| LT Foods Limited | ||||||
| Rating outlook revised to 'Positive'; Ratings reaffirmed | ||||||
| Rating Action | ||||||
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| 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 LT Foods Limited (LTF; a part of the LT group) to ‘Positive’ from ‘Stable’ and reaffirmed the rating at 'CRISIL A’; the short-term rating has also been reaffirmed at ‘CRISIL A1’.
The outlook revision reflects a belief that the business and financial risk profiles of the LT group should continue to improve, backed by strong market position in the basmati rice industry, healthy brand recall, diversified geographical reach, established marketing network and robust financial risk profile. Operating income increased to Rs 3,883 crore in the first nine months of fiscal 2022 from Rs 3,499 crore in the corresponding period of fiscal 2021, aided by healthy revenue growth across all product segments (basmati rice and other specialty rice segment, organic and health & convenience segment); however, the operating margin (earnings before income, depreciation, tax and amortisation [EBIDTA] margin) declined by 110 basis points (bps) to 11.7% from 12.8% due to substantial increase in freight and input costs. Operating performance should improve as revenue increases at a compound annual growth rate of 12-15% over the medium term, supported by healthy volume sales and realisations in branded rice business both in the domestic and export markets. Revenue is projected at more than Rs 5,000 crore in fiscal 2022 and operating margin at 12%, supported by stabilisation in the overall freight cost and change of product mix towards high-margin products in the organic business segment. Organic business profitability should lead to higher consolidated EBITDA in the fourth quarter of fiscal 2022 along with better bargaining power with brands such as Daawat and Royal.
Financial risk profile has strengthened, reflected by debt-to-EBIDTA ratio of 2.0 times as on December 31, 2022, from over 3.0 times in fiscal 2019; the ratio is expected at below 2.2 times over the medium term despite increase in revenue, backed by the reducing dependency on working capital debt and absence of any large, debt-funded capital expenditure (capex).
The ratings continue to reflect strong market position in the basmati rice industry, diversified geographical reach through strong brands (Daawat in the domestic market and Royal in the US market), established marketing network and improving financial risk profile. These strengths are partially offset by susceptibility to volatile raw material prices, changes in trade policies of key importing countries and high working capital intensity in the basmati rice business. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of LTF and its majority-owned subsidiaries, Daawat Foods Ltd (DFL), Nature Bio Foods Ltd (NBFL) and Raghunath Agro Industries Pvt Ltd (RAIPL) and other step down subsidiaries. This is because all these companies, collectively referred to as the LT group, operate in the same line of business and have significant financial linkages and are majorly owned by LTF.
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:
The five-decade experience of the promoters in the rice industry and established market position of the group as one of the top three players in the domestic basmati rice industry led to consolidated turnover rising to Rs 4,661 crore in fiscal 2021 from Rs 4,157 crore in fiscal 2020. The group operates across all channels such as general trade, modern trade, hotel/restaurant/cafe, and e-commerce through 1200+ distributors and 1,37,000+ retail outlets in India and 100+ distributors in the international market. Strong distribution and procurement networks, growing branded business and longstanding relationships with key importers and customers should continue to support the business.
The LT group is a globally reputed player in the rice industry, with established market presence across 60+ countries. It has strong brand portfolio with Daawat being the most prominent brand in the domestic market.
The capital structure is likely to remain supported by continuous reduction in debt and the absence of any large, debt-funded capex. Total outside liabilities to tangible networth ratio is expected at less than 1.25 times as on March 31, 2022. Debt protection metrics have strengthened, with interest coverage ratio of 8.20 times in fiscal 2021, which improved from 3.80 times in fiscal 2020; the ratio is expected at more than 8.75 times in fiscal 2022 and above 9.00 times over the medium term, aided by significant decline in interest cost. Net cash accrual to adjusted debt ratio was 0.3 time in fiscal 2021 and will continue to increase owing to steady rise in profit.
Weaknesses:
The working capital cycle may remain stretched, commensurate with increase in scale of operations and sizeable inventory procured at year end. Gross current assets (GCAs) were high at around 226 days as on March 31, 2021, driven by inventory of 199 days (as paddy and rice are stocked up during the peak season of procurement, which begins in the third quarter of every fiscal) and moderate debtors of 38 days. GCAs, inventory and debtors are projected at 220-240 days, 180-200 days and 40-60 days, respectively, as on March 31, 2022. Payables have been low at 56 days and 31 days, respectively, as on March 31, 2021 and March 31, 2020.
The group usually enters into an understanding with customers for supply of rice, though this is not binding. Hence, exposure to risks related to any steep variation in paddy prices, subsequent to procurement, remains high as raw material (paddy) constitutes 85-90% of the sales, and its prices directly impact profitability. Paddy, being a kharif crop, is harvested only during September to December. Additionally, the group is exposed to changes in the trade policies of the countries where basmati rice is exported. However, strong brands along with well-diversified geographical reach and sourcing capabilities help mitigate this risk and maintain profitability. The operating profitability margin is projected at around 12.0% in fiscal 2022 because of increasing contribution from branded products and expected reduction in freight cost over the medium term. |
Liquidity: Strong Liquidity should remain supported by the ample surplus available in cash accrual and bank lines. Cash accrual is projected at more than Rs 400 crore each for fiscals 2022, 2023 and 2024, sufficient to meet the yearly debt obligation of Rs 36 crore. Bank limit utilisation was low, at 44.88% on average for the 12 months through November 2021. Current ratio was healthy at 1.71 times on March 31, 2021. The group accumulates cash and maintains it as fixed deposits with banks. Cash and cash equivalent were Rs 31 crore as on March 31, 2021. Low gearing and moderate networth should continue to aid financial flexibility. |
Outlook: Positive The LT group will continue to benefit from established market position, strong brands, diverse geographical presence in the basmati rice industry and comfortable financial risk profile. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company LTF was established in 1990 by the Amritsar-based Arora family. It mills, processes, and markets rice (largely basmati). The company has established brands such as Daawat, Royal, Devaaya, Rozana, Heritage, and Chef's Secretz, varying from basic to premium quality, both in the domestic and overseas markets. It has facilities in Haryana, Punjab, and Madhya Pradesh, with combined milling capacity of 106 tonne per hour (tph) and individual capacity of 58 tph.
About the group companies Incorporated in May 2006, DFL is a majority-owned subsidiary of LTF, which has a shareholding of 70.09%; the balance is held by United United Farmers Investment Company, which is a subsidiary of Saudi Agricultural & Livestock Investment Company (SALIC) that is in turn owned by the Public Investment Fund of the Kingdom of Saudi Arabia. SALIC acquired 29.81% stake from India Agri Business Fund, sponsored by Rabobank and 0.1% from REAL Trust in May 2020. DFL processes and markets basmati rice at its unit in Mandideep (Bhopal),with installed capacity of 36 tph.
NBFL, established in 2007, is a majority-owned subsidiary of LTF. The company deals in organic basmati rice, non-basmati rice, soya, pulses, spices, rice flour, wheat flour and miscellaneous agricultural commodities. It sells locally under the brand, Ecolife, while exports are mainly as ingredients. It has capacity of 6 tph in Sonipat, Haryana. NBFL recently acquired 30% stake in Leev, an organic specialty food company based in Netherlands, with an option of increasing its stake by 21% at the end of five years.
RAIPL, processes rice at its facility in Amritsar with capacity of 6 tph. It produces raw and parboiled rice under brands such as Devaya, Rozana, and Chef's Secretz. It is a majority-owned subsidiary of LTF, which has shareholding of 96%; the remaining is held by DFL. |
Key Financial Indicators (consolidated)
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)
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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 17-Feb-2022 in line with the lender-wise facility details as on 02-Aug-2021 received from the rated entity.
Criteria Details
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