Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil A/Stable’ rating on the long-term bank facility of M. K. Proteins Limited (MKPL; part of the Shree Ganesh Fats [SGF] group).

 

The rating continues to reflect the healthy financial risk profile of the group, aided by steady accretion to reserves, healthy capital structure and adequate debt protection metrics along with sustained business risk profile. The rating also factors in the extensive experience of the promoters in the specialty chemicals industry. These strengths are partially offset by low pricing power amidst intense price competition in the end-user segment.

 

During the first nine months of fiscal 2025, the group has reported revenue of Rs 1010 crore with operating margins of 6.3% and is expected to report flattish revenue of Rs 1350-1380 crore and stable operating margins of 6.5% in FY2025 as compared to fiscal 2024. The subdued revenue growth in fiscal 2025 was on account of lower volumes sold due to cheaper prices in international markets of non-edible oil, leading customers to reduce purchase from the group. The group saw a decline in its operating income by 22% in fiscal 2024 as the realizations corrected from one time high in fiscal 2023, and decline in operating margins by 1.2% on account of increased fixed costs on account of ramping up of the new acquired plant in Gujarat in fiscal 2024. Fiscal 2024 performance was in line with Crisil's expectation. Over the medium term, revenue is expected to grow 4-5% per annum and operating margins are expected to remain in the range of 6-6.5%. Volume growth is expected to remain stable driven by strong demand for end-products, mainly in the personal care segment, and established relationships with large fast-moving consumer goods (FMCG) players, with focus on continuous expansion of the customer base.

 

The financial risk profile remain comfortable, with negligible debt of around ~Rs 9 crore as on Dec 31, 2024 from Rs 53 crore as on March 31, 2024. Overall debt is expected to remain below Rs 15 crore in the medium term. Debt protection metrics as characterized by gearing is expected to improve to 0.03 time in fiscal 2025 from 0.14 time in fiscal 2024. Interest coverage and net cash accrual to total debt ratios are also expected to improve to 13 times and 4.60 times in fiscal 2025 from 10 times and 1.24 times in fiscal 2024. They are expected to remain at above 10 times and above 1 time, respectively, aided by steady accretion to reserve and modest debt-funded capital expenditure (capex) plans. The company's networth at Rs 384 crore as on March 31, 2024.The group will likely generate sufficient cash accrual of Rs 65-75 cr against Rs 2 cr of debt obligation and Rs 10-12 cr of capex.  

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of MKPL, Shree Ganesh Fats Pvt Ltd (SGFPL), Kamla Organics Pvt Ltd (Kamla Organics; formerly Shivalik Steels and Alloys Pvt Ltd), Kamla Oleo Pvt Ltd (KOPL) and SGFIPL. All the companies, collectively referred to as the SGF group, have similar businesses, common management and promoters, business synergies and fungible cash flow.

 

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:

Sustained business risk profile: Operating performance is expected to remain flattish in fiscal 2025, with group’s revenue expected to grow by 4-5% in fiscal 2025 and is expected to grow at 5% in the medium term. The operating margins is expected to stood at ~6.5% for fiscal 25 and is likely to remain steady at 6-6.5% over the medium term, aided by backward integration benefit and the cost plus conversion charges method based supply contracts. The group reported revenue of Rs 1010 crore with operating margins of 6.3% in 9MFY25. The group saw a decline in its operating income by 22% in fiscal 2024 as the realizations corrected from one time high in fiscal 2023, and decline in operating margins by 1.2% on account of increased fixed costs on account of ramping up of the new acquired plant in Gujarat in fiscal 2024. Fiscal 2024 performance was in line with Crisil's expectation. Plants commissioned in Kolkata and Gujarat (housed under SGFIPL and KOPL, respectively) in 2021 and 2024 respectively have contributed to the overall ramp up in scale, led by healthy increase in volume. The Kolkata plant and the Gujarat plant are integrated backward and aims to enhance the geographical reach of the group. Other entities continued to exhibit stable performance.

 

Healthy financial risk profile: The financial risk profile remain comfortable, with negligible debt of around ~Rs 9 crore as on Dec 31, 2024 from Rs 53 crore as on March 31, 2024. Overall debt is expected to remain below Rs 15 crore in the medium term. Debt protection metrics as characterized by gearing is expected to improve to 0.03 time in fiscal 2025 from 0.14 time in fiscal 2024. Interest coverage and net cash accrual to total debt ratios are also expected to improve to 13 times and 4.60 times in fiscal 2025 from 10 times and 1.24 times in fiscal 2024. They are expected to remain at above 10 times and above 1 time, respectively, aided by steady accretion to reserve and modest debt-funded capital expenditure (capex) plans. The company's networth at Rs 384 crore as on March 31, 2024.The group will likely generate sufficient cash accrual of Rs 65-75 cr against Rs 2 cr of debt obligation and Rs 10-12 cr of capex.  

 

Extensive experience of the promoters and strong relationships with customers: The promoters’ experience of 25 years in the soap noodles business has helped them maintain strong relationships with customers and ensure repeat orders. The group is a supplier to Hindustan Unilever Ltd (HUL; 'Crisil AAA/Stable'), ITC Ltd (ITC; 'Crisil AAA/Stable/Crisil A1+'), Alliance World Manufacturing Ltd, Reckitt Benckiser India Ltd, Godrej Consumer Products Ltd ('Crisil A1+'), and local cosmetic manufacturers.

 

Weaknesses:

Susceptibility to competition among FMCG players: Intense competition among FMCG players limits their pricing power and the impact percolates to vendors, such as the SGF group. However, longstanding relationships with customers, proximity to their plants and smooth supply chain management, provide the group a competitive edge. Moreover, market share of organised FMCG players has improved post pandemic, which benefits the group. These factors, along with cost plus conversion charges in supply contracts, should help the group pass on raw material price fluctuations to customers and sustain its operating performance over the medium term.

 

Lack of pricing power against large customers: The oleochemicals and soap intermediaries industry is extremely price-sensitive and marked by low entry barriers. This limits the bargaining power of players. However, the SGF group is moderately integrated, and has built differentiators through better technology, presence across the value chain and locational advantage.

Liquidity: Adequate

The group will likely generate sufficient cash accrual of Rs 65-75 cr against Rs 2 cr of debt obligation and Rs 10-12 cr of capex.  Liquidity is supported by modest external debt of Rs 9 crore as on December 31, 2024, moderate bank limit utilisation and no major capex plan for the medium term. The group also had adequate free cash and equivalents of Rs 50 crore as on December 31, 2024. Bank limit utilisation was 40-60% in Kamla Oleo Private Limted during the 10 months through December 2024. There was negligible utilisation of limits in other entities of the group.

Outlook: Stable

Crisil Ratings believes the SGF group will continue to benefit from its established relationships with key customers and improving geographical diversity and will sustain its healthy financial risk profile, supported by robust cash generation.

Rating sensitivity factors

Upward factors

• Sustained growth in revenue and steady operating margin maintained at 8-10%
• Sustenance of robust financial risk profile and healthy cash surplus
• Continued diversification of the customer profile and product mix

 

Downward factors

• Sharp decline in revenue and in operating profitability impacting accruals
• Any large, debt-funded capex, weakening the capital structure and debt protection metrics, with interest cover below 5 times

About the Group

Set up in 1994, the SGF group manufactures distilled fatty acid (DFA) and soap noodles.

 

Shree Ganesh Fats Private Limited (SGFPL), based in Baddi, has two units: one for hard oil and the other for DFA and glycerin, each with capacity of 150 tonne per day (TPD). However, this is given on rent to Kamla Oleo Private Limited

 

Kamla Oleo, based in Baddi, manufactures soap noodles and has capacity of 150 TPD.

 

Kamla Organics Private Limited , based in Gujarat, manufactures DFA with capacity of 150 TPD and soap noodles with capacity of 200 TPD.

 

M.K. Protein Limited, based in Ambala, manufactures vegetable refined oil for vanaspati mills and has capacity of 250 TPD.

 

SGF Industries Private Limited, based in Kolkata, produces toilet soap noodles and DFA with combined capacity of 1,000 TPD.

Key Financial Indicators (consolidated)*

Particulars	Unit	2024	2023
Revenue	Rs crore	1,307	1,686
Profit after tax (PAT)	Rs crore	47	71
PAT margin	%	3.6	4.2
Adjusted debt/adjusted networth	Times	0.14	0.19
Interest coverage	Times	18.85	10.03

*All figures are adjusted by Crisil Ratings

Any other information: Not Applicable