| Premier Alcobev Private Limited | ||||||
| Ratings upgraded to 'CRISIL BBB+/Stable/CRISIL A2'; Rated amount enhanced | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has upgraded its ratings on the bank facilities of Premier Alcobev Private Limited (PAPL) to ‘CRISIL BBB+/Stable/CRISIL A2’ from ‘CRISIL BBB/Positive/CRISIL A3+’.
The upgrade reflects CRISIL Ratings’ expectation that the credit risk profile of PAPL would improve owing to sustenance of strong operating performance leading to increased cash accrual while enhanced financial risk profile is maintained.
CRISIL Ratings has taken into account the large debt-funded capital expenditure (capex) of Rs 175 crore undertaken by the company to set up a 200 kilolitre per day (klpd) ethanol plant by December 2022; the risk is largely mitigated as the same is a brownfield capex backed by long-term offtake agreement by oil marketing companies (OMCs) along with financial closure already achieved. Timely completion of the project within budgeted cost and achieving scale and profitability as envisaged would be a key monitorable.
Revenue is estimated to have grown 10-15% in fiscal 2022 over previous year along with maintenance of healthy operating margin of over 20%. CRISIL Ratings expects overall revenue to increase to more than Rs 500 crore by fiscal 2024 once the ethanol plant is commissioned.
Financial risk profile is expected to moderate in fiscal 2023 owing to debt funded capex of Rs 175 crore being undertaken (Rs 122 crore term debt sanctioned), while its contribution to revenue and profitability would meaningfully accrue from fiscal 2024. However, financial risk profile would remain comfortable.
The ratings reflect the company’s strong position in Himachal Pradesh and healthy financial risk profile. These strengths are partially offset by exposure to project execution risk, intense competition in the Indian-made foreign liquor (IMFL) business and vulnerability to changes in government policies. |
Analytical Approach CRISIL Ratings has considered the standalone business and financial risk profiles of PAPL. |
Key Rating Drivers & Detailed Description Strengths: Strong position in Himachal Pradesh PAPL has the largest distillery in Himachal Pradesh and benefits from low competition in the grain-based spirits and extra neutral alcohol (ENA) segments. Long-term contracts for ethanol supply with OMCs and strategic location of the distillery ensures steady demand. Additionally, PAPL has diversified its revenue profile to end-user industries, such as bottlers, OMCs, fast moving consumer goods and pharmaceuticals. Revenue from the distillery division is estimated to have grown 10-15% in fiscal 2022, driven by recovery in IIFL/country liquor demand and higher focus on ethanol due to the government’s blending programme. Himachal Pradesh is a net importer of spirits from other states; this displays a huge demand-supply gap in the ENA segment. Increase in the distillery capacity for ethanol to 200 klpd will further strengthen the company’s market position and drive growth.
Healthy financial risk profile Capital structure is comfortable, supported by moderate networth and low gearing. Gearing has improved substantially to an estimated 0.4 time as on March 31, 2022 from 1.3 times as on March 31, 2019. Debt protection metrics were healthy, indicated by estimated interest coverage and net cash accrual to adjusted debt ratios of above 10 times and 0.8 time, respectively, in fiscal 2022, compared with 3.0 times and 0.2 time, respectively, in fiscal 2020. Debt levels are expected to increase over the medium term due to capex of Rs 175 crore incurred towards the ethanol plant. However, despite additional debt required for capex, financial risk profile will improve over the medium term, supported by healthy demand and cash accrual.
Weakness: Exposure to project execution risk The ongoing capex to set up a 200 klpd brownfield plant for around Rs 175 crore, exposes the company to execution risks as certain clearances are yet to be received.
Vulnerability to changes in government policy and to the regulated nature of prices of end-products and key raw materials Every state in India has its own regulations for liquor with respect to distribution, registration, taxation and pricing. The key markets of PAPL are Himachal Pradesh, Punjab, Haryana and Uttarakhand. Punjab and Haryana are auction markets. Hence, any change in government policies related to the procurement of raw materials or pricing will impact operations and remain a key monitorable. Diversity in the revenue profile, driven by sale to pharma and oil companies, will reduce concentration risk over the medium term.
Susceptibility to intense competition North India accounts for a high volume of liquor sales but has price-sensitive customers, resulting in intense competition for IMFL players. There are numerous small IMFL players across India, who account for 15-20% of the market in terms of volume. However, the company has been focusing on contract manufacturing and bottling for big brands to offset this risk. |
Liquidity: Adequate Net cash accrual, expected at Rs 35 crore during fiscal 2023, will comfortably cover term debt obligation of Rs 11 crore and the surplus will support liquidity. Utilisation of fund-based limit of Rs 19 crore averaged 72% over the six months through February 2022. Cash and equivalents are estimated at Rs 8 crore for fiscal 2022. Further, debt service reserve account of one quarter debt obligation supports liquidity. |
Outlook: Stable CRISIL Ratings believes that ramp-up in capacities should help further improve the operating performance of PAPL. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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About the Company PAPL, promoted by Ms Shikha Gupta and the Almondz group (represented by Mr Navjeet Singh Sobti), has a distillery complex in Himachal Pradesh comprising 85 klpd grain-based distillery for ENA and 30 klpd for ethanol along with a modern bottling plant with a capacity of 1800,000 cases per annum for IMFL and country liquor. It has a co-generation unit of 1.5 megawatt to meet its power requirement.
In fiscal 2021, the company sold its bottling plant for IMFL with capacity of 1200,000 cases per annum in Ajmer, Rajasthan, which uses the aseptic brick pack method. |
Key Financial Indicators
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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)
*Includes Letter of credit of Rs.20 crore |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||
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This Annexure has been updated on 21-Apr-2022 in line with the lender-wise facility details as on 18-Aug-2021 received from the rated entity.
*Includes Letter of credit of Rs.20 croreCriteria Details
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