| Nitta Gelatin India Limited | ||||||
| Rating outlook revised to 'Positive'; Ratings reaffirmed | ||||||
| Rating Action | ||||||
| ||||||
| 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 revised its outlook on the long-term bank facilities of Nitta Gelatin India Limited (NGIL; part of the NGIL group) to ‘Positive’ from ‘Stable’ while reaffirming the rating at ‘CRISIL A-’. The short-term rating has been reaffirmed at ‘CRISIL A2+’.
The revision in outlook factors in expected improvement in the group’s business risk profile, supported by modest growth in volume sales and comfortable product realisations. Despite the capacity expansions planned over the medium term that could be partly debt-funded, the financial risk profile should remain comfortable.
Revenues grew by 12% on-year in fiscal 2023 to Rs 566 crore, driven by higher realisations in products like gelatin and di-calcium phosphate (DCP), while volumes continued its modest growth. This, coupled with steady raw material prices led to an all-time high operating profitability of 20.8% for the fiscal as compared to 13.5% in the previous year. This trend continued in the first quarter of fiscal 2024, with the company reporting around 30% operating margins. While margins could soften going forward as the global demand-supply gap eases, supported by improved operating efficiencies, overall profitability is expected to range between 12-14% over the long term. With customers becoming more health conscious, demand prospects for gelatin and other protein-based products is expected to remain comfortable.
The company budgets to incur ~Rs. 200 crore of capital expenditure over fiscals 2024 and 2025, mainly to undertake capacity expansions in its gelatin and peptide unit. While this could be partly debt-funded, the financial risk profile of the company is nevertheless expected to remain comfortable, supported by annual cash accruals expected of over Rs 50 crore.
The ratings continue to reflect the established position of the NGIL group in the gelatin industry, steady support from joint venture (JV) partner, Nitta Gelatin Inc, Japan (NGI), and the strong financial risk profile. These strengths are partially offset by susceptibility to fluctuations in input prices and foreign exchange (forex) rates, and probability of disruption of operations or sub-optimal capacity utilisation due to pollution concerns. |
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 the same 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:
Gelatin sales, both domestically and to the parent NGI Japan, contributed about 56% of its sales in fiscal 2023, followed by DCP and ossein at 21% and 11% respectively.
Weaknesses:
|
Liquidity: Adequate Cash accruals of over Rs 80 crore is expected in fiscal 2024. Utilisation of the fund-based limit of Rs 87 crore was moderate, averaging 35% in the past 15 months ended May 31, 2023. Planned capex of around Rs 50 crore in fiscal 2024 along with minimal debt obligation and incremental working capital requirements should be covered through the internal accrual and available cushion in the bank limits. |
Outlook: Positive NGIL is expected to capitalize on its established position in the growing domestic gelatin market, supporting volume growth and profitability levels, while maintaining a comfortable financial risk profile. |
Rating Sensitivity factors Upward factors
Downward factors
|
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.
The company recorded Rs 128 crore of operating income and Rs 28 crore of profit after tax in the first quarter of fiscal 2024 on a consolidated basis. |
Key Financial Indicators
|
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
|
Annexure – List of entities consolidated
|
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Criteria Details
|