Rating Rationale
May 30, 2017 | Mumbai
Moon Beverages Limited
Rating Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.88 Crore
Long Term Rating CRISIL A+/Stable (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL's rating on the long-term bank facilities of Moon Beverages Limited (MBL) continues to reflect the company's stable market position, moderate operating efficiencies and healthy financial risk profile. These rating strengths are partially offset by geographical concentration in revenue profile, and vulnerability to regulatory changes.

Analytical Approach

For arriving at its rating, CRISIL has combined the business and financial risk profiles of MBL and its subsidiary, Hindustan Aqua Ltd (HAL). This is because the two companies, together referred to as the MBL combine, operate in the same line of business. Further, MBL has provided financial support to HAL in the form of corporate guarantees for the latter's bank lines along with equity infusions and unsecured loans.

Key Rating Drivers & Detailed Description
Strengths
* Stable market position due to presence of franchisee agreement with The Coca-Cola Company (Coca-Cola; rated 'AA-/Negative/A1+' by S&P Global ratings),
MBL is among Coca Cola's oldest, largest and most prominent third-party franchisee bottlers in India, and has been associated with Coca Cola for the past 22 years, prior to which it was a bottler for Parle for seven years. The company caters to one-third of Delhi for carbonated soft drinks (CSD) and is the sole distributor in National Capital Region (NCR) region for packaged drinking water (Kinley), making it the largest bottler for Coca Cola in India in terms of volume (if CSD and packaged water segments are combined).

The combine has strengthened its distribution network, and set up a co-bottling manufacturing facility for Coca Cola over the years.

* Moderate operating efficiencies because of presence in both returnable glass bottle (RGB) and polyethylene terephthalate (PET) bottle segments
MBL's presence in both the RGB, PET, CSD can line, and PET juices segments provides it with several benefits. It is able to take advantage of a gradual shift towards PET bottles and CSD cans with the change in consumer preferences and lifestyles. Additionally, MBL generates a better operating margin through its captive facility, compared to purchasing from other Coca Cola franchisees. The operating margins, at a consolidated level, improved to 13.5% in fiscal 2016 from 10.7% in fiscal 2015 due to lower discounts given to dealers, moderating input costs and benefits of captive generation. The margins are expected to be around 13% in fiscal 2017.

* Healthy financial risk profile
Financial risk profile is supported by regular equity infusion by the promoters, sound debt protection metrics, and large liquid investments as fixed deposits. Between fiscals 2008 and 2016, the promoters have infused equity of Rs 78 crore; gearing, therefore, remained below 1.5 times despite company undertaking a large capex of Rs 140 crore amount to increase capacities in fiscal 2013 and investments in group companies. Interest coverage has remained high at more than 5 times over the past three years. Liquid investments of around Rs 160 crore as on fiscal 2017 (on provisional basis) were maintained largely in form of fixed deposits. Financial risk profile is expected to remain healthy over the medium term in the absence of large capex and incremental investments in group companies.

Weakness
* Limited avenues for revenue growth due to geographically concentrated revenue profile and high competition
The exclusive franchisee agreement restricts MBL's sales and growth potential to the defined territory. Additionally, with consumers increasingly turning health conscious, the CSDs are losing market share to the non-carbonated drinks. Furthermore, MBL's CSD products, which significantly contribute to its revenue, continue to face competition from PepsiCo India and other beverages. MBL's sales growth will therefore depend primarily on the success of non-carbonated products. Though its capacity to manufacture such products is expected to increase, additional sales from such capacities could only benefit the company over the medium to long term. 

* Vulnerability to adverse regulatory changes
MBL remains exposed to any unfavourable government regulation regarding the contents of aerated drinks and increasing environmental concerns in the country regarding water depletion and discharge of effluents by bottling plants.
Outlook: Stable

CRISIL believes MBL's business risk profile will continue to benefit over the medium term from its exclusive franchisee agreement with Coca-Cola and its established market position in Delhi/ NCR. The company will also maintain its healthy financial risk profile over this period, backed by large liquid investments and absence of any large debt-funded capex. The outlook may be revised to 'Positive' in case of substantial growth in revenue and sustained improvement in operating profitability while the healthy financial risk profile is maintained. Conversely, the outlook may be revised to 'Negative' in case of a decline in operating margin, large, debt-funded capital expenditure, or considerable funding support to associate companies, leading to deterioration in the financial risk profile, particularly liquidity.

About the Company

MBL, incorporated in 1987, is promoted by the MM Agarwal group of Kanpur (Uttar Pradesh). The company is one of the largest franchisee bottlers for Coca-Cola. It initially operated as a franchisee bottler for Parle Soft Drinks Ltd. Currently, MBL has the exclusive bottling and distribution franchisee of Coca-Cola's carbonated soft drinks for a third of the NCR, and of its packaged drinking water (Kinley brand) for the entire region. It manufactures and distributes sparkling soft drinks and packaged drinking water. HAL has a co-pack bottling arrangement with Coca Cola; production is carried out by HAL, and sale and marketing by Hindustan Coca-Cola Beverages Pvt Ltd. HAL has two bottling plants, in Kanpur and Rourkela, Odisha.

On a consolidated basis, profit after tax (PAT) was Rs 19 crore on net sales of Rs 421 crore for fiscal 2016, against a PAT of Rs. 10 crore on net sales of Rs 418 crore fiscal 2015. For fiscal 2017, MBL on provisional basis reported a standalone PAT of Rs 17 crore on net sales of Rs 416 crore.

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 Overdraft NA NA NA 25 CRISIL A+/Stable
NA Term loan NA NA 25-Sep-2020 63 CRISIL A+/Stable
Annexure - Rating History for last 3 Years
  Current 2017 (History) 2016  2015  2014  Start of 2014
Instrument Type Quantum Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  88  CRISIL A+/Stable    No Rating Change    No Rating Change    No Rating Change    No Rating Change  CRISIL A+/Stable 
Non Fund-based Bank Facilities  LT/ST    --    --    --    --    No Rating Change  CRISIL A1+ 
Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Overdraft 25 CRISIL A+/Stable Overdraft 25 CRISIL A+/Stable
Term Loan 63 CRISIL A+/Stable Term Loan 63 CRISIL A+/Stable
Total 88 -- Total 88 --
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
Rating Criteria for Fast Moving Consumer Goods Industry

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