| Parle Agro Private Limited | ||||
| Rating Reaffirmed | ||||
| Rating Action | ||||
| ||||
| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AA/Stable’ rating on the long-term bank facilities of Parle Agro Private Limited (Parle Agro).
The rating reflects the leading position of Parle Agro across fruit drink categories, improving revenue diversity, healthy operating efficiency and efficient working capital management. The rating also factors in a robust financial risk profile, supported by strong debt protection metrics and healthy liquidity. These strengths are partially offset by high dependence on Frooti and Appy Fizz and susceptibility to volatility in raw material prices and intense competition.
Revenue is estimated to have grown by around 30% in fiscal 2022, driven by strong growth across current products along with launch of products and focus on advertisement and distribution. Revenue is expected to grow by 20-25% in fiscal 2023, aided by healthy growth in current products and ramp-up of new products, with more stock-keeping units being launched. Operating margin is estimated to have contracted to 16-17% in fiscal 2022 on account of high raw material prices and increase in advertisement and promotion expenses. However, efficient cost control measures and strong operating efficiency will help safeguard the margin at 15-17% over the medium term. As a result, Parle Agro is expected to generate healthy cash accrual of over Rs 400 crore annually.
CRISIL Ratings has noted launch of Smoodh (flavoured milk) in domestic market and company’s plans to ramp up the capacity over the medium term to develop its foothold in the dairy based beverage space and would be a key monitorable.
Parle Agro has strong liquidity of above Rs 800 crore in the form of cash surplus and marketable securities to withstand impact on cash flow in the near term. The financial risk profile is expected to remain robust despite capital expenditure (capex), supported by strong annual cash accrual and healthy debt protection metrics. |
Key Rating Drivers & Detailed Description Strengths:
Parle Agro is a homegrown and established player in the domestic beverage segment and has presence of over three decades. The company’s solid market position in the fruit drink segment is underpinned by presence of market-leading brands, namely Frooti and Appy Fizz. The company has made several innovations in the past couple of decades, which have enabled it to remain among the top three players in the fruit drink market. Company has also entered international market by appointing franchisees at Bahrain and Angola for the fruit drink segment.
Strong sales growth for Frooti and Appy Fizz in the past few years reflect the strength of the brands and the company’s geographical reach throughout India as well as Nepal, backed by own manufacturing and a franchisee-led business model. Though the revenue diversity has improved over the years amid reducing dependence on Frooti because of the growth of Appy Fizz, these two products remain the main revenue and profit drivers for Parle Agro. Diversification of the product profile through successful launches is likely to help the company sustain healthy growth and reduce dependence on few flagship brands.
Efficient supply chain management and a judicious mix of contract and own manufacturing have led to high capacity utilisation and strong operating profitability. Furthermore, close monitoring of raw material procurement and backward integration into polyethylene terephthalate (PET) preforms have helped the company maintain healthy operating profitability.
The group’s working capital cycle is efficiently managed, as reflected in historically healthy receivables of 5-8 days and inventory of 60-90 days. Operating margin is estimated to have moderated to 16-17% in fiscal 2022 from 19-21% earlier on account of rising raw material costs and high advertising expense. However, strong procurement setup for mangoes, pan-India distribution network and prudent working capital management will enable healthy operating efficiency of 15-17% over the medium term.
The financial risk profile of Parle Agro is reflected in healthy and improving cash generation and moderate gearing of 0.7 time in fiscal 2022. The company has undertaken sizeable capex of around Rs 400 crore for capacity expansion in fiscals 2022-2023, which would be funded through a mix of debt and internal accrual. However, despite heavy debt-funded capex, Parle Agro is expected to generate sufficient accrual to service its debt obligation, with net cash accrual/repayments of over 1.7 times and net debt/operating profit before depreciation, interest and tax of below 0.5 time, supported by high cash surplus. Net cash accrual is expected to remain above Rs 400 crore and gearing under 0.7 time over the medium term, with progressive debt repayment.
Weaknesses:
The company has products in the mango fruit drink, sparkling fruit drink and packaged drinking water segments. It has also launched a few products recently, including B-Fizz in fiscal 2021 and Smoodh in fiscal 2022. However, Frooti and Appy Fizz, the company’s flagship products, contribute to more than 70% of the total revenue, reflecting the company’s high dependence on these two brands. CRISIL Ratings has noted company plans to scale up newly launched brands along with other launches, thus reducing dependence on few brands; this will remain a key monitorable.
Key raw materials-mango pulp and polymers-comprise more than half of the company’s raw materials. Mangoes are procured only during the season, which lasts 45-60 days. Thus, Parle Agro needs to stock its annual quantity of mango pulp during the season. Also, because of the short season, the company is susceptible to volatility in the price of mangoes depending on the output of mango crop.
While polymer availability is not subject to seasonal vagaries, polymer prices are linked to international crude prices, which fluctuate depending on demand-supply patterns. Despite variation in raw material prices in the past three years and rising competition, Parle Agro sustained healthy double-digit operating profitability. Focus on cost efficiency, established relationships with suppliers and continued strong brand equity will help mitigate the impact of volatility in raw material prices.
The fast-moving consumer goods (FMCG) industry has organised and unorganised players across segments. Also, increasing focus on health and growing popularity of fruit juice products have led to other established FMCG players launching products with similar positioning as current players. Increase in competition necessitates higher advertising and promotion expenditure. This results in the constant need to innovate in terms of packaging and sustain established brands. Also, new brands require sustained sales promotion until products achieve scale. Multinational corporations with deep pockets—and focused mainly on carbonated products—are enhancing investments in the fruit juice segment, impacting the margins of the remaining players. Therefore, players such as Parle Agro need to regularly roll out innovative products, introduce differentiators and refreshes and build on their reach and distribution to sustain market share as well as profitability. |
Liquidity: Strong The strong liquidity position of Parle Agro is indicated by sizeable investments in mutual funds of around Rs 800 crore as on March 31, 2022, and annual accrual of over Rs 400 crore. These will more than suffice to meet the debt obligation (ranging between Rs 260 crore and Rs 300 crore annually between fiscals 2023 and 2024) and partly fund capex and the incremental working capital requirement. Parle Agro is also expected to maintain sufficient cash and bank balance, along with investments in mutual funds. |
Outlook: Stable Parle Agro will maintain its healthy credit risk profile over the medium term, supported by its established presence in the fruit drink segment, healthy cash-generating capability and comfortable financial risk profile. |
Rating Sensitivity factors Upward factors
Downward factors
|
About the Company Incorporated in 1985, Parle Agro manufactures ready-to-serve beverages, flavours (non-alcoholic beverage base), PET preforms and packaged drinking water. Main brands include Frooti, Appy and Appy Fizz. The product portfolio also includes brands such as B-Fizz (malt flavoured drink), Smoodh (flavoured milk), Café Cuba (carbonated coffee-flavoured soft drink), Dhishoom (masala soda water), Frio (lemon, orange and cola carbonated soft drinks) and Bailley (packaged drinking water and soda water).
The 10 manufacturing plants of Parle Agro are in Patalganga, Ghaziabad, Hyderabad, Chennai, Bhopal, Khurda, Sitarganj, Varanasi, Mysuru and Silvassa. Bailley is sold entirely through franchisees.
The company is owned and managed by Mr Prakash Chauhan (chairman and managing director), Ms Schauna Chauhan (chief executive officer and in-charge of operations), Ms Nadia Chauhan (joint managing director and in-charge of marketing) and Ms Alisha Chauhan (director). |
Key Financial Indicators
|
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)
*Interchangeable with letter of credit |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | |||||||||||||||||||||||||||||||||
|
Criteria Details
|