| Haldiram Snacks Private Limited | ||||||
| Long-term rating continues on 'Watch Developing’; short-term rating reaffirmed | ||||||
| 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 continued its rating on the long-term bank loan facilities of Haldiram Snacks Private Limited (HSPL; part of the Haldiram Delhi group) on ‘Rating Watch with Developing Implications’ while reaffirming the short term rating at ‘CRISIL A1+’.
The ratings have been placed on watch following proposed re-organisation of the group. The proposed transaction involves demerger of the fast moving consumer goods (FMCG) business of HSPL and Haldiram Foods International Pvt Ltd (HFIPL; part of the Haldiram Nagpur group) into a newly incorporated entity named Haldiram Snacks Foods Private Ltd (HSFPL), wherein existing shareholders of HSPL and HFIPL would acquire 56% and 44% shareholding respectively. Post completion of said transaction, HSFPL would undertake the FMCG operations of the entire Haldiram group. At present, the approval from Competition Commission of India (CCI) has been received and transaction is likely to take 12-18 months subject to other necessary statutory and regulatory approvals
The ratings continue to reflect the group’s -popular market position in the high-growth -savoury snack segment in India supported by its quality and trusted brand, Haldiram’s, and the extensive experience of the promoters. The ratings also factor in the group’s healthy operating efficiency and comfortable financial risk profile, as reflected in adequate cash accrual, negligible external borrowing and healthy liquidity. These strengths are partially offset by susceptibility to volatility in raw material prices and exposure to intense competition. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of HSPL and its group companies, Haldiram Manufacturing Company Pvt Ltd, Haldiram Ethnic Foods Pvt Ltd, Haldiram Marketing Pvt Ltd, Ankita Agro and Food Processing Pvt Ltd and Haldiram Products Pvt Ltd as the entities are strategically important. These are collectively referred to as the Haldiram Delhi group.
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: Strong market position in the salted snack segment The salted snack segment is the biggest driver of HSPL, with over 75% revenue earned through this segment.
The product profile is diversified, comprising snacks, namkeen, sweets, ready to eat / pre-mix food, frozen food, biscuits, non-carbonated ready to drink beverages, pasta, etc. The group has diverse presence in India and exports to various countries outside India, including the United states of America and Europe. Furthermore, presence of over 80 years has helped introduce products in different categories and diversify revenue. Brand equity and the ability to localise the taste of products relatively insulate the group from downturns in the fast-moving consumer goods sector.
The group has a strong distribution network. Healthy growth prospects for the namkeen industry, strong demand for snacks, increasing distribution reach and regular product launches will help sustain revenue growth in fiscal 2024.
Supported by a robust market position and strong supply-chain network, the group has established its restaurant business (12% of turnover). It has multiple outlets (owned and leased) in north India.
Healthy operating efficiency Close monitoring of procurement, cost and working capital has helped maintain healthy operating efficiency, reflected in return on capital employed (RoCE) of over 15% in the past three fiscals. Furthermore, the group’s strong distributor network helps drive growth. The group will continue to benefit from its cost-effective and established sourcing strategy for raw materials. Furthermore, the group’s working capital cycle is efficiently managed, as reflected in historically healthy receivables and inventory of 9-11 days and 22-24 days respectively.
Robust financial risk profile The financial risk profile is supported by healthy cash accrual and negligible borrowing. Strong cash accrual of Rs 550-650 crore per annum is expected to remain sufficient to fund any planned capex and incremental working capital requirement. The group does not have any major capex plans over the medium term. Gearing was stable at 0.05 time as on March 31, 2022 and is estimated to remain at similar levels going further.
Weaknesses: Susceptibility to volatility in raw material prices The key raw materials (palm oil, pulses, peanuts, sugar, gram flour and packaging material) account for over 60% of cost. Their prices depend on geoclimatic conditions, global prices and domestic demand-supply situation. Hence, profitability is partly susceptible to fluctuations in raw material prices. However, focus on cost efficiency and continued price leadership should help mitigate the impact of volatility in raw material prices.
Exposure to intense competition in the packaged food industry: Large companies, with deep pockets, in the food segment are increasing investment in the savoury snacks division, constraining the profitability of players such as HSPL. Intense competition constrains the ability to pass on increase in raw material prices. Therefore, players have to regularly innovate, introduce differentiators and refreshes, and build on their reach and distribution to sustain market share and profitability. While the group has been able to effectively compete and engage in competitive pricing, competition from organized and unorganized players persist. |
Liquidity: Strong Liquidity will remain strong over the medium term. Healthy cash accruals of Rs 550-650 crores per annum expected to remain sufficient against nil debt obligation. Company does not have any external borrowing Liquidity is cushioned by the cash surplus of over Rs 400 crore as on March 31, 2023. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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About the Group as snacks, namkeen, sweets, ready to eat / pre-mix food, frozen food, biscuits, non-carbonated ready to drink beverages, pasta, vermicelli, macaroni, etc. under the brand, Haldiram’s. It started out as a namkeen company and diversified into other product categories. HSPL markets more than 100 products across India and exports to various countries. It has manufacturing facilities in Noida, Uttar Pradesh, and Rudrapur, Uttarakhand; and a captive solar plant in Hardoi, Uttar Pradesh. Also, multiple restaurants including in National Capital Region, Uttar Pradesh, Punjab and Haryana are being operated under different group companies.
The packaged foods business contributes 85% to the group’s turnover, while the restaurant business contributes 15%. The group is owned and managed by Mr Manohar Lal Agrawal and Mr Madhu Sudan Agrawal. |
Key Financial Indicators (Standalone)
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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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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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