Rating Rationale
August 30, 2018 | Mumbai
KSE Limited
Ratings Reaffirmed
Rating Action
Total Bank Loan Facilities Rated Rs.63 Crore
Long Term Rating CRISIL A-/Stable (Reaffirmed)
Short Term Rating CRISIL A2+ (Reaffirmed)
Rs.10 Crore Fixed Deposits FA/Stable (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed ratings on the bank facilities of KSE Limited (KSE) at 'CRISIL A-/Stable/CRISIL A2+' and on its fixed deposits at 'FA/Stable'.
The rating continues to reflect KSE's steady business risk profile, supported by growth in revenue and increase in profitability, on account of benefits derived from lower input prices. Revenue rose about 24.5% year-on-year, to Rs 1,304.1 crore in fiscal 2018, supported largely by higher realisation in cattle feed, which contributes about 85% to the overall turnover. Profitability increased to 8.4% in fiscal 2018 from 2.9% the previous fiscal, backed by lower prices of key input materials, including maize, rice bran, and wheat. Since the company enjoys strong bargaining power because of its premium quality, selling price has remained stable, resulting in significant increase in operating profit. As a result, cash accrual rose to Rs 61.6 crore in fiscal 2018. KSE is planning to invest this cash in developing manufacturing facilities in Karnataka to further penetrate the market. Nevertheless, CRISIL believes that with a correction in input prices, profitability may decline over the medium term.
Financial risk profile remains robust, with total outside liabilities to tangible networth (TOLTNW) likely to be at 0.5 time over the medium term. The capital expansion project, to be undertaken over the next two years, will be entirely funded through accrual, and is not expected to have any major impact on the capital structure. Additionally, healthy profitability metrics and prudent working capital management are likely to support key financial metrics over the medium term.
The ratings reflect KSE's established regional market position in the cattle feed industry, and healthy financial risk profile. These strengths are partially offset by susceptibility to volatile raw material prices, and intense competition.

Key Rating Drivers & Detailed Description
* Established market position: KSE is a leader in the cattle feed segment, with a healthy market share in Kerala. Strong, exclusive distribution network of more than 600 dealers, high-quality products, and efficient customer support through services such as on-call veterinary doctor should help maintain the market position. Revenue grew at a compound annual rate of 13% in the three years through fiscal 2018, backed by strong cattle field sales. Established market position and penetration into new geographies will, likely, ensure steady growth in revenue.
* Healthy financial risk profile: Financial risk profile is healthy, with moderate networth of Rs 143.78 crore and low TOLTNW of 0.6 time as on March 31, 2018. Interest coverage was healthy at 79 times in fiscal 2018.
* Susceptibility to intense competition and volatility in raw material prices: The cattle feed industry in Kerala is highly competitive, with the presence of state-run players such as Kerala Feeds Ltd and Kerala Co-operative Milk Marketing Federation Ltd. Ability to improve volumes and realisation is dependent on milk prices and movement in the prices of raw materials. The state government indirectly regulates milk prices via state co-operatives, and is usually reluctant to increase the rates because of the social aspect of milk and its effect on food inflation. Rise in input costs for a dairy farmer, in the form of high cattle-feed prices, without commensurate increase in realisation, will discourage cattle feed purchase, especially from premium players such as KSE.
Outlook: Stable

CRISIL believes KSE will continue to benefit from its established regional market position. The outlook may be revised to 'Positive' if sustained improvement in revenue and stable operating margin strengthen business risk profile. Conversely, the outlook may be revised to 'Negative' if a decline in revenue, profitability, and cash accrual, or stretch in working capital cycle weakens key credit metrics.

About the Company

KSE (formerly, Kerala Solvent Extractions Ltd) was set up by the late Mr K L Francis, the late Mr T O Paul, the late Mr P V Devassy, and Mr M C Paul in 1963 as a closely held public limited company. It manufactures cattle feed, and undertakes milk-processing and solvent-extraction. KSE is the leader in the cattle feed industry in Kerala, with a share of more than one-third of the market. It also has presence in Tamil Nadu and Karnataka. The company is listed on the Bombay Stock Exchange.

Key Financial Indicators
Particulars Unit 2018 2017
Revenue Rs. Cr. 1304.1 1047.2
Profit After Tax Rs. Cr. 69.63 16.36
Profit After Tax Margin % 5.3 1.6
Adjusted Debt/Adjusted Net worth Times 0.31 0.45
Interest coverage Times 78.8 13.1

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 cr) Rating assigned with outlook
NA Cash credit NA NA NA 60 CRISIL A-/Stable
NA Cash management service NA NA NA 1.5 CRISIL A2+
NA Proposed long term bank loan facility NA NA NA 1.5 CRISIL A-/Stable
NA Fixed Deposits NA NA NA 10 FA/Stable
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
Fixed Deposits  FD  10.00  FA/Stable      31-08-17  FA/Stable  05-10-16  FA/Negative  08-07-15  FA/Stable  FA/Stable 
Fund-based Bank Facilities  LT/ST  63.00  CRISIL A-/Stable/ CRISIL A2+      31-08-17  CRISIL A-/Stable/ CRISIL A2+  05-10-16  CRISIL A-/Negative/ CRISIL A2+  08-07-15  CRISIL A-/Stable/ CRISIL A1  CRISIL A-/Stable/ 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
Cash Credit 60 CRISIL A-/Stable Cash Credit 60 CRISIL A-/Stable
Cash Management Service 1.5 CRISIL A2+ Cash Management Service 1.5 CRISIL A2+
Proposed Long Term Bank Loan Facility 1.5 CRISIL A-/Stable Proposed Long Term Bank Loan Facility 1.5 CRISIL A-/Stable
Total 63 -- Total 63 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Criteria for rating short term debt

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