Rating Rationale
May 06, 2021 | Mumbai
Iscon Balaji Foods Private Limited
'CRISIL BBB+/Stable/CRISIL A2' assigned to Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.163.53 Crore
Long Term RatingCRISIL BBB+/Stable (Assigned)
Short Term RatingCRISIL A2 (Assigned)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has assigned its ‘CRISIL BBB+/Stable/CRISIL A2’ ratings to the bank facilities of Iscon Balaji Foods Private Limited (IBF).

 

The rating reflect IBFPL's established market position in potato-related business supported by extensive experience of promoters, favourable location of plant., and healthy operating profitability coupled with moderate debt protection metrics. These strength are partially offset by its working capital intensive operations, exposure to risks related to ongoing project and moderately leveraged capital structure.

Analytical Approach

CRISIL has treated unsecured loan from promoters and their family member’s unto Rs 13.5 crore has been treated as 75 percent equity and remaining has been treated as debt. It is subordinate to bank debt and expected to remain in the business over the medium term.

Key Rating Drivers & Detailed Description

Strengths:

  • Established market position in potato-related business supported by extensive experience and funding support of promoters: IBF has an established presence in potato-based products such as potato flakes, frozen french fries and other ready-to-fry snacks. Overall operations are overseen by Mr. Neel Kotak who is IIT Bombay Alumnus and various professionals with extensive experience in each division.IBF is owned and managed by the promoters of JP Iscon Pvt. Ltd. (known as Iscon Group in real estate), Balaji Wafers Pvt. Ltd. (BWPL) (represented by the Virani family) and Mr. Neel Kotak and his family members. IBF was incorporated to leverage on BWPL expertise in potato processing industry.

 

The promoters has supported the business operations as reflected in unsecured loan of Rs. 48 crore as on 31st March 2020. Going ahead in case of any exigencies promoters are expected to support the operations.

 

Over the years IBF has created a moderate brand presence in frozen potato food market and among one of the larger players in this segment. Its customers include some of the well established players in various industries such as Balaji Wafers Pvt. Ltd, Haldiram Foods Pvt. Ltd., Haldiram Snacks Pvt. Ltd., Bikaji Foods International Ltd., McCain India Food Pvt. Ltd. etc.

 

  • Favourable location of plant: The company manufacturing facilities are based in Gujarat and Punjab, areas with high potato acreage and quality crop, which provides easy access to quality raw material and contract farmed potatoes from local farmers. Also, the company benefits in terms of infrastructure and logistics, such as established cold storage, adequate power availability, lower transportation cost, and accessibility to ports for exports.

 

  • Healthy operating profitability coupled with moderate debt protection metrics: Healthy operating profitability of about 16 percent for past two years ended fiscal 2020, though have declined from levels upwards of 25 percent earlier. It is on account of presence in niche segment of french fries and potato flakes where there are entry barriers and is among one of the larger players in this segment. Debt protection metrics remained moderate with interest cover and NCAAD of about 3.14 times and 0.22 times respectively as on 31st, March, 2020. Going ahead inspite of debt funded capex the debt protection metrics are expected to remain at similar levels.

 

Weakness:

  • Working capital intensive operations: Gross current assets were at 250-280 days over the three fiscals ended March 31, 2020. It is majorly driven by inventory levels of 200-250 days.  Potato season generally ends in April, the company is required to start stocking potatoes from February to meet the requirements for the entire year. The inventory levels are higher at year end and working capital requirements also remain high. 

 

  • Exposure to risks related to upcoming project: The Company is coming up with a new plant in Sabarkantha district of Gujarat for french fries with estimated cost of Rs. 210 crore. The French fries unit capacity will be increased to 14 mtpa from 4 mtpa presently. Timely completion, funding and successful stabilization of its operations at the new unit will remain a key rating sensitivity factor.

 

  • Moderately leveraged capital structure: Capital structure is moderate as reflected in moderate gearing of about 1.21 times and high TOLTNW of about 2.56 times respectively as on 31st, March, 2020.  TOLTNW is reflecting higher on account of higher year end creditors. The company is coming up with a new plant for french fries, hence capital structure is expected to remain levered.

Liquidity: Adequate

The company has adequate liquidity backed by sufficient accruals against repayment obligations and moderately high bank limit utilization. The company is expected to generate annual accruals of Rs.25-30 crore which shall cover the repayment obligations of Rs 8-10 crore. The group has access to fund based limits of Rs.89.95 crore which supported the group’s working, capital intensive operations, were utilized at around 77 percent over the 13 months ended Jan, 2021. Further liquidity is supported by unsecured loan from promoters and their family members of Rs. 48 crore as on 31st, March, 2020 and would provide further support in case of any exigencies. Current ratio remains modest at about 1.28 times as on 31st, March, 2020. The company is coming up with huge debt funded capex for french fries hence part of internal accruals would be utilized for the said. Hence working capital management and timely support from promoters if required would remain a key monitorable.

Outlook: Stable

CRISIL Ratings believe IBF will continue to benefit from the extensive experience of its promoter, and established relationships with clients.

Rating Sensitivity factors

Upward Factors

  • Improvement in debt protection metrics and capital structure
  • Sustained healthy growth in revenue upwards of 20 percent led by stabilization of enhanced capacities coupled with stable operating profitability

 

Downward Factors

  • Gearing above 2.5 times because of higher than expected debt funded capex.
  • Significant decline in return on capital employed.

About the Company

Incorporated in 2012, IBF is engaged in production of dehydrated potato flakes and ready-to-fry snacks such as french fries, burger patty, potato cheese shots, chilly garlic potato shots, aloo tikki, herbed potato wedges etc. IBFPL has three manufacturing facilities located in Gujarat and Punjab. The Company is managed by Mr. Neel Kotak.

Key Financial Indicators

Particulars

Unit

2020

2019

Revenue

Rs.Cr

234.99

155.22

Profit After Tax (PAT)

Rs.Cr

16.1

12.9

PAT margins

%

6.86

8.32

Adjusted Debt/Adjusted Networth

Times

1.48

1.27

Interest coverage

Times

3.05

3.57

 

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)

Complexity level

Rating assigned with outlook

NA

Cash Credit

NA

NA

NA

99.95

NA

CRISIL BBB+/Stable

NA

Long term loan

NA

NA

Nov-2025

40.39

NA

CRISIL BBB+/Stable

NA

Letter of Credit

NA

NA

NA

5.00

NA

CRISIL A2

NA

Bank Guarantee

NA

NA

NA

2.00

NA

CRISIL A2

NA

Foreign Exchange

Forward

NA

NA

NA

6.19

NA

CRISIL A2

NA

Proposed Fund- Based Bank Limits

NA

NA

NA

10.00

NA

CRISIL BBB+/Stable

 

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 156.53 CRISIL BBB+/Stable / CRISIL A2   --   --   --   -- --
Non-Fund Based Facilities ST 7.0 CRISIL A2   --   --   --   -- --
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
Bank Guarantee 2 CRISIL A2 - - -
Cash Credit 99.95 CRISIL BBB+/Stable - - -
Foreign Exchange Forward 6.19 CRISIL A2 - - -
Letter of Credit 5 CRISIL A2 - - -
Long Term Loan 40.39 CRISIL BBB+/Stable - - -
Proposed Fund-Based Bank Limits 10 CRISIL BBB+/Stable - - -
Total 163.53 - Total 0 -
Criteria Details
Links to related criteria
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Fast Moving Consumer Goods Industry
The Rating Process
Understanding CRISILs Ratings and Rating Scales
CRISILs Bank Loan Ratings

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