| Nitta Gelatin India Limited | ||||||
| Ratings placed on 'Watch Developing' | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has placed its ratings on the bank facilities of Nitta Gelatin India Limited (NGIL; part of the NGIL group) on ‘Rating Watch With Developing Implications’. The rating on the bank facilities worth Rs 6 crore has been withdrawn at the company’s request in line with the CRISIL Ratings policy on withdrawal of ratings
The rating action follows the recent order from the Maharashtra Pollution Control Board (MPCB) dated March 13, 2024, directing Bamni Proteins Ltd (BPL; subsidiary of NGIL with 82% stake) to stop its manufacturing activities and cease sourcing water supply in view of alleged violations of pollution control norms.
CRISIL Ratings is in discussion with the management to seek further clarity on the way forward and will continue to monitor the developments in this regard. NGIL procures about 20% of its total ossein requirements (raw material to manufacture gelatin) through BPL, while the balance is met internally. Thus, CRISIL Ratings will resolve the watch once more clarity is received about other sourcing options the group will have to finalise to compensate for the loss of supply from BPL. Also, CRISIL Ratings will await more clarity on the timelines of the resumption of operations of BPL, any significant delays in which and its impact on the business and financial risk profiles of NGIL and will remain monitorable.
The ratings continue to reflect the established position of the NGIL group in the gelatin industry, steady technical and operational support from joint venture (JV) partner, Nitta Gelatin Inc, Japan (NGI), and adequate financial and business risk profiles of NGIL, supported by healthy growth in volumes and comfortable product realisations.
Revenue grew 12% on-year in fiscal 2023 to Rs 566 crore, driven by higher realisations in products such as gelatin and di-calcium phosphate (DCP); while growth in volumes remained modest. For the nine months through December 2023, NGIL reported revenue of Rs 402 crore, a slight moderation due to the subdued global demand and an accident at Kakkanad (Kerala) factory in September 2023 that briefly impacted operations in the third quarter of this fiscal. That said, steady raw material prices led to an all-time high operating profitability of 20.8% for fiscal 2023 against 13.5% previous fiscal. Profitability was ~25.5% in the nine months through December 2023, led by comparatively lower crushed bone prices and higher realisations in the first half of fiscal 2024. While margin could soften over the medium term as the global demand-supply gap eases, overall profitability is expected at 12-14% in the long term due to improved operating efficiency. With customers becoming more health conscious, demand prospects for gelatin and other protein-based products are expected to remain comfortable.
The group plans to incur ~Rs 200 crore of capital expenditure (capex) over fiscals 2024-2025 to undertake capacity expansions in its gelatin and peptide unit. Though this could be partly debt-funded, financial risk profile is expected to remain comfortable on the back of annual cash accrual of over Rs 50 crore. |
Analytical Approach CRISIL Ratings has combined the financial and business risk profiles of NGIL and its subsidiary, Bamni Proteins Ltd (BPL). This is because the two companies, collectively referred to as the NGIL group, are in the same business, operate under common management and have significant operational and financial linkages.
NGIL has redeemable preference shares of Rs 3.8 crore as consideration towards NGI’s stake in Reva. Considering the redeemable and interest-bearing nature of these shares, CRISIL Ratings has treated these as debt.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation.. |
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 DCP in 1978, and gelatin in 1999. It has technological tie-up and operational linkages with Osaka-based NGI (which holds 43% stake in NGIL), a leading gelatin manufacturer in the world that enjoys considerable brand equity.
Gelatin sales, both domestically and to the parent (NGI Japan) and its group companies, contributed about 56% to the sales in fiscal 2023, followed by DCP and ossein at 21% and 11%, respectively.
Adequate financial risk profile: Debt protection metrics remained healthy, with interest coverage and net cash accrual to total debt ratios of over 17 times and 2.1 times, respectively, in fiscal 2023. The strong profitability in fiscal 2023 that continued in fiscal 2024 also led to cash surplus being built up to Rs 27 crore as on September 30, 2023. Gearing remained below 0.10 time, and should be below 0.2 time despite upcoming capacity expansion plans. The ~Rs 200 crore capex planned for the next two fiscals is expected to be funded prudently through a mix of equity infusion, debt and internal accrual. Given the steady cash accrual and healthy liquidity, credit metrics and overall 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 group. The market for crushed animal bone is highly unorganised, which exposes operating margin to price fluctuations. Supply of crushed bones was disrupted during the pandemic, although it has normalised since then. Additionally, the group has sizeable foreign exchange (forex) exposure via 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 at the ossein plant of NGIL in Koratty, Kerala, were disrupted in the past due to an agitation by local protestors alleging pollution of the surrounding region due to effluents discharged by the plant. While NGIL has taken various measures (such as construction of an anaerobic digester) to address these concerns, the pollution allegation case is currently pending before the High Court of Kerala. Operations remain susceptible to similar protests in future and any stringent pollution control requirements hereon. Furthermore, in March 2024, operations of its subsidiary, BPL, came to halt due to an order by the Maharashtra Pollution Control Board, thereby impacting the supply chain of NGIL. |
Liquidity: Adequate Cash accrual of over Rs 80 crore is expected in fiscal 2024. Utilisation of fund-based limit of Rs 87 crore averaged 35% in the 15 months ended May 31, 2023. Planned capex of around Rs 20 crore in fiscal 2024, along with minimal debt obligation and incremental working capital requirement, should be met through internal accrual and available cushion in bank limit. Furthermore, the company has minimal long-term debt obligation, and liquid surplus of Rs 27 crore as of September 2023. |
Rating Sensitivity Factors Upward Factors
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About the Group Set up in 1975, NGIL is a JV between the Kerala State Industrial Development Corporation (32% shareholding) and NGI (43%). The company manufactures gelatin, ossein, limed ossein, and DCP by processing crushed animal bone and treating it with hydrochloric acid. It also produces collagen peptide-based consumer products used in the pharmaceuticals and healthcare industries. BPL processes crushed animal bone and hydrochloric acid into ossein and then supplies the same to NGIL.
NGIL merged its erstwhile subsidiary, Reva, with itself after receipt of approval from the National Company Law Tribunal in fiscal 2019, with effect from April 1, 2017. |
Key Financial Indicators
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Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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Annexure - List of Entities Consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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