Rating Rationale
September 20, 2019 | Mumbai
Gujarat Ambuja Exports Limited
Rating outlook revised to 'Positive'; ratings reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.1016.4 Crore
Long Term Rating CRISIL A+/Positive (Outlook revised from 'Stable' and rating reaffirmed)
Short Term Rating CRISIL A1 (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has revised its outlook on the long term bank facilities of Gujarat Ambuja Exports Limited (GAEL) to 'Positive' from 'Stable' while reaffirming the rating at 'CRISIL A+'. The short term rating has been reaffirmed at 'CRISIL A1'.

The outlook revision takes into account improving business profile of GAEL with increasing contribution from relatively stable and high margin maize processing segment owing to capacity addition in this segment in fiscal 2019. The maize processing segment is expected to contribute more than 50% to the total revenue with steady margin of 15-17% by fiscal 2021.

The growth of 19% year on year (y-o-y) in the overall revenues for fiscal 2019 has mainly contributed to commissioning of maize processing facility at Chalisgaon, Maharashtra in March 2018. From third quarter of fiscal 2020, Chalisgaon facility will start manufacturing of value added maize derivatives, which will further support profitability. Also, the company is undergoing capex at the new facility in Malda, West Bengal which will further add 750 TPD capacity for the maize processing segment which is expected to increase the contribution from maize segment over medium term.

The overall operating margin remained stable in fiscal 2019 at 9.4%. In fiscal 2020, the operating margin is expected to moderate marginally to 8.6 ' 9.0% owing to higher prices of corn presently which are expected to moderate from October with start of new season.

Further, GAEL's financial risk profile continues to be healthy with absence of any long term debt and healthy cash accruals of over Rs 250 crore. The debt protection metrics has remained comfortable as the capital expenditure (capex) requirements as well as incremental working capital requirements have been funded largely from internal accruals, while its bank lines are moderately utilised, resulting in comfortable liquidity position. Over next 3 fiscals, the company is expected to carry out capex of around Rs 400 crore, which is expected to be funded out of internal accrual.

The rating continues to reflect the company's established position in the edible oil refining and maize-processing segments, diversified revenue profile and its healthy financial risk profile, and comfortable liquidity position. These rating strengths are partially offset by exposure to risks inherent in agricultural commodity businesses leading to volatility in revenue and profitability, weak performance of its yarn business, 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 47% and 81% to GAEL's revenue and Earnings before Interest, Tax, Depreciation and Amortisation (EBITDA) respectively in fiscal 2019 and has grown at a Cumulative Aggregate Growth Rate (CAGR) of 16.2% over fiscals 2014-2019. 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 750 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.

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 47% of total revenue in fiscal 2019, up from 29% in fiscal 2014. Operating margins in maize processing are around 16%. The increased contribution from maize processing division has improved the margins from 6.5% in fiscal 2013 to 9.4% in fiscal 2019. The utilisation of around 80% of the newly commissioned maize processing plant at Chalisgaon has help the company maintain operating margins, offsetting volatility in operating margins in agro processing division. Sustenance of operating margins at over 8.5% over the medium term would be a key rating sensitivity factor.
 
* Healthy 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 0.18 time as on March 31, 2019 as compared to 0.63 times as on March 31, 2018. All the debt is short-term in nature to support working capital requirement. Going forward, annual cash accruals of Rs 300-350 crore, annual capex of Rs 100 crore and nil term loan repayments will keep dependence on short term borrowings lower.

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 13 times, 0.88 times and 0.4 times respectively in fiscal 2020.
 
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.

 * 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 6%) to the overall revenue.
 
* 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. However 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.

Liquidity: Strong
Liquidity is comfortable with expected cash accruals of Rs. 300 crore per annum over next 2 fiscals sufficient with no term debt obligation over the medium term. Planned capex of Rs 400 crore over next three fiscals is also expected to be funded through internal accruals. Company has cash and equivalents (including investments) of Rs. 32 crores as on March 31, 2019. The company had fund based limits of Rs 925 crore which were moderately utilized at 31% for the past 12 months ending August 2019.
Outlook: Positive

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 as well as healthy financial profile owing to steady cash accruals and low dependence on external debt

Rating Sensitivity Factors
Upward Factor
* Continued increase in revenue share of maize processing segment, supported by additional capacity, leading to overall operating profitability being sustained at about 8.5- 9.5%
Sustenance of improved working capital cycle i.e. inventory days at about 50-70 days
* Sustenance of healthy RoCE and debt protection metrics.

 Downward Factor
* Operating profitability significantly weaker-than-expected (below 6.5%) leading to lower cash accruals
* Higher than expected debt funded capital expenditure, including for funding project overruns, or elongation of working capital cycle (GCA beyond 150 days), adversely impacting credit metrics.

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 three months of fiscal 2020, the company reported revenue of Rs 1011 crore and profit after tax of Rs 23 crore as against Rs 804 crore and Rs 53 crore in the same period of previous fiscal.

Key Financial Indicators
Particulars Units 2019 2018
Revenue Rs crore 4035 3366
Profit After Tax (PAT) Rs crore 196 178
PAT Margins % 4.9 5.3
Adjusted debt/adjusted networth Times 0.18 0.63
Interest coverage Times 20.4 18.0
 

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 513.0 CRISIL A+/Positive
NA Proposed Fund-Based Bank Limits NA NA NA 91.4 CRISIL A+/Positive
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 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
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+/Positive/ CRISIL A1  10-01-19  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  10-01-19  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* 513 CRISIL A+/Positive Cash Credit* 588 CRISIL A+/Stable
Export Packing Credit@ 377 CRISIL A1 Export Packing Credit@ 377 CRISIL A1
Foreign Letter of Credit$ 35 CRISIL A1 Foreign Letter of Credit$ 35 CRISIL A1
Proposed Fund-Based Bank Limits 91.4 CRISIL A+/Positive Proposed Fund-Based Bank Limits 16.4 CRISIL A+/Stable
Total 1016.4 -- Total 1016.4 --
*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 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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