Rating Rationale
September 30, 2021 | Mumbai

Hatsun Agro Product Limited

Rating Action

Total Bank Loan Facilities Rated

Rs.1505 Crore

Long Term Rating

CRISIL A+/Positive

Short Term Rating

CRISIL A1

1 crore = 10 million   

Refer to annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings ratings on the facilities of Hatsun Agro Product Limited (HAP) continue to reflect the 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.

 

On August 27, 2021 CRISIL Ratings has revised the outlook on the long term bank facilities of HAP’s to 'Positive' from 'Stable' while reaffirming the long term rating at 'CRISIL A+' and short term rating at 'CRISIL A1'.

Key Rating Drivers & Detailed Description

Strengths:

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

HAP 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 54 percent in fiscal 2021 from around 67 percent 5 years earlier. Product diversification is marked by revenues from milk at around 60 percent in fiscal 2021 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.4500-5600 crore over the last 4 fiscals ended March 2021.

 

  • Healthy operating efficiency backed by established procurement and distribution network

HAP owns over 12,000 procurement centers covering around 14000 villages, with chilling and dairy units across its key operating markets. This enables it to reach out to over 3.5 lakh farmers. Further the company has an established network of through its network of around 3500 own distribution outlets.

 

  • Strong financial risk profile

HAP’s networth is strong at around Rs.1000 crore for fiscal 2021 while gearing is comfortable at around 1.4 times on the same date. The debt protection metrics continue to be robust, with interest coverage and net cash accrual to total debt ratio of more than 7 times and net cash accrual to total debt ratio of over 30 percent fiscal 2021. 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. HAP’s board approved raising Rs.900 crore through a qualified institutional placement in fiscal 2021, this amount was reduced to Rs.700 crore in July 2021. Proceeds from the same will bolster the net worth, and strengthen the leverage metrics.

 

Weaknesses:

  • Exposure to risks related to entry into new geographies

HAP 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.

Liquidity: Strong

Liquidity is likely to remain strong over the medium term. Cash accrual is projected at Rs 500-550 crore annually for the next two fiscals against yearly maturing debt of around Rs 300 crore. Average utilisation on the working capital facilities was less than 50 percent over the 12 months ended May 2021. Cash and cash equivalent was at around Rs.40 crore as on March 31, 2021 and  is expected to remain healthy over the medium term. Dividends are likely to remain similar to that seen in previous fiscals.

Outlook: Positive

CRISIL believes HAP‘s business risk profile shall continue to improve over the medium term along with a sustained improvement in the financial risk profile.

Rating Sensitivity factors

Upward factors

  • Sustainability of operating profitability at around 11-12%
  • Geographical diversification in revenue profile

 

Downward factors

  • Decline in revenues and margins, resulting in cash accruals less than Rs 350 crore
  • Higher than expected debt funded capital expenditure resulting in deterioration in TOLTNW to over 2.5 times

About the Company

HAP 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, Maharashtra and Telangana. Popular brands include Arokya milk; Arun ice creams; HAP 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. HAP is listed on the National Stock Exchange and BSE Ltd.

Key Financial Indicators

As on / for the period ended March 31

 

2021

2020

Operating income

Rs crore

5599

5337

Reported profit after tax

Rs crore

246

112

PAT margins

%

14.0

10.4

Adjusted Debt/Adjusted Net worth

Times

1.41

1.34

Interest coverage

Times

7.1

5.28

 

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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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 Cr)

Complexity

Level

Rating Assigned

with Outlook

NA

Cash Credit

NA

NA

NA

110

NA

CRISIL A+/Positive

NA

Long Term Loan

NA

NA

Dec-27

956.83

NA

CRISIL A+/Positive

NA

Working Capital Demand Loan

NA

NA

NA

350

NA

CRISIL A+/Positive

NA

Proposed Working Capital Facility

NA

NA

NA

88.17

NA

CRISIL A1

 

Annexure - Rating History for last 3 Years
  Current 2021 (History) 2020  2019  2018  Start of 2018
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT/ST 1505.0 CRISIL A+/Positive / CRISIL A1 27-08-21 CRISIL A+/Positive / CRISIL A1 24-06-20 CRISIL A+/Stable / CRISIL A1 14-03-19 CRISIL A+/Stable / CRISIL A1 19-12-18 CRISIL A+/Stable / CRISIL A1 CRISIL A1 / CRISIL A/Stable
      --   --   --   -- 29-06-18 CRISIL A1 / CRISIL A/Stable --
      --   --   --   -- 06-06-18 CRISIL A/Stable --
Non-Fund Based Facilities ST   --   --   --   -- 29-06-18 CRISIL A1 CRISIL A1
      --   --   --   -- 06-06-18 CRISIL A1 --
Commercial Paper ST   --   --   -- 14-03-19 Withdrawn 19-12-18 CRISIL A1 CRISIL A1
      --   --   --   -- 29-06-18 CRISIL A1 --
      --   --   --   -- 06-06-18 CRISIL A1 --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities    
Facility Amount (Rs.Crore) Rating
Cash Credit 50 CRISIL A+/Positive
Cash Credit 60 CRISIL A+/Positive
Long Term Loan 30.54 CRISIL A+/Positive
Long Term Loan 30 CRISIL A+/Positive
Long Term Loan 33.5 CRISIL A+/Positive
Long Term Loan 51.42 CRISIL A+/Positive
Long Term Loan 152.57 CRISIL A+/Positive
Long Term Loan 276.25 CRISIL A+/Positive
Long Term Loan 292.5 CRISIL A+/Positive
Long Term Loan 59.87 CRISIL A+/Positive
Long Term Loan 16.85 CRISIL A+/Positive
Long Term Loan 13.33 CRISIL A+/Positive
Proposed Working Capital Facility 88.17 CRISIL A1
Working Capital Demand Loan 50 CRISIL A+/Positive
Working Capital Demand Loan 75 CRISIL A+/Positive
Working Capital Demand Loan 40 CRISIL A+/Positive
Working Capital Demand Loan 85 CRISIL A+/Positive
Working Capital Demand Loan 50 CRISIL A+/Positive
Working Capital Demand Loan 50 CRISIL A+/Positive
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 Criteria for rating short term debt

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