| Ludhiana Beverages Private Limited | ||||||
| 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 reaffirmed its 'CRISIL A+/Stable/CRISIL A1' ratings on the bank facilities of Ludhiana Beverages Private Limited (LBPL).
The company enjoys a healthy market position, aided by its exclusive manufacturing and distribution franchisee agreement with The Coca-Cola Company (Coca-Cola) for Ludhiana, Jalandhar, Hoshiarpur, Nawanshahr, Moga, Sangrur and Phagwara (all in Punjab). The company generated revenue of Rs 749 crore against expectation of Rs 665 crore in fiscal 2022, offsetting the setback to the industry in fiscal 2021 when revenue had dipped. The improvement has continued in fiscal 2023 as indicated by revenue of Rs ~671 crore booked by LBPL till September 2022. The operating profitability improved to 21.73% in fiscal 2022 from 20.58% in fiscal 2021 and 17.03% in fiscal 2020 supported by revenue growth and technological and capacity upgrade. It rose to ~25% in the first half of fiscal 2022 and is expected to operate above 20% over the medium term.
The company has embarked on capacity expansion and technological upgradation of Rs 310 crore to be funded through debt of Rs 180 crore and plans further capital expenditure (capex) of ~Rs 440 crore in the next 2-3 years, of which only ~Rs 60 crore will be funded through debt and the remaining through internal accrual. The capex will drive revenue growth over the medium term. The timely completion of the new CAPEX and stabilization of operations thereafter will be key monitorable.
The ratings continue to reflect the stable market position, improving operating profitability with increasing captive generation, and comfortable financial risk profile of LBPL. These strengths are partially offset by moderate scale of operations, limited geographical reach and susceptibility to regulatory changes. |
Analytical Approach Unsecured loan extended by the promoters (Rs 16.98 crore as on March 31, 2022) has been treated as neither debt nor equity as the loan is subordinated to bank debt and expected to remain in the business over the medium term. |
Key Rating Drivers & Detailed Description Strengths: Stable market position, aided by franchisee agreement with Coca-Cola As per the exclusive manufacturing and distribution franchisee agreement with Coca-Cola, LBPL sells aerated drinks, juices and mineral water in Ludhiana, Jalandhar, Hoshiarpur, Nawanshahr, Moga, Sangrur and Phagwara. Coca-Cola provides financial and operational support to its bottlers for implementation of its corporate strategy and bears all marketing and advertising expenses at the national level. For advertising and promotional expenses at the franchisee level, each bottler submits an annual business plan to Coca-Cola, which reimburses around 40% of the expense incurred.
Improving operating profitability, with increasing captive generation The operating margin has improved consistently over the three years ended March 31, 2022, aided by reducing contribution from the trading segment. Sale of products sourced from other franchisees contributed to 27% of the operating profit till fiscal 2017, but the share dropped to around 4% in fiscal 2021 and has remained at a similar level since then. Resultantly, the operating margin rose to above 20% in fiscal 2021 from 8.9% in fiscal 2017. Cost savings with reduction in advertisement expenditure also aided the operating efficiency. The operating profitability was ~25% in the first half of fiscal 2023 and is expected over 20% over the medium term.
Comfortable financial risk profile The financial risk profile remains comfortable supported by healthy networth of over Rs 290 crore and gearing and total outside liabilities to tangible networth ratio of 0.71 time and 1.05 times, respectively, as on March 31, 2022. The company is undertaking capacity expansion of Rs 310 crore to be funded through debt of Rs 180 crore and plans capex of ~Rs 440 crore in the next 2-3 years, of which only ~Rs 60 crore is expected to be funded through debt and the remaining through internal accrual. Despite the debt-funded capex, the capital structure is expected to remain comfortable and debt protection metrics strong, with interest coverage expected above 12 times and net cash accrual to adjusted debt ratio above 0.45 time over the medium term (above 17 times and 0.67 time, respectively, in fiscal 2022). However, any major cost overrun or delay in stabilization of operations post capex will remain key monitorable.
Weaknesses: Modest scale of operations The scale remains moderate though the company performed better than expected in fiscal 2022. Revenue was Rs 749 crore in fiscal 2022 against the CRISIL Ratings expectation of Rs 665 crore and made up for the dip in the previous fiscal. The company earned revenue of ~Rs 671 crore in the first half of fiscal 2023 and is expected to achieve revenue of over Rs 900 crore for the full fiscal. Capacity expansion in the next 2-3 fiscals will drive revenue growth over the medium term. Sustainable growth in revenue will continue to remain a key monitorable in the medium term.
Limited geographic reach restricting growth prospects and susceptibility to regulatory changes LBPL has limited opportunities for growth, as sales are restricted to a defined territory. Also, it faces intense competition from bottlers of PepsiCo India and other products. While such constraints will persist, a shift in customer preferences towards healthier drinks (juices) will be a key growth driver and ability to enhance revenue streams is a key monitorable.
LBPL remains susceptible to government regulations regarding the content of aerated drinks and increasing environmental concerns about groundwater depletion and discharge of effluents by bottling plants. In 2003, the Centre for Science and Environment released its study on pesticide residue in soft drinks, which led to a 20% drop in soft drink sales across India. Controversies regarding the content of aerated waters and finalisation of standards on content of soft drinks persist. Additionally, several state governments have banned the sale of soft drinks in educational and government institutions. |
Liquidity: Strong Liquidity is supported by sufficient cash accrual and low bank limit utilisation. Cash accrual is expected over Rs 157 crore against term debt obligation of Rs 37-74 crore over the medium term. Bank limit utilisation averaged 42% for the 12 months ended September 30, 2022. Current ratio was moderate at 1.08 times on March 31, 2022. Liquidity is also supported by unsecured loan of Rs 16.98 crore from the promoters as on March 31, 2022. Low gearing and healthy networth provide financial flexibility to withstand adverse conditions or downturn in the business. |
Outlook: Stable LBPL will continue to benefit from its exclusive franchise agreement with Coca-Cola. |
Rating Sensitivity Factors Upward factors
Downward factors
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About the Company LBPL is a franchisee bottler for Coca-Cola, and manufactures and distributes sweetened aerated water (soft drinks), non-sweetened aerated water (soda), non-aerated fruit-juice-based drinks and packaged drinking water. It is owned by the Ludhiana-based Goenka family. The company owns the bottling and distribution franchise for Ludhiana, Jalandhar, Hoshiarpur, Nawanshahr, Moga, Sangrur and Phagwara (all in Punjab).
Effective April 1, 2019, operations of group entity Ludhiana Beverage Co (LBC) have been merged with LBPL. LBC was the largest distribution arm of LBPL in its designated geographical region. |
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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This Annexure has been updated on 25-Nov-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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