Key Rating Drivers & Detailed Description

Strengths:

Established presence in the gelatin market with recognised brand, and steady support from NGI: The group is a strong player in the gelatin market. It started producing ossein and di-calcium phosphate (DCP) in 1978, and gelatin in 1999. It has a technological tie-up and operational linkages with Osaka-based NGI (which holds 43% stake in NGIL), a leading gelatin manufacturer in the world, and enjoys considerable brand equity.

Adequate financial risk profile: Debt protection metrics were healthy, with interest coverage and NCATD ratios of over 14 times and 0.55 time, respectively, in fiscal 2022 (8.5 times and 0.38 time, respectively, in 2021). Gearing was below 0.45 time as on March 31, 2022. Given the moderate capex, steady cash accrual and progressive debt repayment, the financial risk profile should remain strong over the medium term.

Weaknesses:

Susceptibility to volatility in input prices and forex rates: Crushed animal (cattle) bone and hydrochloric acid are the key raw materials for the NGIL group. The market for crushed animal bone is highly unorganised and keeps the operating margin susceptible to price hikes. Supply of crushed bones was disrupted during the Covid-19 pandemic and has not normalised yet. Additionally, the group has sizeable forex exposure because of exports. Although 60% of export receivables are hedged using forward contracts, the group remains vulnerable to any steep fluctuation in forex rates.

Exposure to concerns over pollution norms: Operations of NGIL have been disrupted at its ossein plant in Koratty, Kerala, due to an agitation pertaining to the alleged pollution due to effluents discharged by the plant. While NGIL has taken various measures such as construction of an anaerobic digester (to be operational by September 2022) to address these concerns, the pollution allegation case is pending before the High Court of Kerala. Operations will remain susceptible to similar protests and any stringent pollution control requirements hereon.

Key Financial Indicators

Annexure - Details of Instrument(s)

Annexure – List of entities consolidated

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