Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL A+/Stable/CRISIL A1’ ratings on the bank facilities of RNGalla Family Private Limited (RFPL). The ratings continue to reflect RFPL’s healthy financial flexibility by being part of the Amara Raja group and majority shareholding in Amara Raja Batteries Limited (ARBL, rated ‘CRISIL AA+/Stable/CRISIL A1+’), which has a strong market reputation and established market position in the storage batteries segment.These strengths are partially offset by exposure to market-related risks on shares held in ARBL and high reliance on dividend from operating entities of the group.

 

The rating factors the strong intent of the promoters to maintain a conservative financial policy with respect to incremental debt for RFPL and proposal to gradually release the corporate guarantees given to group companies, resulting in reduction of the overall adjusted debt in the near to medium term. This in turn, will benefit the debt cover.

 

Despite, business operations being impacted by the second wave of Covid-19 in the first quarter of fiscal 2022, the company’s revenues have registered a recovery, and are expected to witness a gradual growth. Revenue growth is expected to continue at 10-15 % over the medium term, supported by company’s initiatives to increase share of business in domestic beverages market. RFPL’s total debt (including corporate guarantees) is expected to remain at or below Rs 600 crore over the medium term. Any fall in the cover below 4.5 times due to decline in the market value of stake in ARBL or increase in debt exposure (including on balance sheet or off-balance sheet debt and excluding inter-corporate deposits from group companies) due to support to group companies or sizable acquisitions, will remain key rating sensitivity factors.

 

RFPL’s financial risk profile is marked by adequate liquid surplus of Rs.52 crore as on September 30, 2021, and regular support of promoters in the form of equity infusion and unsecured loans in times of need. RFPL is unlikely to see significant increase in debt in future with capex needs being modest at Rs.3-5 crores annually. Besides, the management is planning to gradually release  part of the corporate guarantees given on behalf of its group entities.

Analytical Approach

CRISIL Ratings has followed the holding company approach for analyzing the credit risk profile of RFPL, based on its equity stake in its key operating company, ARBL. For the purpose of its analysis, CRISIL Ratings has included the standalone debt of RFPL, including bank limits of its food business, and corporate guarantees (existing and future) by RFPL to its subsidiaries/joint ventures and group companies. For computation of cover, debt cap of Rs 600 crore (including on-balance sheet and off-balance sheet exposure and excluding inter-corporate deposits from group companies) to group companies) has been considered against the market value of the company’s 28.1% stake in ARBL.

Key Rating Drivers & Detailed Description

Strengths

• Healthy financial flexibility by being part of Amara Raja group: RFPL’s healthy financial flexibility results from the market value of 28.1% stake held in ARBL. The current market value of RFPL's stake in ARBL is about Rs 3058 crore against the total debt of Rs 582 crore, including corporate guarantees of Rs.440 crore extended to group companies. Adjusted debt is expected to reduce as company has plans to gradually release part of the corporate guarantees over the near to medium term. The financial risk profile is supported by market value of shares of ARBL which can be pledged/sold to refinance debt in RFPL’s books indicating higher refinancing ability. The steady dividend income from its group companies, estimated to be Rs 45-50 crore per annum, is expected to support the RFPL to meet its interest and modest debt repayment obligations.

 

• Majority shareholding in ARBL, which has an established presence in domestic storage batteries segment:

RFPL holds 28.1% stake in ARBL, which has an established presence in the domestic storage batteries segment catering to the automotive and industrial sectors. Its strong market position is supported by an established market position in both the automotive and industrial end markets and a healthy and sustainable operating performance over the years. ARBL's net cash accruals has significantly improved from Rs.631 crore in fiscal 2020 to Rs.882 crore in fiscal 2021; annual accruals are expected to remain over Rs.700-800 crore over the medium term driven by steady monetization of expanded capacities.

 

• Maximum debt undertaking and likely support from the promoters: RFPL has undertaken to maintain maximum total debt (off-balance sheet and on-balance sheet excluding inter-corporate loans from group companies) below Rs 600 crore. The company is in discussions with lenders to  gradually release part of the corporate guarantees issued to group companies considering the present adjusted debt level of Rs.582 crore is close to the debt cap. CRISIL Ratings also takes comfort from the management discipline, conservative financing policies for funding large projects and timely support from promoters for supporting group companies; however any adverse movement in the share price and subsequent impact on the cover will remain a key monitorable.

 

Weakness

• Exposure to market-related risks and reliance on dividend inflows for debt-servicing: Exposure to market-related risks may persist, as financial flexibility in terms of cover available will, to some extent, depend on prevailing market sentiments and share prices. Any increase in systemic risks, leading to a sharp fall in the share prices of ARBL is a key rating sensitivity factor. Furthermore, the financial risk profile is moderated by high dependence on dividend inflows from other operating entities of the group to service debt as the food Business of RFPL is seasonal with modest margins and less cash accretive.

Liquidity: Adequate

RFPL has adequate liquidity supported by liquid surplus of Rs 52 Crore as on September 30, 2021. Estimated dividend income of Rs 45-50 Crore per annum will be adequate to cover interest payments on availed working capital loans and nominal term loan obligations of Rs.3.00 crore in FY 2022. CRISIL Ratings believes that RFPL has adequate financial flexibility from its shareholdings in ARBL valued at ~Rs 3058 crore as on February 3, 2022. RFPL’s outstanding debt (on-balance sheet and off-balance sheet and excluding inter corporate deposits from group companies) is expected to remain at or under Rs 600 crore and with cover of about 5.1 times as of February 3, 2022. RFPL does not have any large investment plan over the near-to-medium term as overall business risk profile of the subsidiaries have steadily improved over the years and will require minimal capex requirements for scaling up operations in the medium term.

Outlook: Stable

CRISIL Ratings believes RFPL will continue to benefit from its healthy financial flexibility on account of its 28.06% holding in ARBL, steady dividend inflows from its group companies and funding support from promoters in case of exigencies.

Rating Sensitivity Factors

Upward factors

• Reduction in adjusted debt levels (including corporate guarantees) or material increase in share price of ARBL, leading to improvement in debt cover to over 7 times
• Improvement in the credit profile of ARBL

 

Downward factors

• Significant reduction in cover below 4-4.5 times, due to steep correction in market price of ARBL, or higher than expected debt levels
• Material deterioration in the credit profile of ARBL

About the Company

RFPL was incorporated in February 2017 as a partnership firm and later converted into a holding company on 11 July 2017. As part of the group restructuring in Amara Raja Group companies, Galla Foods Limited (GFL) Foods Division of Mangal Industries Limited (rated ‘CRISIL A/Positive/CRISIL A1’) with annual turnover of ~Rs 111 Crore has been transferred to RFPL in fiscal 2019.

 

GFL situated at Chittoor in Andhra Pradesh, produces Tropical Fruit Purees, Concentrates and Beverages. The business serves select International Marquee customers and leading Juice majors in about 40 countries like Iraq, UK, Japan, UAE, Libya etc. RFPL will be involved in group management services, group innovation center, group new business incubation, food division and manage investments in group companies.

About the Group

Amara Raja group, founded in 1985 by Dr.Galla Ramachandra Naidu, is a $550 million conglomerate with diversified interests from electronics, industrial services, foods processing and infrastructure. The Group companies are in the business of power products, construction, engineering, packaged foods, power transmission & distribution projects and facility management services.

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of instrument	Date of allotment	Coupon rate (%)	Maturity date	Issue size (Rs.Crore)	Complexity Level	Rating assigned with outlook
NA	Cash Credit	NA	NA	NA	3.0	NA	CRISIL A+/Stable
NA	Cash Credit^	NA	NA	NA	35.0	NA	CRISIL A+/Stable
NA	Cash Credit	NA	NA	NA	25.0	NA	CRISIL A+/Stable
NA	Export Packing Credit*	NA	NA	NA	20.0	NA	CRISIL A+/Stable
NA	Export Packing Credit**	NA	NA	NA	34.0	NA	CRISIL A1
NA	Term loan	NA	NA	Jan-2023	0.60	NA	CRISIL A+/Stable
NA	Term loan	NA	NA	Aug-2025	11.00	NA	CRISIL A+/Stable
NA	Term loan	NA	NA	Jan-2026	1.22	NA	CRISIL A+/Stable
NA	Proposed Working capital facility	NA	NA	NA	41.68	NA	CRISIL A+/Stable
NA	Loan Equivalent Risk Limits	NA	NA	NA	0.5	NA	CRISIL A+/Stable
NA	Letter of Credit	NA	NA	NA	5.0	NA	CRISIL A1
NA	Letter of Credit	NA	NA	NA	5.0	NA	CRISIL A+/Stable
NA	Bank Guarantee@	NA	NA	NA	2.0	NA	CRISIL A1

*Cash credit (Rs 8 Cr)/ WCDL(Rs 8 Cr) & Forex forward limits of Rs.2.00 crore are Sub Limits  to Export credit facility

^100% interchangeability between Cash credit/WCDL/Sight or Usance Letter of Credit/Bill Discounting/ Buyers Credit, Guarantee facilities

@100% Interchangeability between BG and LC limits

**Interchangeable with PCFC and EPC