Rating Rationale
August 31, 2017 | Mumbai
KSE Limited
Rating outlook revised to 'Stable'; ratings reaffirmed
Rating Action
Total Bank Loan Facilities Rated Rs.63 Crore
Long Term Rating CRISIL A-/Stable (Outlook revised from 'Negative' and rating reaffirmed)
Short Term Rating CRISIL A2+ (Reaffirmed)
Rs.10 Crore Fixed Deposits FA/Stable (Outlook revised from 'Negative' and rating reaffirmed) 
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has revised its outlook on the long-term bank facilities and fixed deposits of KSE Limited (KSE) to 'Stable' from 'Negative' and reaffirmed the ratings at 'CRISIL A-/FA'. The rating on the short-term bank facilities has been reaffirmed at 'CRISIL A2+'.
The rating revision reflects improvement in KSE's operating performance, driven by better-than-expected operating margin in fiscal 2017 and in the first quarter of fiscal 2018. Consequently, cash accrual increased to Rs 18.9 crore in fiscal 2017 from Rs 4.1 crore the previous fiscal. Operating margin improved to 2.7% in fiscal 2017 and 3.8% in the first quarter of fiscal 2018, due to decline in input costs in the cattle feeds segment and improved selling price for oil cakes. Revenue benefits from diversification into the oil cake and dairy segments. Business risk profile is expected to remain stable, and financial risk profile healthy over the medium term.
The ratings also reflect KSE's established regional market position in the cattle feeds 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 feeds segment, with a market share of over 33%. 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 market position. Revenue grew at a compound annual rate of 9% in the three years through fiscal 2017, backed by strong cattle field sales. Established market position and improvement in demand should help maintain steady revenue growth.

* Healthy financial risk profile: Financial risk profile is healthy with moderate networth of Rs 87 crore and low gearing of 0.5 time as on March 31, 2017. Interest coverage was healthy at 13 times in fiscal 2017.
* Susceptibility to intense competition and to volatility in raw material prices: The cattle feed industry in Kerala is highly competitive, with state-run players such as Kerala Feeds Ltd and Kerala Co-operative Milk Marketing Federation Ltd. Ability to improve volumes and realisations is critically dependent on milk prices and movement in prices of raw materials, namely rice bran and coconut oil cake. The state government indirectly regulates milk prices via state co-operatives and is usually reluctant to increase milk prices because of the social aspect of milk and its effect on food inflation. An increase in input costs for the dairy farmer in the form of high cattle-feed prices without a commensurate increase in milk realisations will discourage cattle feed purchase, especially from premium players such as KSE.
Outlook: Stable

CRISIL believes KSE will maintain 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 revenue, profitability and cash accrual decline, or if there is a stretch in working capital cycle.  

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. The company is the leader in the cattle feeds industry in Kerala, with a share of more than one-third of the market.

Key Financial Indicators
Particulars Unit 2017 2016
Revenue Rs. Cr. 1048 925
Profit After Tax Rs. Cr. 15.6 7.6
PAT margin % 1.5 0.8
Adjusted Debt/Adjusted Net worth Times 0.5 0.2
Interest coverage Times 13 9.3

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 2017 (History) 2016  2015  2014  Start of 2014
Instrument Type Quantum Rating Date Rating Date Rating Date Rating Date Rating Rating
Fixed Deposits  FD  10  FA/Stable    No Rating Change  05-10-16  FA/Negative    No Rating Change  29-09-14  FA/Stable  -- 
Fund-based Bank Facilities  LT/ST  63  CRISIL A-/Stable/ CRISIL A2+    No Rating Change  05-10-16  CRISIL A-/Negative/ CRISIL A2+  08-07-15  CRISIL A-/Stable/ CRISIL A1  29-09-14  CRISIL A-/Stable/ CRISIL A2+  CRISIL BBB+/Stable/ CRISIL A2 
Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release.
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 51 CRISIL A-/Negative
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 10.5 CRISIL A-/Negative
Total 63 -- Total 63 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Criteria for rating Short-Term Debt (including Commercial Paper)

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