| Haldiram Snacks Private Limited | ||||||
| Ratings reaffirmed at 'CRISIL AA+ / Stable / CRISIL A1+ '; rated amount enhanced for Bank Debt | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AA+/Stable/CRISIL A1+’ ratings on the bank facilities of Haldiram Snacks Private Limited (HSPL; part of the Haldiram Delhi group).
HSPL is estimated to register modest revenue growth of 10-11% in fiscal 2021 driven by increased demand for packaged foods and snacks. The packaged foods business (contributing 85% to the group’s turnover) recorded healthy growth in the first half of fiscal 2021 on account of increased in-home consumption of savoury snacks and namkeen. Revenue is expected to rise at a compound annual growth rate (CAGR) of 15-17%between fiscals 2021-2023, driven by greater distribution reach and product launches, while the operating margin will be stable at 15-17%. The company may also undertake inorganic growth, which will be funded prudently. Any large, debt-funded acquisition or acquisition in non-core business segments will be a key monitorable.
The financial risk profile will remain robust due to healthy cash accrual of Rs 550-600 crore in fiscal 2021 and gearing declining from 0.25 time in fiscal 2017 to 0.1 time in fiscal 2022. HSPL plans to invest Rs 250-300 crore for capacity expansion, which will likely be funded through internal cash accrual. Despite this capital expenditure (capex), net cash accrual to adjusted debt ratio is expected to improve to 1.8 times in fiscal 2022 from 1.2 times in fiscal 2020. Furthermore, cash and equivalent are expected to be maintained over Rs 200 crore, in the absence of any large capex or acquisition, over the medium term. Assumption of debt for capex or investment in unrelated segment will remain key monitorables.
The ratings continue to reflect the group’s strong market position in the high-growth savoury snack segment in north and east India, supported by its established brand, Haldiram, and the promoters’ extensive experience. The ratings also factor in the group’s healthy operating efficiency and comfortable financial risk profile, as reflected in adequate cash accrual, negligible long-term external debt 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, Pragati Snacks pvt ltd and Haldiram Products Pvt Ltd, as they are strategically important. The companies 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:
The group has a strong market position in the savoury snack segment, with leadership in the namkeen division. The namkeen/traditional snacks segment accounted for 60% of the packaged foods’ turnover, and is expected to grow 20% over the medium term.
The product profile is diversified, comprising savoury snacks (mainly namkeen, chips and extruded snacks), sweets, frozen foods, spices, and ready-to-eat and baked items. The group has presence in almost all states in north and east India, and exports to over 80 countries. Haldiram is a leading brand in the savoury snacks segment, with 31% market share in traditional snacks in India. 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 insulate the group from downturns in the fast-moving consumer goods (FMCG) sector.
The company has diverse geographic presence, reflected in 90 super stockists, 3,200 distributors and more than 15 lakh retail outlets. Healthy growth prospects for the namkeen industry, strong demand for other snacks, increasing distribution reach and regular product launches will help sustain growth at 15-17%per annum over the medium term.
Supported by robust market position and strong supply-chain network, the group has established a restaurant business (15% of turnover). It has multiple outlets (owned and leased) in north India. Revenue from the restaurant business is expected to grow 7-9% over the medium term.
Close monitoring of procurement, cost and working capital position has helped maintain healthy operating efficiency, reflected in return on capital employed (RoCE) of 21% for fiscal 2020. Furthermore, the group’s strong network of 3,200 stockists and 15 lakh retail outlets drive growth. It will continue to benefit from its cost-effective and established sourcing strategy for raw materials. The group reported strong growth despite low advertising cost of 1% of sales (among the lowest compared with peers) in fiscal 2020. Working capital management is efficient, with receivables and inventory at 19 days and 10 days, respectively, as on March 31, 2020.
The financial risk profile is supported by healthy and increasing cash generation, and low long-term borrowing. HSPL is estimated to have annual cash accruals of Rs 550-600 crore in fiscal 2021, further improving to over Rs 700 crore by fiscal 2023. The group is estimated to complete sizeable capex of Rs 400 crore for capacity expansion in fiscal 2021, and is likely to incur capex of Rs 250-300 crore in fiscals 2022-23 for capacity addition and general maintenance as well as small acquisitions of around Rs 50-70 crore as seen in the past with size expected to remain similar going forward. Gearing is expected to remain stable around 0.2 time for fiscal 2021 and further improve going forward.
Weaknesses:
The key raw materials (palm oil, pulses, peanuts, sugar, gram flour and packaging material) account for over 60% of cost. Their prices depend on geo-climatic conditions, international prices and the domestic demand-supply situation. Hence, profitability is partially 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.
Large companies, with deep pockets, in the food segment are increasing investment in the savoury snacks division, constraining the profitability of other players. Intense competition constrains the ability to pass on any 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 maintain its market position and pricing, intense competition from regional players and large companies persists. |
Liquidity: Strong Liquidity will remain strong over the medium term. Cash accrual is expected at Rs 550-600 crore from fiscal 2021 against debt obligation of Rs 50-60 crore. Bank limit was moderately utilised at 19% on average for the 12 months through December 2020. Liquid funds stood at Rs 219 crore as on March 31, 2020. |
Outlook: Stable CRISIL Ratings believes the Haldiram Delhi group will maintain its healthy market position in the savoury snacks industry over the medium term, backed by strong brand and healthy growth prospects. Also, cash accrual will comfortably cover capex, ensuring stable financial risk profile. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Group Incorporated in 1989, HSPL manufactures sweets, namkeen, extruded snacks, frozen food, dairy and syrups under the brand, Haldiram. It started out as a namkeen company, and has diversified into other product categories over the years. HSPL has more than 100 products marketed across north and east India and exports to more than 80 countries. It has manufacturing facilities in Noida, Uttar Pradesh, and Rudrapur, Uttarakhand; and a solar power plant in Hyderabad, Telangana & also have captive Solar Plant at Hardoi, U.P. It also has multiple restaurants in the National Capital Region, Uttar Pradesh, Punjab and Haryana under different group companies.
The packaged foods business contributes 85% to the group’s turnover, wherein namkeen contributes 60% while the restaurant business contributes 15%. The group is owned and managed by Mr Manoharlal Agrawal and Mr Madhusudan Agrawal.
For the six months ended September 30, 2020, HSPL, on standalone basis, reported provisional earnings before interest, tax, depreciation and amortization (EBITDA) of Rs 322 crore on operating income of Rs 1,840 crore. |
Key Financial Indicators (standalone)
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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)
#including non-fund based BG of Rs 12 crore *Interchangeable to LC up to Rs 25 crore |
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 various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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