remained volatile between losses of 4% to operating profit of 5%. Further, the demand-supply of soya bean oil and De-oiled cake (DOC) and cotton are affected by change in regulations in exporting and importing countries. Further, the operating profitability of the maize segment was also impacted in fiscal 2020 falling to 12.5% in 2020 from 18.5% in earlier fiscal owing to significant spike in maize prices due to lower crop as well as pest related issues.  However, the company managed to partly pass on the raw material volatility to customers (especially for domestic sales) limiting the impact of the same.

* Weak performance of cotton yarn business
The cotton yarn segment has been incurring losses over past few years. However this has not impacted the overall performance of the company as the share of this segment is relatively small (around 4%) to the overall revenue. Company has also entered back to back agreement with one of its client which will help to limit losses for the segment. Company could exit this business over the medium term.
Liquidity Strong

Liquidity is comfortable with expected cash accruals above Rs. 300 crore per annum and no term debt obligations over the medium term and very nominal term debt obligations, good cash surpluses and largely unutilised bank limits.   The repayment for the Rs 2 crore interest free long term loan is due only in fiscals 2024 and 2025. Planned capex of Rs 450-500 crore over next three fiscals is also expected to be funded through internal accruals. Company has cash and equivalents (including investments) of over Rs. 150 crores as on September 30, 2020. The company had fund based limits of Rs 753 crore which were utilized at 18% for the past 12 months ending September 2020.
Outlook: Stable

CRISIL believes GAEL will continue to benefit over the medium term from a strong market position in the maize business which is expected to improve further with addition of new capacities. The company is also expected to sustain its comfortable financial risk profile, supported by moderate capex and prudent working capital management, leading to low reliance on debt.

Rating Sensitivity Factors
Upward Factors
* Substantial increase in scale of operations and improvement in operating profitability backed by addition of maize processing capacity leading to annual cash accruals over Rs 700-800 crore
* Sustenance of healthy RoCE (>15%) and debt protection metrics, supported by moderate capex and prudent working capital management.

Downward Factors
* Operating profitability  significantly weaker-than-expected (below 7-7.5%), impacting cash accruals
* Significant impact on debt metrics and ROCE (< 10-11%), due to higher than expected debt levels on account of sizeable capex or elongation of working capital cycle (GCA beyond 150 days).
About the Company

GAEL was established in 1991 by late Mr Vijay Kumar Gupta, and is currently managed by his son, Mr Manish 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 65,520 spindles, is in Himatnagar.

In the six months of fiscal 2021, the company reported revenue of Rs 1818 crore and profit after tax of Rs 110 crore as against Rs 1919 crore and Rs 37 crore in the same period of previous fiscal.
Key Financial Indicators
Particulars Units 2020 2019
Revenue Rs crore 3819 4035
Profit After Tax (PAT) Rs crore 144 196
PAT Margins % 3.8 4.9
Adjusted debt/adjusted networth Times 0.11 0.18
Interest coverage Times 32.6 20.4

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)
ISIN Name of Instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs.Cr) Complexity level Rating Assigned with Outlook
NA Cash Credit* NA NA NA 438 NA CRISIL AA-/Stable
NA Proposed Fund-Based Bank Limits NA NA NA 166.4 NA CRISIL AA-/Stable
NA Export Packing Credit@ NA NA NA 377 NA CRISIL A1+
NA Foreign Letter of Credit$ NA NA NA 35 NA 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 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  981.40  CRISIL AA-/Stable/ CRISIL A1+      20-09-19  CRISIL A+/Positive/ CRISIL A1  30-04-18  CRISIL A+/Stable  16-01-17  CRISIL A+/Stable  CRISIL A+/Stable 
            10-01-19  CRISIL A+/Stable/ CRISIL A1           
Non Fund-based Bank Facilities  LT/ST  35.00  CRISIL A1+      20-09-19  CRISIL A1      16-01-17  CRISIL A1  CRISIL A1 
            10-01-19  CRISIL A1           
All amounts are in Rs.Cr.
 
Annexure - Details of Bank Lenders & Facilities
Facility Name of Lender Amount (Rs.Crore) Rating
Cash Credit* HDFC Bank Limited 300 CRISIL AA-/Stable
Cash Credit* ICICI Bank Limited 138 CRISIL AA-/Stable
Export Packing Credit@ Bank of India 171 CRISIL A1+
Export Packing Credit@ Union Bank of India 97 CRISIL A1+
Export Packing Credit@ YES Bank Limited 109 CRISIL A1+
Foreign Letter of Credit$ ICICI Bank Limited 35 CRISIL A1+
Proposed Fund-Based Bank Limits Not Applicable 166.4 CRISIL AA-/Stable

This Annexure has been updated on 8-Sep-2021 in line with the lender-wise facility details as on 10-Aug-2021 received from the rated entity.

*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 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

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
CRISILs Criteria for rating short term debt

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