Key Rating Drivers & Detailed Description

Strengths:

 Established position, integrated operations and strong regional presence:

MBF is an established player since 1998 with two breeding farm units in Tamil Nadu and Kerela. The firm has its own hatcheries, feed factories, commercial broiler farms and two retail outlets. MBF produces and sells broiler chicken. The firm benefits from its integrated operations with its in-house feed manufacturing unit. With a strong regional presence, this has helped the firm in steadily increasing revenues from Rs. 169.37 crore in fiscal 2020 to Rs. 243.94 crore in fiscal 2021, supported by increasing broiler chicken rates and this is expected to further improve in the medium term. Extensive experience of the partners has helped the firm successfully establish strong relationships with its suppliers and customers, which will continue to support the business profile.

Moderate Financial Risk profile:

Networth is modest at Rs. 13.80 crore in FY21 on account of yearly withdrawals from the firm which is expected to improve further with higher accretion to reserves. Gearing and TOL/TNW are high at 2.34 times and 3.82 times due to higher reliance on external borrowings to fund its capex and working capital operations. This is expected to improve substantially over the medium term, with no major debt funded capex over the medium term. Debt protection metrics are also comfortable as reflected in the interest coverage and net cash accrual to adjusted debt ratios of 2.96 and 0.11 times, respectively, for fiscal 2021 and which are expected to remain comfortable over the medium term.

Weaknesses:

Susceptibility to volatility in raw material prices impacting operating margins:

Operating margin is susceptible to volatility in the prices of raw materials such as maize and soya. The inability of the firm to pass on the significant increase in raw material prices to customers due to intense competition adversely impacts the operating margin, which were in range of 3-5.5 % in the past three fiscals. Any changes in the prices of the key raw materials can significantly impact the business risk profile. Stability in operating margin will remain a key monitorable.

Exposure to risks inherent in the poultry and commercial broiler farming industry:

The poultry/broiler industry is driven by regional demand-supply dynamics, given the transportation-related constraints and perishable nature of products. Intense competition limits the ability to fully pass on any increase in input prices. The business is also susceptible to disease outbreaks, which could lead to decline in sales and realization.  Moreover, demand for broiler chicken is also seasonal because of religious factors.

Key Financial Indicators

Annexure - Details of Instrument(s)

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