| Kovilpatti Lakshmi Roller Flour Mills Limited | ||||||
| Rating outlook revised to 'Negative'; Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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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 |
Detailed Rationale CRISIL Ratings has revised its outlook on the long-term bank facilities of Kovilpatti Lakshmi Roller Flour Mills Limited (KLRFML) to ‘Negative’ from ‘Stable’ while reaffirming the rating at ‘CRISIL BBB’. Further, CRISIL Ratings has reaffirmed its ‘CRISIL A3+’ rating on the short-term bank facilities of the firm.
The change in outlook pertains to the weaker than expected business performance in the current fiscal. The total operating income for FY25 H1 is around Rs. 209 crores with a lower operating margin of around 1.32 percent. This is due to higher COGS (cost of goods sold) from the food division which has resulted in lower overall margins for the company. However, the same is expected to improve in FY25 H2 with improvement in overall gross margins and cost cutting measures by the company. The financial risk profile remains moderate, however with the reduced margins the interest cover ratio for FY2025 is expected to be around 1.8 to 2 times and expected to improve in the medium term with improvement in the operating margins which will be key monitorable.
The rating continues to reflect KLRFML's extensive industry experience of the promoters, moderate working capital cycle and moderate financial profile. These strengths are partially offset by its susceptibility to climatic conditions and susceptibility of operating margin to volatility in raw material prices. |
Analytical Approach CRISIL Ratings has evaluated the standalone business and financial risk profiles of KLRFML |
Key Rating Drivers & Detailed Description Strengths: Extensive industry experience of the promoters: The promoters have experience of over 40 years in the agriculture and engineering division industry. This has given them an understanding of the dynamics of the market and enabled them to establish relationships with suppliers and customers.
Moderate working capital cycle: Gross current assets are at 80-100 days over the three fiscals ended March 31, 2024. Its moderate working capital management is reflected in its debtors and inventory days of 20 and 60 as on 30, Sep,2024. It is required to extend the long credit period in line with the industry standards. As the customers are small and medium-sized player who require credit. Furthermore, to meet its business requirements, it hold large work in process & inventory.
Moderate financial profile: KLRFML’s capital structure is marked by moderate level reliance on external funds yielding estimated gearing of around 1.16 times as on 31st September 2024. KLRFML’s debt protection measures have been estimated at 1.8 to 2 times for FY2025 but expected to improve in the medium term with improvement in the operating profitability.
Weakness: Susceptibility to climatic conditions: The crop yield of agricultural commodities is dependent on adequate and favorable climatic conditions. Thus, KLRFML is exposed to the risk of limited availability of its key raw material during an unfavorable climatic condition. Also, production may be impacted by pests or crop infection leading to higher unpredictability in production and pricing of agri-commodities and derived products.
Susceptibility of operating margin to volatility in raw material prices: In the engineering division, the prices of iron, steel, etc key raw material are volatile. Also, the crop yield of agricultural commodities depends on adequate and favourable climatic conditions. Thus, KLRFML is exposed to the risk of limited availability of its key raw material because of unfavourable climatic conditions. Also, production may be impacted by pests or crop infection, leading to higher unpredictability in production and pricing of agricultural commodities and derived products. The margins for the company in FY25 H1 have been majorly impacted due to the increased price of raw material price in the food division and improvement in margins both in engineering and food division shall remain a key rating monitorable, going forward. |
Liquidity: Adequate Bank limit utilization is moderate at around 57 percent for the past seven months ending Oct 2024. The company is expected to generate around Rs. 8.5 to 9.5 crores of net cash accruals in FY25 H2 which is sufficient for their term debt obligation of around Rs. 5.4 crores. The promoters are likely to extend support in the form of equity and unsecured loans to meet its working capital requirements and repayment obligations. |
Outlook: Negative Improvement in business performance, primarily operating margins will be key monitorable in the medium term. |
Rating Sensitivity Factors Upward Factors:
Downward Factors:
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About the Company KLRFML was incorporated in 1961. The company operates in two segments: the engineering division and foods division. Foods division offers maida, sooji, atta and wheat products under Kuthuvilakku, Kera and Alamaram brands. The engineering division produces ferrous castings and sheet metal designs which caters to a range of clients in the automotive, capital equipment, pumps & valves and general engineering sectors. It has two manufacturing facilities located at Tamil Nadu and is promoted by Mr. Suresh Jagannathan and family. |
Key Financial Indicators
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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 - 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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Criteria Details
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