Rating Rationale
April 29, 2020 | Mumbai
LT Foods Limited
 
Rating Action
Total Bank Loan Facilities Rated Rs.1187.5 Crore
Long Term Rating CRISIL A-/Stable
Short Term Rating CRISIL A2+
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL ratings on the bank loan facilities of LT Foods Limited (LTF; part of the LT group) 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), an established marketing network, and improving financial risk profile. These strengths are partially offset by the large working capital requirements, and susceptibility to volatile raw material prices, and any adverse changes in government policies.
 
On March 24, 2020, CRISIL had revised the outlook to 'Stable' from 'Positive' while the ratings had been reaffirmed at 'CRISIL A-/CRISIL A2+'.

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. That's 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
* Established market position and track record in the basmati rice industry: The five decade-long experience of the promoters in the rice industry and the group's established market position, as one among the top three players in the domestic basmati rice industry, have led to a consolidated turnover of Rs 3,877 crore in fiscal 2019 and Rs 2948 crore for 9 months of fiscal 2020. The strong distribution and procurement network, growing branded business and longstanding relationships with key importers and customers, also lend stability to the business risk profile.
 
* Geographically diversified revenue profile with strong brand portfolio: The group is a globally reputed player in the rice industry, with an 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:  Funds raised through the qualified institutional placement (QIP) during fiscal 2018 helped cover the working capital requirement, and thus, reduced dependence on external debt. As a result, the group's total outside liabilities to adjusted networth (TOL/ANW) ratio has improved to 1.57 times as on March 31, 2019, (from around 1.73 times in 2018 and 3.3 times as on March 31, 2017), and may improve further to 1.35 times as on March 31, 2020, aided by reduction in debt levels with no major capex plans over the medium term. Interest coverage is also expected to improve, aided by reduction in bank debt.
 
Weaknesses
* Working capital-intensive operations: Gross current assets were high at around 246 days as on March 31, 2019, mainly driven by higher than expected inventory of 198 days primarily on account of higher stocking at year end.
 
* Susceptibility to volatile raw material prices and regulatory changes: 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 decline in paddy prices, subsequent to procurement, remains high. Additionally, exports of agricultural commodities, including rice, are highly regulated. However, having strong brands, wide geographical reach and sourcing capabilities have helped the group maintain profitability.
Liquidity Strong

The net cash accruals for fiscal 2019 were Rs 200 crore. Further, the cash accruals till Sept 2019 for FY20 have been Rs 133 crore and are expected to be over Rs 230 crore for the whole year of fiscal 2019. The debt repayment remains in the range of Rs 20-35 crore over the next 2 years. The group doesn't envisage any big capex plans and would do a regular capex of Rs 40-50 crore.
 
Cash and cash equivalents as on March 31, 2019 had been at Rs 37.47 crore (increased from Rs 32 crore a year before). The bank line utilisation remains high at an average of 70-80% for the past 12 months ended Dec 2019 and remains over 90% during year end due to incremental stocking at that time. The Rotterdam (Netherland) facility which was expected to break even at the operating level in fiscal 2019, had booked a net loss of Rs 21.05 crore for 2019 (though expected to break even at PBT level from current fiscal year).

Outlook: Stable

CRISIL believes the LT group's credit risk profile will continue to benefit from its established market position, strong brands, and diversified geographical presence in the basmati rice industry, and expected improvement in its financial risk profile.

Rating Sensitivity Factors
Upward factors
* Increase in scale of operations by 25% and profitability by 150 basis point on a sustainable basis
* Equity infusion by promoters, leading to improved financial risk profile
* Better working capital management, strengthens the financial risk profile, especially the capital structure.

Downward factors
* Decline in scale of operations by 10% or profitability by 150 basis point
* Any major debt based capex weakens financial risk profile
* Stretch in the working capital cycle.

About the Group

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.
 
DFL was formed in May 2006, as a majority-owned subsidiary of LTF. LTF holds a 70.48% stake in DFL, while the balance is held by Rabo Equity Advisors (the investing arm of Rabo Bank). The company processes and markets basmati rice. Its manufacturing unit at Mandideep in Bhopal, Madhya Pradesh, has an installed capacity of 36 tph.
 
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.
 
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.
 
For nine months ended December 2019 in fiscal 2020, the LT Group has achieved sales of Rs.2967.27 crores with a profit after tax of Rs.137.5 crores on a consolidated basis, as compared to sales of Rs.2896.96 with profit after tax of Rs.137.73 crores for 9 months ending December 2018 for fiscal 2019.

Key Financial Indicators - Consolidated
Particulars Unit 2019 2018
Revenue Rs Cr. 3890.43 3613.7
Profit After Tax (PAT) Rs Cr. 137.47 143.4
PAT Margin % 3.53 4.0
Adjusted Debt/Adjusted Networth Times 1.32 1.36
Interest coverage Times 2.99 2.8

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.Crore)
Rating Assigned  with Outlook
NA Letter of credit & Bank Guarantee NA NA NA 66.5 CRISIL A2+
NA Non-Fund Based Limit NA NA NA 29.0 CRISIL A2+
NA Working Capital Facility NA NA NA 685.2 CRISIL A-/Stable
NA Proposed Fund-Based Bank Limits NA NA NA 267.5 CRISIL A-/Stable
NA Proposed Long Term Bank Loan Facility NA NA NA 14.5 CRISIL A-/Stable
NA Proposed Working Capital Facility NA NA NA 124.75 CRISIL A-/Stable
 
Annexure - List of Entities Consolidated
Entities consolidated Extent of consolidation Rationale for Consolidation
  • Daawat Foods Ltd
  • SDC Foods India Limited
  • L T International Limited
  • LT Overseas North America Inc.
  • Sona Global Limited
  • Raghuvesh Foods & Infrastructure Limited
  • LT Foods International Limited
  • Nature Bio Foods Limited
  • LT Agri Services Private Limited
  • LT Foods USA LLC
  • LT Foods Middle East DMCC
  • Universal Traders Inc.
  • Expo Services Private Limited
  • Fresco Fruits N Nuts Private Limited
  • LT Foods Europe B.V.
  • LT Foods Americas, Inc.
  • Raghunath Agro Industries Private Limited
  • Deva Singh Sham Singh Export Private
  • Limited
  • Daawat Kameda (India) Private Limited
  • Nature Bio-Foods B.V.
  • Nature Bio Foods Inc
Full consolidation Same business and fungible cash flows
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  1092.00  CRISIL A-/Stable  24-03-20  CRISIL A-/Stable      27-12-18  CRISIL A-/Positive  07-07-17  CRISIL BBB+/Positive  CRISIL BBB+/Stable 
                16-08-18  CRISIL A-/Positive       
                05-03-18  CRISIL A-/Positive       
                21-02-18  CRISIL A-/Positive       
Non Fund-based Bank Facilities  LT/ST  95.50  CRISIL A2+  24-03-20  CRISIL A2+      27-12-18  CRISIL A2+  07-07-17  CRISIL A2  CRISIL A2 
                16-08-18  CRISIL A2+       
                05-03-18  CRISIL A2+       
                21-02-18  CRISIL A2+       
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Letter of credit & Bank Guarantee 66.5 CRISIL A2+ Letter of credit & Bank Guarantee 52.6 CRISIL A2+
Non-Fund Based Limit 29 CRISIL A2+ Long Term Loan 25.25 CRISIL A-/Stable
Proposed Fund-Based Bank Limits 267.5 CRISIL A-/Stable Non-Fund Based Limit 8 CRISIL A2+
Proposed Long Term Bank Loan Facility 14.5 CRISIL A-/Stable Proposed Fund-Based Bank Limits 218.25 CRISIL A-/Stable
Proposed Working Capital Facility 124.75 CRISIL A-/Stable Proposed Non Fund based limits 11.4 CRISIL A2+
Working Capital Facility 685.25 CRISIL A-/Stable Proposed Working Capital Facility 15 CRISIL A-/Stable
-- 0 -- Term Loan 50 CRISIL A-/Stable
-- 0 -- Working Capital Facility 807 CRISIL A-/Stable
Total 1187.5 -- Total 1187.5 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt
The Rating Process
Understanding CRISILs Ratings and Rating Scales

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