| Heritage Foods Limited | ||||||
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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 |
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| This Rating Rationale is published solely to update the bank-wise facility details as provided by the rated entity; other sections are same as the previous Rating Rationale dated January 06, 2023. |
Detailed Rationale CRISIL Ratings’ ratings on the bank facilities of Heritage Foods Limited (HFL; a part of the Heritage group) continue to reflect its strong market position of the Heritage group in the dairy business, well-established distribution network, prudent working capital management and healthy financial risk profile. These strengths are partially offset by exposure to volatility in milk prices, geographic concentration in revenue and regulatory changes and susceptibility to regulatory changes and epidemic-related factors inherent in the dairy industry.
CRISIL Ratings had upgraded the ratings on the long-term bank facilities of HFL to 'CRISIL A+/Stable’ from 'CRISIL A/Positive’ while reaffirming the ‘CRISIL A1’ rating on the short-term facilities on January 06, 2023. |
Analytical Approach CRISIL Ratings has considered the consolidated financials of HFL and its subsidiaries, Heritage Nutrivet Ltd (HNL; formerly, Heritage Foods Retail Ltd), Heritage Farmers Welfare Trust and Heritage Employees Welfare Trust. This is because all these entities, collectively referred to as the Heritage group, are under the same management and have significant business and financial linkages. CRISIL Ratings has also proportionately consolidated its joint venture (JV), Heritage Novandie Foods Pvt Ltd (HFNPL), and its associate, SKIL (Raigam) Power India Ltd (SKIL), to the extent of its shareholding in these entities; to reflect the support required to the extent of its interests in these businesses.
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 HFL is one of the largest private dairies in South India with processing capacity of 2.65 million litre per day. It enjoys significant presence in Andhra Pradesh, Telangana, Karnataka and Tamil Nadu. The company has a wide product portfolio that it has been expanding with product launches marketed through distributors and exclusive Heritage distribution centres and Heritage parlours. The 28-year-long experience of the promoters and their healthy relationships with the customers and farmers should continue to support the business.
Prudent working capital management Working capital cycle is likely to remain efficiently managed over the medium term. Gross current assets (GCAs) were 39 days as on March 31, 2022, because of modest inventory and receivables of 30 days and 3 days, respectively. The GCAs are expected at 40-45 days over the medium term.
Strong financial risk profile Networth was large at Rs 652 crore as on March 31, 2022, because of high accretion to reserves and is estimated to improve further to Rs 720-750 crore by March 31, 2023. Gearing and total outside liabilities to tangible networth ratio were healthy at 0.02 time and 0.38 time, respectively, as on March 31, 2022, and are likely to remain stable over the medium term. Despite sizeable, annual debt-funded capital expenditure, capital structure is expected to remain comfortable over the medium term due to healthy cash accrual. Low reliance on external borrowing led to robust debt protection metrics, with interest coverage and net cash accrual to total debt ratios of 35 times and 9.62 times, respectively, in fiscal 2022
Weakness: Exposure to volatility in milk prices and geographic concentration in revenue Profitability remains susceptible to fluctuations in milk prices while realisations are further impacted by volatility in global skimmed milk powder prices. Given the intense competition, ability to pass on the increase in prices to customers is limited. Also, though HFL is present in 11 states, 75-85% of its revenue accrues from 4-5 states, which exposes it to high geographical concentration.
Susceptibility to regulatory changes and epidemic-related factors Milk prices are sensitive to any change in government policies and environmental conditions, which have a direct impact on the operating margins of dairy product manufacturers. Dairies are also vulnerable to risks of failure in milk production on account of cattle diseases. |
Liquidity: Strong Net cash accrual, expected at Rs 128-172 crore per fiscal, will sufficiently cover yearly debt obligation of Rs 2-4 crore, over the medium term. Bank limit utilisation was almost nil over the 12 months through October 2022. Moderate unencumbered cash and bank balances also support liquidity. |
Outlook: Stable The credit risk profile of the Heritage group has improved because of substantial reduction in debt, expected to sustain over the medium term. |
Rating Sensitivity Factors Upward factors
Downward factors
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About the Group HFL was incorporated in 1992 by Mr Nara Chandra Babu Naidu. The Hyderabad-based Heritage group, of which HFL is a part, sells milk and dairy products under the Heritage brand. The group also has captive solar and wind power plants with installed capacity of 10.5 megawatt. It ventured into organised retail in 2006 by opening stores under the Heritage Fresh brand. On March 31, 2017, the group demerged its retail business undertakings consisting of retail (136 stores spread across 4.81 lakh square feet), agri and bakery divisions to Future Retail Ltd (FRL). After the demerger, HFL held a 3.65% stake in FRL, which was entirely liquidated in fiscal 2021. The company is listed on the Bombay Stock Exchange and the National Stock Exchange.
HNL was incorporated in 2008; however, there were no operations until 2016. In November 2016, HFL transferred its retail undertaking (retail, agriculture and bakery divisions) and veterinary care businesses to HNL. On March 31, 2017, the retail undertakings were demerged from HNL and were transferred to FRL. HNL manufactures and sells cattle feed.
SKIL is an affiliate of HFL and is completing a hydel power project. HFNPL was incorporated as a 50:50 JV between HFL and Novandie SNC, France, in November 2017 to manufacture value-added products, particularly yogurt.
For the 6 months through September 2022, the group reported consolidated revenue and profit after tax (PAT) of Rs 1,637 crore and Rs 26.3 crore, respectively, against Rs 1,318 crore and Rs 63 crore, respectively, in the corresponding period previous fiscal |
Key Financial Indicators - Consolidated
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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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This Annexure has been updated on 09-Jan-2023 in line with the lender-wise facility details as on 25-Aug-2021 received from the rated entity.
Criteria Details
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