Rating Rationale
January 17, 2023 | Mumbai
Hatsun Agro Product Limited
Rating Reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.1605 Crore
Long Term RatingCRISIL AA-/Stable (Reaffirmed)
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 Rating has reaffirmed its rating on the bank facilities of Hatsun Agro Product Limited (Hatsun) at CRISIL AA-/Stable.

 

The ratings on the bank facilities of Hatsun continue to reflect a leading market position in the dairy sector supported by strong brand, particularly in South India, healthy operating efficiency backed by established procurement and distribution networks and a diversified product portfolio. The ratings also consider a strong financial risk profile with comfortable capital structure and robust debt protection metrics. These strengths are partially offset exposure to risks related to entry into new geographies and susceptibility to changes in environmental conditions which could impact availability of milk.

Key Rating Drivers & Detailed Description

Strengths:

Established market position supported by strong brand, particularly in South India

Hatsun is the largest private sector dairy company in India, with a portfolio of established brands, superior brand equity, well-spread distribution and procurement networks, and an aggressive marketing strategy.  Over the last 5 years the company has been diversifying geographically with revenues from Tamil Nadu reducing to around 55 percent in fiscal 2022 from around 67 percent 5 years earlier. Product diversification is marked by revenues from milk at around 58 percent in fiscal 2022 as against over 70 percent in fiscal 2016. Strong market position in the milk segment is cemented by widespread presence in South India, with majority of the processing units located across Tamil Nadu. HAP’s established market position is reflected in its turnover of around Rs.4500-6410 crore over the last 4 fiscals ended March 2022.

 

Healthy operating efficiency backed by established procurement and distribution network

Hatsun owns over 10,000 milk banks covering around 10,000 villages, with chilling and dairy units across its key operating markets. This enables it to reach out to over 4 lakh farmers. Further the company has an established network of through its network of around 3500+ own distribution outlets.

 

Strong financial risk profile

Hatsun’s networth is strong at around Rs.1092 crore for as on March 31, 2022 while gearing is comfortable at around 1.56 times as on March 31, 2022. Debt protection metrics is expected to remain strong with expected interest coverage of around 6-8 times over the medium term with debt reduction plan with proceeds from the rights issue. Financial risk profile is expected to remain strong over the medium term aided by moderation in debt funded capital expenditure and sustainability of operating profitability. Hatsun has also announced a rights issue for Rs 300 crore in fiscal 2023; which is in the process. Usage of the funding is expected to be majorly towards term debt reduction and remaining is expected to create a buffer for any funding requirements for general business purpose. Proceeds from this rights issue is likely to support the capital structure of the company over the medium term.

 

Weakness:

Exposure to risks related to entry into new geographies

Hatsun plans to widen its procurement network to Andhra Pradesh, Telangana, and Maharashtra; apart from penetrating further into Tamil Nadu and Karnataka. Since capital investment is planned across divisions, marketing costs and other manufacturing overheads could be high. Further, intense competition from established players operating in newer geographies may continue to constrain scalability, pricing power, and profitability.

 

Susceptibility to changes in environmental conditions

Prices of key products, milk and skimmed milk powder, have fluctuated in the past, owing to droughts and supply constraints. Susceptibility to failure in milk production because of external factors such as cattle diseases also impact the business. Also, higher rainfalls in the last quarter in Tamil Nadu and other southern states dented the ice cream sales, leading to lower margins for the company. As a result, impact of weather conditions and further Covid mutations leading to lockdowns could constrain revenue growth and profitability.

Liquidity: Superior

Liquidity is likely to remain superior over the medium term. Cash accrual is projected at Rs 400 crore annually for the next two fiscals against yearly maturing debt of around Rs 300-320 crore. Average utilisation on the working capital facilities was less than 35 percent over the 12 months ended October 2022. Cash and cash equivalent was at around Rs.57.25 crore as on September 30, 2022 and is expected to remain healthy over the medium term. Dividends are likely to remain similar to that seen in previous fiscals. The ongoing Rs.300 crore rights issue supports the company’s liquidity, allowing for a quick funding support for any exigent needs as well as funding support for repayment of term loans availed from various banks.

Outlook: Stable

CRISIL Ratings believes Hatsun’s business risk profile shall continue to remain strong while financial risk profile will continue to witness sustainable improvement.

Rating Sensitivity Factors

Upward factor

  • Sustained improvement in topline and operating profitability sustained at above 10.5% with improved contribution from value added products
  • Sustenance of financial metrics and improvement and sustenance of TOLTNW at healthy levels.

 

Downward factor

  • Decline in revenues or profitability, resulting in cash accruals of less than Rs 300 crore
  • Higher than expected debt funded capital expenditure resulting in deterioration in TOLTNW to more than 2.3 times

About the Company

Hatsun was incorporated by Mr R G Chandramogan in 1986. The Chennai-based company processes over 40 lakh litres of milk and milk products daily, with strong market presence in Tamil Nadu. It has 20 processing facilities across Tamil Nadu, Andhra Pradesh, Karnataka, and Telangana and Maharashtra. Popular brands include Arokya milk; Arun ice creams; Hatsun curd, ghee, and butter; and an ice-cream chain under the Ibaco brand and Santosa Cattle Feed. The company has also entered into the ready-to-eat category, with a pizza chain under the Oyalo brand which is discontinued as on March 31, 2022. Hatsun is listed on the National Stock Exchange and BSE Ltd

 

For the 6 months through September 2022, the company reported revenue and profit after tax (PAT) of Rs 3,762 crore and Rs 94 crore, respectively, against Rs 3,167 crore and Rs 140 crore, respectively, in the corresponding period previous fiscal

Key Financial Indicators

As on/for the period ended March 31

Unit

2022

2021

Operating income

Rs crore

6,370.36

5,600.06

Reported profit after tax

Rs crore

217.91

246.35

PAT margins

%

3.42

4.40

Adjusted Debt/Adjusted Networth

Times

1.56

1.41

Interest coverage

Times

6.79

7.10

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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. 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)

Complexity

level

Rating assigned

with outlook

NA

Cash Credit

NA

NA

NA

90

NA

CRISIL AA-/Stable

NA

Term Loan

NA

NA

June-2027

1230

NA

CRISIL AA-/Stable

NA

Working Capital Demand Loan

NA

NA

NA

285

NA

CRISIL AA-/Stable

Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 1605.0 CRISIL AA-/Stable   -- 01-03-22 CRISIL A1+ / CRISIL AA-/Stable 30-09-21 CRISIL A+/Positive / CRISIL A1 24-06-20 CRISIL A+/Stable / CRISIL A1 CRISIL A+/Stable / CRISIL A1
      --   -- 15-02-22 CRISIL A1+ / CRISIL AA-/Stable 27-08-21 CRISIL A+/Positive / CRISIL A1   -- --
Commercial Paper ST   --   --   --   --   -- Withdrawn
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 40 State Bank of India CRISIL AA-/Stable
Cash Credit 50 HDFC Bank Limited CRISIL AA-/Stable
Term Loan 141.25 IndusInd Bank Limited CRISIL AA-/Stable
Term Loan 345.25 The Hongkong and Shanghai Banking Corporation Limited CRISIL AA-/Stable
Term Loan 224 ICICI Bank Limited CRISIL AA-/Stable
Term Loan 107.54 Kotak Mahindra Bank Limited CRISIL AA-/Stable
Term Loan 53.33 Shinhan Bank CRISIL AA-/Stable
Term Loan 80 The Federal Bank Limited CRISIL AA-/Stable
Term Loan 50 Mizuho Bank Limited CRISIL AA-/Stable
Term Loan 16.64 Axis Bank Limited CRISIL AA-/Stable
Term Loan 45 Bank of Bahrain and Kuwait B.S.C. CRISIL AA-/Stable
Term Loan 166.99 HDFC Bank Limited CRISIL AA-/Stable
Working Capital Demand Loan 75 HDFC Bank Limited CRISIL AA-/Stable
Working Capital Demand Loan 60 State Bank of India CRISIL AA-/Stable
Working Capital Demand Loan 50 The South Indian Bank Limited CRISIL AA-/Stable
Working Capital Demand Loan 50 YES Bank Limited CRISIL AA-/Stable
Working Capital Demand Loan 50 The Federal Bank Limited CRISIL AA-/Stable

This Annexure has been updated on 17-Jan-2023 in line with the lender-wise facility details as on 15-Feb-2022 received from the rated entity.

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 Bank Loan Ratings
The Rating Process
CRISILs Criteria for rating short term debt
Understanding CRISILs Ratings and Rating Scales

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