Rating Rationale
September 25, 2018 | Mumbai
Haldiram Snacks Private Limited
'CRISIL AA+/Stable/CRISIL A1+' assigned to bank debt and NCD
Rating Action
Total Bank Loan Facilities Rated Rs.412.5 Crore
Long Term Rating CRISIL AA+/Stable (Assigned)
Short Term Rating CRISIL A1+ (Assigned)
Rs.75 Crore Non Convertible Debentures CRISIL AA+/Stable (Assigned)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has assigned its 'CRISIL AA+/Stable/CRISIL A1+' ratings to the bank facilities and non-convertible debenture (NCD) programme of Haldiram Snacks Private Limited (Haldiram Delhi group).
The ratings reflect the Haldiram Delhi group's strong market position in the high-growth savoury snack segment in north and east India, supported by its established brand name (Haldiram) and promoters' extensive experience and healthy operating efficiency. The ratings also factor in the group's comfortable financial risk profile, as reflected in healthy cash accrual, minimal dependence on long-term external debt, and adequate liquidity. These strengths are partially offset by susceptibility to volatility in raw material prices, and increasing competition in the savoury snack segment.

Consolidated turnover rose at a healthy compound annual rate of 16% over the last three fiscals, to about Rs 3,453 crore in fiscal 2018. The packaged food business (contributing 85% to group's turnover) recorded a healthy year-on-year growth of 11.5% in the first quarter of fiscal 2019. Product profile is diversified, comprising savoury snacks (mainly namkeen, chips, and extruded snacks), sweets, frozen foods, spices, and ready-to-eat and baked items. Operations are spread over six states in north and east India, and exports is to over 80 countries. Savoury snacks (the fastest growing packaged food category) accounts for 70% of sales; the Haldiram brand is the leader in this segment, with 18% market share in India. Furthermore, the brand's presence of over 80 years have helped introduce different product categories and diversify the revenue base. The group also has a robust restaurant business (contributing 15% to group's turnover), which grew at a compound annual rate of 10% in the last three fiscals. It currently has 53 outlets (owned and leased) in North India.

The promoters are third-generation entrepreneurs, with strong understanding of the underlying business drivers. Their extensive experience, focus on product innovation, continuous cost engineering, and efficient supply chain management have helped maintain healthy operating efficiency. This has helped the group clock industry leading growth and operating margins (20% in fiscal 2018) despite intensifying competition.

Analytical Approach

For arriving at the ratings, CRISIL has combined the business and financial risk profiles of HSPL and its group companies-Haldiram Manufacturing Pvt Ltd, Haldiram Ethnic Pvt Ltd, Haldiram Marketing Pvt Ltd, and Haldiram Products Pvt Ltd-as they are strategically important to HSPL's operations. The entities are collectively referred to as the Haldiram Delhi group herein.

Key Rating Drivers & Detailed Description
* Strong market position in the savoury snack segment
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; it is one of the largest category (market size of around Rs 8000 crore for PAN India) within savoury snacks, and is expected to grow at about 20% over the medium term.

Market position is underpinned by the strong brand equity and longstanding presence of the flagship brand (Haldiram), and the extensive experience of the promoters. The brand equity, and ability to localise the taste of products insulate the group from downturns in the fast-moving consumer goods (FMCG) sector. The diversified product portfolio has helped the group become one of the largest players in the savoury snack industry in north and east India, The group has a market share of 52%  in the namkeen segment in North and East India (market size of Rs 3446 crore). Product diversity is likely to improve gradually, with ramp-up in newer segments.

Geographic presence is diversified with distribution reach to 14.25 lakh retail outlets. Healthy growth prospects for the namkeen industry, strong demand for other snacks, and regular product launches are likely to help sustain annual growth of over 15-16% over the medium term.

The robust market position of the brand has helped Haldiram Delhi group establish a restaurant business with a strong supply-chain network with a scale of Rs 520 crore in fiscal 2018. The group is expected to add 8-10 restaurants in fiscal 2019, and revenue from the restaurant business is likely to grow 7-9% over the medium term.
* Healthy operating efficiency
Close monitoring of procurement, cost, and working capital position has helped maintain healthy operating efficiency, with return on capital employed (RoCE) of around 32% for fiscal 2018. Furthermore, the group has been able to drive growth through its strong network of 3,000 stockists, providing retail reach to about 14.25 lakh outlets. Benefits from a cost-effective and well-established sourcing strategy for raw materials persists. The group has been able to report strong growth despite low advertising cost of 1% of sales in fiscal 2018, among the lowest compared with peers. Working capital management is efficient, with debtors and inventory of around 8 and 15 days, respectively in fiscal 2018
* Robust financial risk profile
Financial risk profile is robust, driven by healthy and increasing cash generation in the vicinity of Rs 400 crore), and minimal dependence on long-term external borrowings, translating into comfortable credit metrics.
The group completed a sizeable capital expenditure (capex) of Rs 300 crore for capacity expansion in fiscal 2018, and is likely to incur capex of Rs 250 crore (funded through accrual) in fiscal 2019 towards setting up capacities in Greater Noida and adding retail stores. 
The fire incidence at one of the manufacturing facilities in Noida in September 2017 resulted in significant loss of physical assets and revenue. The group has invested around Rs 200 crore for restoration of the disrupted facility in fiscal 2018, and operations were normalised in April 2018. Due to adequate insurance coverage, the impact of the incident on financial risk profile is likely to be arrested. In fiscal 2018, the group received part of the Rs 125 crore of the estimated insurance claim loss, and will, likely, receive the remaining amount in fiscal 2019. Though exposure to the risk of receipt of claims persists, healthy cash generation, capital structure, and liquidity should ensure financial risk profile will not be constrained.
Liquidity is healthy, as reflected in minimal utilization of the working capital bank limit and a liquid surplus of over Rs 140 crore as on July 30, 2018.The company is expected to generate healthy cash accruals in the range of Rs 500-600 crore per annum, which will be sufficient to fund planned capex of around Rs 250 crore per fiscal and incremental working capital requirement. 
* Susceptibility to raw material price volatility
The key raw materials (palm oil, pulses, peanut, sugar, gram flour, and packaging material) comprise over 60% of costs. Their prices depend on geo-climatic conditions, international prices, and the domestic demand-supply situation. Hence, operating margin is partially susceptible to fluctuations in raw material prices. Focus on cost efficiencies and its continued price leadership should help mitigate the impact of volatility in raw material prices, though.

* Exposure to increasing competition in the packaged food industry:
Large companies with deep pockets in the food segment are enhancing investments in the savoury snack division, thereby constraining the margin of the rest of the players. Intense competition pressurises the ability of players to pass on any increase in raw material prices. Therefore, players need to regularly innovate, introduce differentiators and refreshes, and build on their reach and distribution to sustain market share and profitability. While the group has fairly been able to maintain its market position and pricing in the industry, intense competition persists from regional players and large companies.
Outlook: Stable

CRISIL believes the Haldiram Delhigroup will continue to maintain its healthy market position in the savoury snacks industry over the medium term, backed by strong brand and healthy growth outlook. Also, cash accrual should be more than sufficient to meet the capex, ensuring steady financial risk profile.

Upside scenario
* Significant improvement in revenue and sustenance of healthy operating efficiencies
* Improvement in product diversity, with market share gain in new categories and geographies
* Sustenance of the robust financial risk profile and liquidity

Downside scenario
* Substantial decline in operating margin, any large debt-funded capex, or an acquisition constraining financial risk profile, particularly liquidity

About the Group

HSPL, incorporated in 1983, is part of the Haldiram Delhi group, and manufactures sweets, namkeen, extruded snacks, frozen food, dairy, and syrups under the Haldiram brand. It started out as a namkeen company, and over the years, has diversified into other product categories. HSPL currently has more than 100 products that are marketed across north and east India and in more than 80 countries. It has manufacturing facilities in sectors 63, 68, 65, and 67 in Noida (Uttar Pradesh); Gurugram, Haryana; and Rudrapur, Uttarakhand. It also has 53 restaurants in Delhi, National Capital Region, Uttar Pradesh, and Haryana. 
Currently, the packaged food business contributes 85% to the group's turnover, wherein namkeen contributes 60% to the revenue while other savoury snacks, sweets, frozen foods, and exports contribute 12, 7, 4, and 9% respectively. Revenue contribution of the restaurant business is 15%.
The group is owned and managed by Mr Manoharlal Agrawal and Mr Madhusudan Agrawal.

Key Financial Indicators (Consolidated)
Particulars Unit 2018 2017
Revenue Rs crore 3453 3259
Profit after tax Rs crore 427 344
PAT margin % 8.2 6.5
Adjusted debt/Adjusted Networth Times 0.21 0.25
Interest coverage Times 51.5 29.3

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 (Rs crore) Rating Assigned
with Outlook
NA Term Loan NA NA May-20 38 CRISIL AA+/Stable
NA Working Capital Facility NA NA NA 95 CRISIL AA+/Stable
NA Working Capital Facility* NA NA NA 60 CRISIL AA+/Stable
NA Drop Line Overdraft Facility NA NA NA 100 CRISIL AA+/Stable
NA Working Capital Facility# NA NA NA 62 CRISIL AA+/Stable
NA Letter of Credit NA NA NA 50 CRISIL A1+
NA Stand by Letter of Credit NA NA NA 5 CRISIL AA+/Stable
NA Bank Guarantee NA NA NA 2.5 CRISIL A1+
INE603G07017 Non-Convertible Debentures 04-Dec-17 7.7% 04-Dec-20 75 CRISIL AA+/Stable
#Including non-Fund based BG of Rs.12 Crore
*Interchangeable to LC upto Rs.60 Crore
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Non Convertible Debentures  LT  75.00
CRISIL AA+/Stable    --    --    --    --  -- 
Fund-based Bank Facilities  LT/ST  435.50  CRISIL AA+/Stable    --    --    --    --  -- 
Non Fund-based Bank Facilities  LT/ST  57.50  CRISIL AA+/Stable/ 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
Working Capital Facility 95 CRISIL AA+/Stable -- 0 --
Working Capital Facility* 60 CRISIL AA+/Stable -- 0 --
Working Capital Facility# 62 CRISIL AA+/Stable -- 0 --
Term Loan 38 CRISIL AA+/Stable -- 0 --
Standby Letter of Credit 5 CRISIL AA+/Stable -- 0 --
Letter of Credit 50 CRISIL A1+ -- 0 --
Bank Guarantee 2.5 CRISIL A1+ -- 0 --
Drop Line Overdraft Facility 100 CRISIL AA+/Stable -- 0 --
Total 412.5 -- Total 0 --
#Including non-Fund based BG of Rs.12 Crore
*Interchangeable to LC upto Rs.60 Crore
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Bank Loan Ratings

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