Rating Rationale

Strengths
* Strong market position in the fruit drink Segment
MBL's healthy market position in the fruit drink segment is underpinned by presence of brand Mango Sip (4.5% market share). The company has made several innovations in the past couple of years, which have enabled it to enter in top 5 players in the mango-based drinks market. In fiscal 2014, it launched the Fruits up brand in the carbonated drink market. The brand grew 71.30% over the past three fiscals and contributed 25% to the company's revenue in fiscal 2017. With network of 4000 distributors across the country and strong presence in Western and northern parts of India, revenue increased significantly over five fiscal through 2017. Mango Sip and Fruits Up remain the main revenue and profit drivers for MBL. Diversification of the product profile through successful new launches is likely to help the company sustain healthy growth, and will be critical to reduce dependence on a few brands.

* Healthy operating efficiency
MBL has five plants across Vadodara, Varanasi, and Ambala, in proximity to high-consumption states, optimising logistics cost. Furthermore, commissioning of its plant in Sri City (Tamil Nadu) and additional plant in Varanasi and Vadodara in fiscal 2018 will improve its reach in South India and central India. MBL plans to come up with a plant in East India. These factors, along with strong procurement setup for fruit concentrate and distribution network (providing reach to 4 lakh outlets across India), efficient supply chain management system, and prudent risk management enable healthy operating efficiency.

* Strong financial risk profile
MBL's financial risk profile is supported by healthy and improving cash generation (Rs 126 crore in fiscal 2017) and absence of debt facilities, translating in healthy credit metrics. Networth has increased over the years due to equity infusion through initial public offer of Rs 400.00 crore in fiscal 2016 and qualified institutional placement of Rs 500 crore in fiscal 2017. Strong networth of Rs 1153 crore as on March 31, 2017, and absence of debt resulted in strong capital structure. Debt protection metrics remain strong, with interest coverage ratio of 129 times and net cash accrual to total debt ratio of 361 times in fiscal 2017.

MBL is likely to raise debt in the near term to fund part of its upcoming plant in Sri City, Vadodara, Varanasi, and in East India. Yet, net debt is expected to remain low over the medium term, as cash generated is also expected to be redeployed in business/building up liquid surplus. Acquisitions are unlikely, given the management's demonstrated track record of innovations and growth through organic expansion. Therefore, credit metrics should remain comfortable.

Liquidity is supported by surplus fund invested largely in debt mutual funds and fixed deposit with banks. The management has indicated that they will maintain cash surplus in excess of Rs 50.00 crore over the medium term.

Weaknesses
* Exposure to intense competition
The fast-moving consumer goods (FMCG) industry has organised and unorganised players across segments. Also, increasing focus on health and growing popularity of fruit juice products have led to other established FMCG players launching products with similar positioning as current players. Increase in competition necessitates higher advertising and promotion expenditure. This results in constant need to innovate in terms of packaging, and bringing on refreshes to keep established brands going. Also, new brands require sustained sales promotion until products achieve scale. Multinational corporations with deep pockets and focus on carbonated products are enhancing investments in the fruit juice segment, impacting margins for other players. Therefore, players such as MBL need to regularly introduce and innovate products, introduce differentiators and refreshes, and build on their reach and distribution to sustain market share as well as profitability

* Moderate working capital requirement
Gross current assets were at 82 days as on March 31, 2017, albeit in line with the average of fruit based juice industry. The company maintains moderate inventory of 40 days to maintain continuous flow of raw material. It provides credit of 40-50 days to it distributors, leading to moderate receivables cycle. Although the company is able to negotiate favorable payment terms with suppliers, operations remain moderately working capital intensive.

* Susceptibility to volatility in raw material prices
MBPL derives 70% of its revenue from mango-based drink for which it uses mango pulp. Mango being an agricultural product, its price is correlated with the output during a particular season, and hence, on monsoon. This makes the company a price taker for its key raw material. Larger players Parle Agro Pvt Ltd ('CRISIL AA/Stable/CRISIL A1+') and Pepsico India have a significant say in terms of pricing of products because of their established market position.

* Huge capital expenditure to be partly funded through debt
MBL plans capex of Rs 900.00 crore to increase manufacturing capacity with plants at Sri City, Vadodara, Varanasi, and in East India. Capital expenditure will be funded through available liquid fund, healthy cash accrual, and through debt. However, expected borrowings will not have major impact on financial risk profile considering strong networth. Also, stabilisation of operations after the capex and achievement of expected operating efficiency will be key sensitivity factors.