Rating Rationale
August 03, 2022 | Mumbai
Ovobel Foods Limited
Ratings reaffirmed at 'CRISIL BB- / Stable / CRISIL A4+ '
 
Rating Action
Total Bank Loan Facilities RatedRs.15.5 Crore
Long Term RatingCRISIL BB-/Stable (Reaffirmed)
Short Term RatingCRISIL A4+ (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its rating on the bank facilities of Ovobel Foods Limited (OFL) at ‘CRISIL BB-/Stable/CRISIL A4+’.

 

The rating reflects the company’s established market position in the egg powder business, strong relationships with customers and suppliers, and moderate capital structure. These rating strengths are partially offset by susceptibility of the operating margin to volatility in raw material prices and foreign exchange (forex) rates and modest debt protection metrics.

Key Rating Drivers & Detailed Description

Strengths:

  • Established market position and strong relationships with customers and suppliers:

The company is one of the few egg powder and frozen egg manufacturers in India. It predominantly caters to international customers in Southeast Asia. The company has also established a sound network of suppliers and procures eggs daily from poultry farms in Karnataka. Long association with these farms enables negotiation for extensive credit, easing the pressure on liquidity.

 

  • Moderate capital structure

Capital structure is comfortable marked by a gearing of 1.35 times and total outside liabilities to tangible networth ratio of 1.73 times as on March 31, 2022. Supported by the absence of any major debt funded capital expenditure, the capital structure is expected to remain comfortable over the medium term.

 

Weaknesses:

  • Susceptibility of the operating margin to volatility in raw material prices and forex rates:

The main raw material, eggs, are procured from poultry farms in Karnataka. Revenue is almost entirely derived from export to Southeast Asia. The company’s operating margin will remain susceptible to volatility in egg prices and forex rates.

 

  • Modest debt protection metrics:

Debt protection metrics are weak as reflected in interest coverage and net cash accrual to total debt ratio of 2 times and 3% respectively for fiscal 2022 on account of modest profitability during the year. The operating profitability continues to remain constrained during fiscal 2022 on account of continuing increase in operational expenses. However, the company has turned profitable during the second half of fiscal 2022 and is expected to continue the  improvement in operating profitability in the current fiscal as well.

Liquidity: Adequate

Average month-end bank limit utilization for the last 12 months through May 2022 has remained moderate at around 90%. Estimated net cash accruals of more than Rs.1.4 crore is expected to remain sufficient against repayment obligations of less than Rs.0.7 crore in FY23. Moderate cash and bank balance maintained at more than Rs.5 crore provides additional support to liquidity. Current ratio was moderate at around 1.6 times as on March 31, 2022.

Outlook Stable

CRISIL Ratings believes that OFL will continue to benefit over the medium term from its established market position

Rating Sensitivity factors

Upward factors

  • Strong revenue growth rate along with improved operating margin of more than 2%
  • Efficient working capital management and Sustenance of financial risk profile

 

Downward factors

  • Significant decline in scale or margin continuing at less than 1% leading to net cash accruals of less than Rs.1 crore
  • Substantial increase in working capital requirement or large, debt-funded capex, weakening the financial risk profile and liquidity

About the Company

Promoted in 1993 by Mr Vishan Swarup Aggarwal and Mr Shanti Swarup Aggarwal, and based in Bangalore, Karnataka, OFL manufactures egg powder and processes frozen eggs.

Key Financial Indicators

As on / for the period ended March 31

 

2022

2021

Operating income

Rs crore

125.1

115

Reported profit after tax

Rs crore

0.02

(1.8)

PAT margins

%

0

(1.6)

Adjusted Debt/Adjusted Net worth

Times

1.35

0.75

Interest coverage

Times

1.41

(1)

Status of non-cooperation with previous CRA:

OFL has not cooperated with Credit Analysis & Research Ltd. (Care Ratings) which has classified it as issuer not cooperative vide release dated March 19, 2020. The reason provided by Credit Analysis & Research Ltd. is non-furnishing of information for monitoring of ratings

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 cr.)

Complexity Level

Rating Assigned with Outlook

NA

Foreign Bill Discounting

NA

NA

NA

15

NA

CRISIL A4+

NA

Packing Credit

NA

NA

NA

0.5

NA

CRISIL BB-/Stable

Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT/ST 15.5 CRISIL BB-/Stable / CRISIL A4+   -- 26-11-21 CRISIL BB-/Stable / CRISIL A4+ 27-08-20 CRISIL A4+ 04-02-19 CRISIL A4 CRISIL A4 (Issuer Not Cooperating)*
      --   --   -- 26-05-20 CRISIL A4 (Issuer Not Cooperating)*   -- --
All amounts are in Rs.Cr.
* - Issuer did not cooperate; based on best-available information
 
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Foreign Bill Discounting 15 Bank of Baroda CRISIL A4+
Packing Credit 0.5 Bank of Baroda CRISIL BB-/Stable

This Annexure has been updated on 03-Aug-2022 in line with the lender-wise facility details as on 26-Nov-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
CRISILs Criteria for rating short term debt

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