| Nekkanti Mega Food Park Private Limited | ||||
| 'CRISIL BBB+/Stable' assigned to bank debt | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL has assigned its 'CRISIL BBB+/Stable' rating to the long term bank facility of Nekkanti Mega Food Park Private Limited (NMFPPL). The rating reflects the benefits NMFPPL derives from its strong parent, Nekkanti Sea Foods Ltd (NSFL; rated 'CRISIL A/Stable/CRISIL A1'). These strengths are partially offset by NMFPPL's susceptibility to risks related to stabilization of the Food Park and exposure to intense competition in the seafood segment. |
| Analytical Approach |
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CRISIL has applied its parent notch-up framework to factor in support from NSFL. For arriving at the rating of NSFL, CRISIL has combined the business and financial risk profile of NSFL and its 60 per cent subsidiary NMFPPL, together referred to as the Nekkanti group. |
| Key Rating Drivers & Detailed Description |
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Strengths * Established market position in the seafood industry, backed by promoter's extensive experience and a strong parent The Nekkanti group is promoted by Mr. NSR Murthy who has significant experience inshrimp exports for more than three decades.Under his stewardship, the group has developed healthy relationship with its suppliers and customers. A combination of these initiatives has helped the group in registering compounded annual growth of 22% over the last three years ended FY2018. * Healthy market prospects and assured off take arrangement NMFPPL has assured off take for its capacities from its Parent NSFL. With almost capacities of 50MTPD for shrimp processing to be utilized completely by NSFL; the entity has assured revenue visibility over medium term. NSFL has 60% shareholding in NMFPPL and operations are to be closely monitored by the group's promoters. * Longstanding customer relationship The group has built a large client base with no major customer concentration in revenues. It has longstanding relationship with its key customers and has been associated with them for more than a 2 decades. Further adherence to customer specifications and demand while maintaining high quality standards has been instrumental in building up longstanding relation with customers. * Healthy financial risk further to be strengthened by the IPO process The Nekkanti group's financial profile is marked by healthy net worth, conservative capital structure and strong debt protection metrics. Despite significant capital expenditure (capex) of around Rs 128 crores in fiscal 2017 & 2018, gearing is low at 0.1 times as on March 31, 2018. Healthy operating profitability has resulted in healthy debt protection metrics with interest coverage ratio and net cash accruals to total debt estimated to be at around 21 times and 4 times respectively as on fiscal 2018. Equity funds of about Rs. 205 raised in first quarter of fiscal 2019, have further strengthened the group's financial risk profile. The group's net worth is estimated at Rs 629 crores as on June 30, 2018, with a gearing of less than 0.1 time. Absence of any debt funded capex programme and steady cash accretions, will ensure gearing remains well below 0.3 times over the long term. Weakness * Susceptibility to risks related to stabilization of the Food Park and exposure to intense competition in the seafood segment The Unit has achieved COD (commercial operations date) in July 2018 and full-fledged operations are expected from August 2018; while operations are closely monitored by NSFL along with assured revenue visibility; stabilization of the Unit will only be gradual. Also, Indian seafood exporter face intense competition from cheaper varieties sourced from countries such as Bangladesh, Thailand, and Indonesia. CRISIL expects company's scale of operation will remain small and any improvement/stabilization will only be gradual. * Geographical concentration in revenue The group has been generating around 87-89% of the revenues from exports to the US; US is the largest consumer of shrimp globally. Any unfavorable change in the US government policy like imposing of higher anti-dumping duty could significantly impact the company's operations. * Susceptibility to risks inherent in the seafood industry and exposure to government regulations The seafood processing industry is highly fragmented, marked by the presence of several small players and a few large players. Competition from neighboring countries such as Thailand, Malaysia, and Indonesia, and countries in the Middle East persists. Furthermore, the industry is susceptible to the outbreak of diseases, adverse climatic conditions, and natural calamities which can impact the quality of the shrimp exported and given the high quality sensitiveness that is inherent in the industry, any dip in quality standards can hamper the volumes of entity. Moreover, unfavorable change in the government policy in export destinations could impact the company's revenues and profitability. Imposition of higher anti-dumping duties from US geography which is the highest importer of Indian shrimps can impact realizations. * Volatility in shrimp prices and foreign exchange (forex) rates NSPL derives majority of its revenue from exports. Therefore, the company is exposed to risks related to volatility in foreign exchange; this affects its realizations and, in turn, its cash accruals. The company occasionally uses forward cover to hedge its risk. It also enjoys some degree of natural hedge. However, the company's operating margins will remain susceptible to adverse forex movements going forward. |
| Outlook: Stable |
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CRISIL believes that NMFPPL will benefit over the medium term from the extensive industry experience of its promoters and strong support from NSFL. The outlook may be revised to 'Positive' if earlier-than-expected stabilization of the project results in higher revenues and profitability, leading to improvement in its business and financial risk profile, or if the parent company's credit risk profile improves. Conversely, the outlook may be revised to 'Negative' if there is significant delay in stabilization of its operations leading to time and cost overruns in its ongoing project resulting in weakening of its financial risk profile, or in case of non-receipt or absence of timely support from the parent company, or in case of deterioration in the parent company's credit risk profile. |
| About the Company |
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Incorporated in 2017, NMFPPL will cater to infrastructural needs of the food processing entities. The Company is promoted by Nekkanti Sea Foods Ltd (having 60% shareholding) and RVR Projects Pvt Ltd (having 40% shareholding).The Food Park has achieved COD in July 2018 and full-fledged operations will start in August 2018. |
| Key Financial Indicators* | ||||||||||||||||||||||||
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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) | ||||||||||||||
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||
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| Links to related criteria |
| CRISILs Approach to Financial Ratios |
| CRISILs Approach to Recognising Default |
| For further information contact: | ||||||
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