| LT Foods Limited | ||||||
| Long-term rating upgraded to 'CRISIL A+/Stable'; Short-term rating 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 upgraded ratings on the long-term bank facilities of LT Foods Limited (LTF; a part of the LT group) to 'CRISIL A+/Stable' from 'CRISIL A/Positive' and has reaffirmed the short-term rating at 'CRISIL A1'.
The rating also reflects continuous improvement in the financial and liquidity risk profiles of the group, reflected by debt-to-EBIDTA ratio of ~1.8 times as on Sep 2022 and 1.65 times as on FY 22; the ratio is expected at 1.6-1.8 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). Liquidity is supported by robust cash accrual and healthy unencumbered cash and bank balance of Rs 39 crore as on September 30, 2022.
The ratings continues 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 along with product Diversification 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
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 Established market position and track record in the basmati rice industry. The five-decade experience of the promoters in the rice industry and established market position of the group as one of the top two players in the domestic basmati rice industry led to consolidated turnover rising to Rs.5440 crore in fiscal 2022 from Rs 4,678 crore in fiscal 2021. In 9MFY23 company has grown to Rs. 5114 cr. (In 9MFY22Rs. 3901 cr.), the growth is driven by increase in the volume growth and higher price reliastion because of strong brand position in domestic and exports markets especially in USA and Europe.
The group operates across all channels such as general trade, modern trade, hotel/restaurant/cafe, and e-commerce through 1200+ distributors and 1,52,000+ 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.
Geographically diversified revenue profile with strong brand portfolio and Growing Product Diversification 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 group generates majority of its revenue exports market, commanding a leading position in in USA and European market while the balance is contributed by countries in the Middle East, the Far East, among others.
While the company is largely a basmati player, it has diversified into organic and rice-based health and convenience foods, which have growth and margin potential. The revenue contribution from basmati rice reduced to 79% during FY22 (FY21: 86%), owing to growth in organic and convenience and health segments. Organic business is continuing on the path of strong growth and registered a CAGR of 18% over last 4 years. Further, growth in organic business should lead to higher consolidated revenue over medium term and remains key monitorable factor.
Improving financial risk profile: The capital structure is likely to remain supported by continuous reduction in debt and the absence of any large, debt-funded capex. LT group was able to grow the business from FY15 to FY22 with lower proportion of total debt, indicating improving sales efficiency and lower leverage. LT’s group dependency on debt levels has reduced y-o-y. Group’s 80-85% of debt primarily comprises of short-term debt (working capital borrowings) required for stocking-up of paddy and seasonality in nature of business. Debt to EBITDA of the company has been continuously improving. In FY22 the ratio has improved to 1.65 times from 2.25 times in previous fiscal. In FY23 the Debt to EBIDTA is expected to remain in the similar range of 1.60-180 times. Debt protection metrics have strengthened, with interest coverage ratio of 6.85 times in fiscal 2022, which improved from 5.25 times in fiscal 2022; the ratio is expected at more than 7.5 times in fiscal 2023. Net cash accrual to adjusted debt ratio was 0.38 time in fiscal 2022 and is expected to be more than 0.45 times in FY23 owing to steady rise in profitability.
Weaknesses: High working capital intensity in basmati rice business: 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 209 days as on March 31, 2022, driven by inventory of 179 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 42 days. GCAs, inventory and debtors are projected at 220-240 days, 180-200 days and 40-60 days, respectively, as on March 31, 2023. Payables have been low at 71 days and 57 days, respectively, as on March 31, 2022, and March 31, 2021.
Susceptibility to volatile raw material prices and changes in trade policies of key importing countries The raw material (paddy) constitutes 80-85% of sales cost and its prices directly impact operating profitability. 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 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 10-11% in fiscal 2023 because of increasing contribution from branded products and expected reduction in freight cost over the medium term. |
Rating Sensitivity factors Upward Factors: * Steady revenue growth on y-o-y basis driven by increase in the revenue share of other product segment (organic and health & convenience segment) along with improved operating profitability to 12% on a sustainable basis, leading to healthy cash generation. * Prudent working capital management with sustained Gross Current Asset days (GCA days) 200-220 days and sustained financial risk profile with debt to EBITDA maintained below 1.80 times.
Downward Factors: * Substantial decline in scale of operations or decline in operating probability below 9% leading to lower than anticipated cash accrual generation. * Large debt-funded capital expenditure, or acquisition or substantial increase in working capital cycle weakening the financial risk profile with Debt-to-EBIDTA ratio increasing above 2.2 times over the medium term |
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 Incorporated in May 2006, DFL is a wholly owned subsidiary of LTF.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
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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 – 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 28-Feb-2023 in line with the lender-wise facility details as on 02-Aug-2021 received from the rated entity.
Criteria Details
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