| LT Foods Limited | ||||||
| Ratings upgraded to 'CRISIL A / CRISIL A1 '; outlook revised to 'Stable' | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has upgraded its rating on the bank facilities of LT Foods Ltd (LTF; part of the LT group) to ‘CRISIL A/Stable/CRISIL A1’ from ‘CRISIL A-/Positive/CRISIL A2+’.
The upgrade reflects continuous improvement in group’s business and financial risk profiles. Group achieved operating income of Rs 3499 crore in first nine months of fiscal 2021 compared to Rs 2948 crore in first nine months of fiscal 2020, which was aided by higher volumes achieved in both rice and organic business despite the impact of the Covid-19-induced lockdowns on the HORECA segment esp. in first half of fiscal 2021. Operating margin (earnings before income, depreciation, tax and amortisation [EBIDTA] margin) was also higher at 12.4% for the first nine months of fiscal 2021 compared to 11.5% for the corresponding period of the previous fiscal, aided by higher realisations in the rice business, especially in the first quarter of fiscal 2021 and change of product mix towards high-margin products. Going ahead, CRISIL Ratings expects business risk profile to continue to improve over the medium term.
The financial risk profile has also improved as is reflected in debt-to-EBIDTA of 2.2 times as on December 31, 2021 which is well below CRISIL Ratings’ expectations of maintaining the aforementioned ratio of 3 times over the medium term. CRISIL Ratings expects the ratio to remain below 2.5 times over the medium term despite increase in revenues.
The ratings continue to reflect the LT group's strong market position in the basmati rice industry, resulting in sales growth and stable profitability. The ratings also factor in the group's 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 large working capital requirement, susceptibility to volatile raw material prices and changes in trade policies of key importing countries. |
Analytical Approach For arriving at its ratings, CRISIL 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 - Details of Consolidation, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths: Established market position and track record in the basmati rice industry: The promoters’ experience of five decades in the rice industry and the group’s established market position as one of the top three players in the domestic basmati rice industry, have led to consolidated turnover of Rs 4,150 crore in fiscal 2020 and Rs 3,499 crore in the first nine months of fiscal 2021 (Rs 2,948 crore in the first nine months of fiscal 2020). The strong distribution and procurement networks, growing branded business and longstanding relationships with key importers and customers, also lend stability to the business risk profile.
Geographically diverse revenue profile with strong brand portfolio: The group is a globally reputed player in the rice industry, with established market presence across more than 50 countries. It has a strong brand portfolio with Daawat being the most prominent brand in the domestic market.
Improving financial risk profile: Aided by continuous reduction in debt levels with no major capital expenditure (capex) over the medium term and improving networth, total outside liabilities to tangible networth (TOLTNW) ratio is expected to continue to improve and remain below 1.2 times over the medium term.
Debt protection metrics are also healthy with interest coverage ratio of 3.8 times in fiscal 2020, which further improved to 6.4 times in the first nine months of fiscal 2021 (3.5 times in the first nine months of fiscal 2020). With continuous reduction in bank debt and significant interest cost reduction, the interest coverage ratio is expected to continue to improve over the medium term. Net cash accrual to adjusted debt ratio was 0.18 time in fiscal 2020 and is expected to continue to improve with expected reduction in debt and continued improvement in profit, over the medium term.
Weakness: Working capital-intensive operations: Gross current assets (GCA) were high at around 226 days as on March 31, 2020, mainly driven by inventory of 175 days, primarily on account of higher stocking at year end. Going ahead, CRISIL Ratings expects operations to remain working capital intensive because of higher inventory procured at year end.
Susceptibility to volatile raw material prices and changes in trade policies of key importing countries: 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 to whom the group exports basmati rice from India. However, having strong brands, wide geographical reach and sourcing capabilities have helped the group maintain profitability. |
Liquidity: Strong Net cash accrual in fiscal 2020 was Rs 266 crore and is expected to be over Rs 325 crore for fiscal 2021. Debt repayment remains at Rs 30 crore over the next two years. The group does not envisage any big capex, only regular capex of around Rs 100 crore on annual basis.
Cash and cash equivalent was Rs 35 crore as on March 31, 2020. The average bank line utilisation remained moderate at 65% for the 12 months through January 2021. |
Outlook: Stable CRISIL believes the LT group's credit risk profile will continue to benefit from its established market position, strong brands and 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, which was set up in 1990, by the Amritsar-based Arora family, 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, held by United United Farmers Investment Company - a subsidiary of Saudi Agricultural & Livestock Investment Company (“SALIC”), 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. The company processes and markets basmati rice. Its manufacturing unit at Mandideep (Bhopal), has an installed capacity of 36 tons per hour.
NBFL, incorporated 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 agri commodities. Domestically it sells under its brand name Ecolife, while exports are mainly as ingredients. It has a capacity of 6 tph in Sonipat, Haryana. NBFL recently acquired a 30% stake in Leev, a Netherlands based organic specialty food company with an option of increasing stake by 21% at the end of 5 years.
RAIPL processes rice at its facility in Amritsar with a capacity of 6 tph. It primarily produces raw and par-boiled rice under brands such as Devaya, Rozana, and Chef's Secretz. It is a majority owned subsidiary of LTF, which has a 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: 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 various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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