Rating Rationale
September 22, 2022 | Mumbai
R.S. Foods
Rating migrated to 'CRISIL BBB-/Stable'
 
Rating Action
Total Bank Loan Facilities RatedRs.19.5 Crore
Long Term Rating&CRISIL BBB-/Stable (Migrated from 'CRISIL B/Stable ISSUER NOT COOPERATING*')
& *Issuer did not cooperate; based on best-available information
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

Due to inadequate information, CRISIL Ratings, in line with SEBI guidelines, had migrated the rating of R.S. Foods (RSF) to ‘CRISIL B/Stable Issuer Not Cooperating'. However, the management has subsequently started sharing requisite information, necessary for carrying out comprehensive review of the rating. Consequently, CRISIL Ratings is migrating the rating on bank facilities of RSF to ’CRISIL BBB-/Stable’ from ‘CRISIL B/Stable Issuer Not Cooperating’.

 

The rating reflects RSF's diversified product profile, extensive industry experience of the promoters, sound operating efficiencies and healthy financial risk profile. These strengths are partially offset by its susceptibility to volatility in milk prices, changes in government regulations and epidemics in the dairy industry, Project risk associated with large size capex under implementation and working capital intensive operations.

Key Rating Drivers & Detailed Description

Strengths:

  • Diversified product profile and extensive industry experience of the promoters: RSF’s has a diversified product portfolio which comprises liquid milk, milk powder, ghee, paneer, curd, buttermilk, lassi, etc. provides it an operating flexibility in an intensely competitive industry. The firm sells ghee and milk powder in bulk whereas the firm sells other products in retail packages with the brand name “Daily Plus” within the state of Jharkhand.

 

Further, it also benefits from the promoters' extensive experience, their strong understanding of market dynamics, and healthy relations with customers and suppliers and will continue to support the business. Promoters understanding of the industry have been instrumental in quick ramp up and stabilization of operations of the current manufacturing capacity.

 

  • Healthy financial profile: RSF’s capital structure have been at healthy level due to lower reliance on external funds yielding gearing of 0.87 times and low total outside liabilities to adj tangible networth (TOL/ANW) of 1.03 times for year ending on 31st March 2022. RSF’s debt protection measures have also been at healthy level due to leverage and healthy profitability. The interest coverage and net cash accrual to total debt (NCATD) ratio are at 5.48 times and 0.28 times for fiscal 2022. RSF’s capital structure and debt protection measures are expected to remain healthy despite the planned debt funded capex over the medium term.

 

  • Sound operating efficiencies: RSF has healthy operating efficiencies, marked by healthy return on capital employed (RoCE) Driven by high economies of scale and experienced management.

 

Weaknesses:

  • Susceptibility to volatility in milk prices, changes in government regulations and epidemics in the dairy industry: The price of milk is sensitive to any adverse impact of changes in government policies, and to environmental conditions. Furthermore, regulations such as the intermittent bans imposed by the government on export of skimmed milk powder (SMP), affect procurement of milk and SMP exports, and thus, have an adverse impact on industry players. Also, entities in the segment are susceptible to failure in milk production because of external factors such as cattle diseases.

 

  • Working capital intensive operations: Gross current assets were at 103-111 days over the three fiscals ended March 31, 2022. Its intensive working capital management is reflected in its gross current assets (GCA) of 111 days as on March 31, 2022, as against over 88 days GCAs of some of its peers. Its's large working capital requirements arise from its high inventory levels.

 

  • Project risk associated with capex: Company is undertaking capital expenditure of around Rs 45 crore over the medium term to be debt funded by around Rs.32.5 crore and balance through internal accruals and promoters funding. The expenditure is planned towards Capacity enhancement of the plant from existing 1 lakh litre to 3 lakh litres and addition of a dryer which will enable the company to make power milk which has significantly higher margins. While the demand risk and implementation are moderate on back of robust distribution network. Accordingly, timely completion and quick ramp up in scale of operations with sustained improved profit margin will remain key rating sensitivity over the medium term. 

Liquidity: Adequate

Bank limit utilization is moderate at around 79 percent for the past six months ended June 2022.  Cash accruals are estimated to be over Rs 6.83 crore which are sufficient against repayment of term debt obligation over the medium term. In addition, it will be act as cushion to the liquidity of the firm. Current ratio was moderate at 1.29 times on March 31, 2022. Moderate cash and bank balance of around Rs.2.74 crore as on March 31, 2022.   

Outlook: Stable

CRISIL Ratings believes RSF will continue to benefit from the extensive experience of its promoter, and established relationships with clients.

Rating Sensitivity factors

Upward Factors

  • Improvement in operating performance with revenues above of Rs 200 crore, while sustaining operating margin.
  • Stable working capital cycle with sustained comfortable financial risk profile and liquidity
  • Timely completion and ramp up of its new capacity.

 

Downward Factors

  • Significant decline in revenue or operating margins dropping back to below 7% resulting in much lower accruals.
  • Stretch in working capital cycle or larger-than-expected debt-funded capex
  • Any time or cost overrun in its ongoing capex leading to weakening of capital structure.

About the Company

RSF was established in 2015 and started its commercial production in 2017. The firm is engaged in the business of processing of milk and other dairy based products such as ghee, paneer, curd, buttermilk, lassi, milk powder, etc. The processing unit of the entity is located at Baheya,Ranchi, Jharkhand, with milk processing capacity of 100000 litres per day

 

RSF is owned and managed by Amit Agarwal, Ajay Kumar Agarwal, Amita Agarwal and Ruchi Agarwal

Key Financial Indicators

As on / for the period ended March 31

 

2022

2021

Operating income

Rs crore

121.59

106.42

Reported profit after tax

Rs crore

3.68

2.35

PAT margins

%

3.03

2.21

Adjusted Debt/Adjusted Net worth

Times

0.87

1.11

Interest coverage

Times

5.49

3.81

Status of non cooperation with previous CRA:

RSF has not cooperated with Brickwork Ratings India Private Limited (Brickworks) and Credit Analysis & Research Ltd. (CARE) which has classified it as non-cooperative vide release dated 18th May 2022 and 25th February 2019, respectively. The reason provided by Brickworks and CARE 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 Levels

Rating Assigned

with Outlook

NA

Cash Credit

NA

NA

NA

3

NA

CRISIL BBB-/Stable

NA

Term Loan

NA

NA

Apr-25

16.5

NA

CRISIL BBB-/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 19.5 CRISIL BBB-/Stable   -- 28-12-21 CRISIL B /Stable(Issuer Not Cooperating)* 22-09-20 CRISIL B /Stable(Issuer Not Cooperating)* 11-06-19 CRISIL B /Stable(Issuer Not Cooperating)* CRISIL B /Stable(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) Rating
Cash Credit 3 CRISIL BBB-/Stable
Term Loan 16.5 CRISIL BBB-/Stable
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
Assessing Information Adequacy Risk
CRISILs Approach to Recognising Default

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