Rating Rationale
September 03, 2021 | Mumbai
Nitta Gelatin India Limited
Ratings reaffirmed at 'CRISIL A- / Stable / CRISIL A2+ '
 
Rating Action
Total Bank Loan Facilities RatedRs.85.21 Crore (Reduced from Rs.92.21 Crore)
Long Term RatingCRISIL A-/Stable (Reaffirmed)
Short Term RatingCRISIL A2+ (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL A-/Stable/CRISIL A2+’ ratings on the bank facilities of Nitta Gelatin India Ltd (NGIL; part of the NGIL group). The ratings on Rs 7 crore of bank facilities have been withdrawn at the company’s request. The withdrawal is in line with CRISIL ratings withdrawal policy.   

 

Revenue grew 16% in fiscal 2021 with healthy demand from the pharma sector during the pandemic. Despite the increase in the domestic price of the company’s major raw material, crushed bones (CB), due to demand-supply mismatch following the lockdown, ban on beef and lower demand for meat due to Covid-19; NGIL has been able to maintain operating margin of 12.2% for fiscal 2021 through reduction in other costs. It is expected to increase CB sourcing through imports to mitigate the supply and quality problems of domestic CB. Gross margin is expected to normalise once supply is stable.

 

Financial risk profile is expected to remain healthy over the medium term with annual accrual of over Rs 25 crore, which would comfortably fund moderate capital expenditure (capex) of around Rs 19 crore in fiscal 2022and repayments expected around Rs 1-2 crore each fiscal. Gearing is estimated to be strong at less than 0.5 time as on March 31, 2021, while debt protection metrics are likely to be robust, with interest coverage and net cash accrual to total debt (NCATD) ratios of over 8 times and 0.38 time, respectively, for fiscal 2021.

 

The ratings continue to reflect the NGIL group’s established position in the gelatin industry, steady support from its joint venture (JV) partner, Nitta Gelatin Inc, Japan (NGI), and comfortable financial risk profile because of healthy capital structure and debt protection metrics. These strengths are partially offset by susceptibility to fluctuations in input prices and foreign exchange (forex) rates and exposure to the risk of disruption of operations or sub-optimal capacity utilisation because of pollution concerns.

Analytical Approach

To arrive at its ratings, 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, and have common management and significant operational and financial synergies.

 

NGIL also has optionally convertible preference shares of Rs 14.6 crore, which have been fully subscribed by the parent. It also 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 - Details of Consolidation, 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 di-calcium phosphate (DCP) in 1978 and gelatin in 1999. The group has a technological tie-up and operational linkages with Osaka-based NGI (has 43% stake in NGIL), one of the leading gelatin manufacturers in the world, and enjoys considerable brand equity.

 

  • Adequate financial risk profile: Debt protection metrics were healthy, with interest coverage and NCATD ratios of 8.5 times and 0.38 time, respectively, in fiscal 2021 (4.8 times and 0.31 time, respectively, in 2020). Gearing too was comfortable at less than 0.5 time as on March 31, 2021. Given the moderate capex, steady accrual, and progressive debt repayment, credit metrics, and overall financial risk profile, should remain strong over the medium term.

 

Weaknesses:

  • Susceptibility to volatile input prices and forex rates: The group’s two main raw materials are crushed animal (cattle) bone and hydrochloric acid. The market for crushed animal bone is highly unorganised and exposes operating margin to increase in input prices. Due to the pandemic, the supply for crushed bones was disrupted and has still not normalised. Additionally, the group has sizeable forex exposure in the form of export sales. Although 60% of the export receivables are hedged using forward contracts, the group remains vulnerable to any steep fluctuation in forex rates.

 

  • Environmental pollution concerns: In the past, NGIL has faced interruptions in operations at its ossein plant in Koratty, Kerala, owing to agitation by local protestors. These protests pertain to the alleged pollution of environment in the surrounding region due to effluent discharge from the plant. While NGIL has taken various measures to address these concerns, the pollution allegation case is currently pending before the High Court of Kerala. Operations remain susceptible to further such protests as well as the verdict on pollution allegations and any stringent pollution control requirements hereon.

Liquidity: Adequate

Cash accrual is expected to be in excess of Rs 25 crore each in fiscals 2022 and 2023. Fund-based limit of Rs 81 crore was moderately utlilised at 54% as on March 31, 2021. Capex expected around Rs 19 crore in fiscal 2022, expected repayment obligations of Rs 1-2 crore per fiscal and incremental working capital requirements would be funded from accruals and unutilised bank lines

Outlook Stable

Credit risk profile of the group will continue to benefit from its established position in the domestic gelatin market, support from NGI, and adequate financial risk profile over the medium term.

Rating Sensitivity factors

Upward factors

  • Sustained increase in revenue by 12-14% or more, while maintaining operating profitability at over 12%
  • Improvement in gearing and debt protection metrics

 

Downward factors

  • Decline in revenue by more than 20% or in operating profitability to below 8%
  • Change in stance of support from NGI
  • Major debt-funded capex weakening credit metrics
  • Adverse operational disturbances, if any, on account of perceived environmental concerns, agitations or court verdicts on pollution control

About the Group

Set up in 1975, NGIL is a JV between the Kerala State Industrial Development Corporation (32% shareholding) and NGI (43%), and manufactures gelatin, ossein, limed ossein, and DCP by processing crushed animal bone and treating it with hydrochloric acid. The company also manufactures collagen peptide-based consumer products that are used in the pharmaceuticals/healthcare industry. BPL processes crushed animal bone and hydrochloric acid into ossein and then supplies to NGIL.

 

NGIL merged erstwhile subsidiary, Reva, with itself after receipt of a National Company Law Tribunal approval in fiscal 2019, with effect from April 1, 2017.

Key Financial Indicators

Particulars

Unit

2021

2020

Revenue

Rs crore

397

343

Profit after tax (PAT)

Rs crore

18

12

PAT margin

%

4.5

3.6

Adjusted debt/ adjusted networth

Times

0.46

0.54

Interest coverage

Times

8.46

4.83

 

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)

Complexity

Levels

Rating

NA

Bill purchase-discounting facility

NA

NA

NA

31.4

NA

CRISIL A2+

NA

Cash credit

NA

NA

NA

7

NA

CRISIL A-/Stable

NA

Letter of credit & bank guarantee

NA

NA

NA

3.91

NA

CRISIL A2+

NA

Packing credit

NA

NA

NA

42.9

NA

CRISIL A2+

NA

Packing credit

NA

NA

NA

4.9

NA

Withdrawn

NA

Bill purchase-discounting facility

NA

NA

NA

2.1

NA

Withdrawn

 

Annexure – List of entities consolidated

Name of entity

Extent of consolidation

Rationale for consolidation

Bamni Proteins Ltd

Full

Subsidiary, business synergies
Annexure - Rating History for last 3 Years
  Current 2021 (History) 2020  2019  2018  Start of 2018
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT/ST 88.3 CRISIL A2+ / CRISIL A-/Stable   -- 23-07-20 CRISIL A2+ / CRISIL A-/Stable 08-04-19 CRISIL A2+ / CRISIL A-/Negative 17-04-18 CRISIL A2+ / CRISIL A-/Negative CRISIL A2+ / CRISIL A-/Negative
      --   -- 06-03-20 CRISIL A2+ / CRISIL A-/Stable 22-03-19 CRISIL A2+ / CRISIL A-/Negative 16-04-18 CRISIL A2+ / CRISIL A-/Negative --
      --   --   --   -- 16-03-18 CRISIL A2+ / CRISIL A-/Negative --
Non-Fund Based Facilities ST 3.91 CRISIL A2+   -- 23-07-20 CRISIL A2+ 08-04-19 CRISIL A2+ 17-04-18 CRISIL A2+ CRISIL A2+
      --   -- 06-03-20 CRISIL A2+ 22-03-19 CRISIL A2+ 16-04-18 CRISIL A2+ --
      --   --   --   -- 16-03-18 CRISIL A2+ --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bill Purchase-Discounting Facility 3.1 Canara Bank CRISIL A2+
Bill Purchase-Discounting Facility 19.3 State Bank of India CRISIL A2+
Bill Purchase-Discounting Facility 3 HDFC Bank Limited CRISIL A2+
Bill Purchase-Discounting Facility 3 Standard Chartered Bank Limited CRISIL A2+
Bill Purchase-Discounting Facility 3 YES Bank Limited CRISIL A2+
Bill Purchase-Discounting Facility 2.1 Canara Bank Withdrawn
Cash Credit 4 HDFC Bank Limited CRISIL A-/Stable
Cash Credit 3 State Bank of India CRISIL A-/Stable
Letter of credit & Bank Guarantee 3.91 State Bank of India CRISIL A2+
Packing Credit 4.35 Sumitomo Mitsui Banking Corporation CRISIL A2+
Packing Credit 3.1 Canara Bank CRISIL A2+
Packing Credit 14.8 State Bank of India CRISIL A2+
Packing Credit 3 HDFC Bank Limited CRISIL A2+
Packing Credit 3 YES Bank Limited CRISIL A2+
Packing Credit 3 Standard Chartered Bank Limited CRISIL A2+
Packing Credit 6 Mizuho Bank Limited CRISIL A2+
Packing Credit 5 Sumitomo Mitsui Banking Corporation CRISIL A2+
Packing Credit 0.65 Sumitomo Mitsui Banking Corporation CRISIL A2+
Packing Credit 4.9 Canara Bank Withdrawn

This Annexure has been updated on 3-Sep-2021 in line with the lender-wise facility details as on 2-Sep-2021 received from the rated entity.

Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for the Pharmaceutical Industry
CRISILs Criteria for rating short term debt
CRISILs Criteria for Consolidation

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